Table of Contents

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 June 30,2006

Commission File Number 0-26132

SMITH BARNEY DIVERSIFIED FUTURES FUNDL.P.

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(Exact nameof registrant as specified in its charter)

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

c/o CitigroupManaged Futures LLC 731 Lexington Ave - 25th Fl New York, NewYork10022

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|--|
|  |  |
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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 a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of‘‘accelerated filer and large acceleratedfiler’’ in rule 12b-2 of the Exchange Act (check one):

Large accelerated filer                       Accelerated filer                       Non-Accelerated filer   X   

Indicate by check markwhether the registrant is a shell company (as defined in rule 12b-2 ofthe 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 June 30, 2006 and December 31, 2005(unaudited)                                          |  |  | 3                           |
|                                 |  |  | Condensed Schedules of Investments at June 30, 2006and December 31, 2005(unaudited)                                         |  |  | 4 – 5   |
|                                 |  |  | Statements of Income and Expenses and Partners'Capital for the three and six months ended June 30, 2006 and 2005(unaudited) |  |  | 6                           |
|                                 |  |  | Statements of CashFlows for the three and six months ended June 30, 2006 and 2005(unaudited)                                |  |  | 7                           |
|                                 |  |  | Notes to FinancialStatements (unaudited)                                                                                    |  |  | 8 – 13  |
| Item2.                               |  |  | Management's Discussion and Analysis of FinancialCondition and Results ofOperations                                         |  |  | 14 – 16 |
| Item 3.                              |  |  | Quantitative and QualitativeDisclosures about MarketRisk                                                                    |  |  | 17 – 19 |
| Item 4.                              |  |  | Controls andProcedures                                                                                                      |  |  | 20                          |
| PARTII – OtherInformation      |  |  | 21                                                                                                                          |
|                                      |

2

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Table of Contents

PART I

Item 1.Financial Statements

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

|                                                                                                                                        |  |  |              |   |            |                 |  |  |  |   |            |  |
|----------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------|---|------------|-----------------|--|--|--|---|------------|--|
|                                                                                                                                   |  |  | June30, 2006 |   |            | December31,2005 |
| Assets:                                                                                                                                |  |  |              |   |       |                 |  |  |  |   |       |  |
| Investmentin Partnerships, at fairvalue                                                                                                |  |  |              | $ | 56,596,290 |                 |  |  |  | $ | 43,555,768 |  |
| Equityin commodity futures tradingaccount:                                                                                      |  |  |              |   |       |                 |  |  |  |   |       |  |
| Cash(restricted $0 and $1,000,127 in 2006 and 2005,respectively)                                                                       |  |  |              |   | 31,440     |                 |  |  |  |   | 15,272,733 |  |
| Unrealizedappreciation on open forwardcontracts                                                                                        |  |  |              |   | —    |                 |  |  |  |   | 672,909    |  |
|                                                                                                                                   |  |  |              |   | 56,627,730 |                 |  |  |  |   | 59,501,410 |  |
| Interestreceivable                                                                                                                     |  |  |              |   | —    |                 |  |  |  |   | 36,929     |  |
|                                                                                                                                   |  |  |              | $ | 56,627,730 |                 |  |  |  | $ | 59,538,339 |  |
| Liabilitiesand Partners'Capital:                                                                                                       |  |  |              |   |       |                 |  |  |  |   |       |  |
| Liabilities:                                                                                                                           |  |  |              |   |       |                 |  |  |  |   |       |  |
| Netunrealized depreciation on open futures positions                                                                                   |  |  |              | $ | —    |                 |  |  |  | $ | 30,126     |  |
| Unrealizeddepreciation on open forwardcontracts                                                                                        |  |  |              |   | —    |                 |  |  |  |   | 445,992    |  |
| Accruedexpenses:                                                                                                                       |  |  |              |   |       |                 |  |  |  |   |       |  |
| Brokeragecommissions                                                                                                                   |  |  |              |   | 259,544    |                 |  |  |  |   | 275,893    |  |
| Managementfees                                                                                                                         |  |  |              |   | 87,792     |                 |  |  |  |   | 93,168     |  |
| Other                                                                                                                                  |  |  |              |   | 47,762     |                 |  |  |  |   | 48,621     |  |
| Redemptionspayable                                                                                                                     |  |  |              |   | 454,677    |                 |  |  |  |   | 635,814    |  |
|                                                                                                                                   |  |  |              |   | 849,775    |                 |  |  |  |   | 1,529,614  |  |
|                                                                                                                                   |  |  |              |   |       |                 |  |  |  |   |       |  |
| Partners'Capital:                                                                                                                      |  |  |              |   |       |                 |  |  |  |   |       |  |
| General Partner,1,276.7484 Unit equivalents outstanding in 2006 and2005                                                                |  |  |              |   | 2,089,922  |                 |  |  |  |   | 2,057,289  |  |
| LimitedPartners, 32,798.4206 and 34,723.3527 Redeemable Units of LimitedPartnership Interest outstanding in 2006 and 2005,respectively |  |  |              |   | 53,688,033 |                 |  |  |  |   | 55,951,436 |  |
|                                                                                                                                   |  |  |              |   | 55,777,955 |                 |  |  |  |   | 58,008,725 |  |
|                                                                                                                                   |  |  |              | $ | 56,627,730 |                 |  |  |  | $ | 59,538,339 |  |
|                                                                                                                                        |

|  |                                                |
|--|------------------------------------------------|
|  | Seeaccompanying Notes to Financial Statements. |

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Table of Contents

Smith Barney Diversified Futures FundL.P. Condensed Schedule of Investments June 30,2006(Unaudited)

|                                      |  |  |           |   |            |                      |  |  |  |  |        |   |
|--------------------------------------|--|--|-----------|---|------------|----------------------|--|--|--|--|--------|---|
|                                 |  |  | FairValue |   |            | % ofPartners'Capital |
|                                 |  |  |           |   |       |                      |  |  |  |  |   |   |
| InvestmentInPartnerships             |  |  |           |   |       |                      |  |  |  |  |   |   |
|                                 |  |  |           |   |       |                      |  |  |  |  |   |   |
| CMFCampbell Master FundL.P.          |  |  |           | $ | 14,381,496 |                      |  |  |  |  | 25.79  | % |
| CMFWillowbridge Argo Master FundL.P. |  |  |           |   | 12,883,785 |                      |  |  |  |  | 23.10  |   |
| CMF WintonMaster L.P.                |  |  |           |   | 14,654,512 |                      |  |  |  |  | 26.27  |   |
| CMFGraham Master FundL.P.            |  |  |           |   | 14,676,497 |                      |  |  |  |  | 26.31  |   |
| Totalfairvalue                       |  |  |           | $ | 56,596,290 |                      |  |  |  |  | 101.47 | % |
|                                      |

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

See accompanying Notes to FinancialStatements.

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Table of Contents

Smith Barney Diversified Futures FundL.P.Condensed Schedule of InvestmentsDecember 31,2005(Unaudited)

|                                                  |  |  |           |   |            |                      |  |  |  |  |        |    |
|--------------------------------------------------|--|--|-----------|---|------------|----------------------|--|--|--|--|--------|----|
|                                             |  |  | FairValue |   |            | % ofPartners'Capital |
| FuturesContractsPurchased                        |  |  |           |   |       |                      |  |  |  |  |   |    |
| Energy                                           |  |  |           | $ | 590        |                      |  |  |  |  | 0.00   | %* |
| Grains                                           |  |  |           |   | (987       | )                    |  |  |  |  | (0.00  | )* |
| InterestRates Non-U.S.                           |  |  |           |   | 20,559     |                      |  |  |  |  | 0.04   |    |
| InterestRatesU.S.                                |  |  |           |   | (6,486     | )                    |  |  |  |  | (0.01  | )  |
| Indices                                          |  |  |           |   | (11,212    | )                    |  |  |  |  | (0.02  | )  |
| Livestock                                        |  |  |           |   | (3,091     | )                    |  |  |  |  | (0.01  | )  |
| Softs                                            |  |  |           |   | 6,630      |                      |  |  |  |  | 0.01   |    |
| Totalfutures contractspurchased                  |  |  |           |   | 6,003      |                      |  |  |  |  | 0.01   |    |
| FuturesContractsSold                             |  |  |           |   |       |                      |  |  |  |  |   |    |
| Grains                                           |  |  |           |   | (4,374     | )                    |  |  |  |  | (0.01  | )  |
| InterestRates Non-U.S.                           |  |  |           |   | 10,122     |                      |  |  |  |  | 0.02   |    |
| InterestRatesU.S.                                |  |  |           |   | (19,816    | )                    |  |  |  |  | (0.03  | )  |
| Softs                                            |  |  |           |   | (22,061    | )                    |  |  |  |  | (0.04  | )  |
| Totalfutures contractssold                       |  |  |           |   | (36,129    | )                    |  |  |  |  | (0.06  | )  |
| UnrealizedAppreciation on ForwardContracts       |  |  |           |   |       |                      |  |  |  |  |   |    |
| Currencies                                       |  |  |           |   | 276,417    |                      |  |  |  |  | 0.48   |    |
| Metals                                           |  |  |           |   | 396,492    |                      |  |  |  |  | 0.68   |    |
| Totalunrealized appreciation on forwardcontracts |  |  |           |   | 672,909    |                      |  |  |  |  | 1.16   |    |
| UnrealizedDepreciation on ForwardContracts       |  |  |           |   |       |                      |  |  |  |  |   |    |
| Currencies                                       |  |  |           |   | (192,507   | )                    |  |  |  |  | (0.33  | )  |
| Metals                                           |  |  |           |   | (253,485   | )                    |  |  |  |  | (0.44  | )  |
| Totalunrealized depreciation on forwardcontracts |  |  |           |   | (445,992   | )                    |  |  |  |  | (0.77  | )  |
| Investmentin Partnerships                        |  |  |           |   |       |                      |  |  |  |  |   |    |
| CMF CampbellMaster FundL.P.                      |  |  |           |   | 15,349,869 |                      |  |  |  |  | 26.46  |    |
| CMFWillowbridge Argo Master FundL.P.             |  |  |           |   | 12,573,482 |                      |  |  |  |  | 21.67  |    |
| CMF WintonMasterL.P.                             |  |  |           |   | 15,632,417 |                      |  |  |  |  | 26.95  |    |
| TotalInvestments inPartnerships                  |  |  |           |   | 43,555,768 |                      |  |  |  |  | 75.08  |    |
| Totalfair value                                  |  |  |           | $ | 43,752,559 |                      |  |  |  |  | 75.42  | %  |
|                                                  |

|  |                                                                       |
|--|-----------------------------------------------------------------------|
|  | Percentages are based onPartners' Capital unless otherwise indicated. |

|  |                    |
|--|--------------------|
|  | * Due to rounding. |

Seeaccompanying Notes to FinancialStatements.

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

|                                                                                                                                    |  |  |                           |   |            |                         |  |  |      |   |            |      |  |  |  |   |            |   |  |  |  |   |            |   |
|------------------------------------------------------------------------------------------------------------------------------------|--|--|---------------------------|---|------------|-------------------------|--|--|------|---|------------|------|--|--|--|---|------------|---|--|--|--|---|------------|---|
|                                                                                                                               |  |  | ThreeMonths EndedJune 30, |   |            | Six Months EndedJune30, |
|                                                                                                                               |  |  | 2006                      |   |            | 2005                    |  |  | 2006 |   |            | 2005 |
| Income:                                                                                                                            |  |  |                           |   |       |                         |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Net gains (losses) on trading of commodityinterests:                                                                               |  |  |                           |   |       |                         |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Realized gains(losses) on closedpositions                                                                                          |  |  |                           | $ | 8,955      |                         |  |  |      | $ | (4,461,378 | )    |  |  |  | $ | 681,227    |   |  |  |  | $ | (6,920,017 | ) |
| Changein unrealized gains (losses) on open positions and investment inPartnerships                                                 |  |  |                           |   | 1,875,299  |                         |  |  |      |   | 3,954,913  |      |  |  |  |   | 2,337,903  |   |  |  |  |   | 3,659,700  |   |
|                                                                                                                               |  |  |                           |   | 1,884,254  |                         |  |  |      |   | (506,465   | )    |  |  |  |   | 3,019,130  |   |  |  |  |   | (3,260,317 | ) |
| Interestincome                                                                                                                     |  |  |                           |   | —    |                         |  |  |      |   | 145,141    |      |  |  |  |   | 125,292    |   |  |  |  |   | 284,290    |   |
|                                                                                                                               |  |  |                           |   | 1,884,254  |                         |  |  |      |   | (361,324   | )    |  |  |  |   | 3,144,422  |   |  |  |  |   | (2,976,027 | ) |
| Expenses:                                                                                                                          |  |  |                           |   |       |                         |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Brokeragecommissions including clearing fees of $0, $15,289, $8,133 and $27,013respectively                                        |  |  |                           |   | 808,949    |                         |  |  |      |   | 858,008    |      |  |  |  |   | 1,609,945  |   |  |  |  |   | 1,757,212  |   |
| Managementfees                                                                                                                     |  |  |                           |   | 271,726    |                         |  |  |      |   | 279,477    |      |  |  |  |   | 537,636    |   |  |  |  |   | 577,859    |   |
| Incentivefees                                                                                                                      |  |  |                           |   | —    |                         |  |  |      |   | 142,694    |      |  |  |  |   | 38,349     |   |  |  |  |   | 296,368    |   |
| Other                                                                                                                              |  |  |                           |   | 22,360     |                         |  |  |      |   | 25,446     |      |  |  |  |   | 45,048     |   |  |  |  |   | 45,748     |   |
|                                                                                                                               |  |  |                           |   | 1,103,035  |                         |  |  |      |   | 1,305,625  |      |  |  |  |   | 2,230,978  |   |  |  |  |   | 2,677,187  |   |
| Netincome(loss)                                                                                                                    |  |  |                           |   | 781,219    |                         |  |  |      |   | (1,666,949 | )    |  |  |  |   | 913,444    |   |  |  |  |   | (5,653,214 | ) |
| Redemptions—LimitedPartners                                                                                                  |  |  |                           |   | (1,368,945 | )                       |  |  |      |   | (1,335,599 | )    |  |  |  |   | (3,144,214 | ) |  |  |  |   | (2,612,325 | ) |
| Netdecrease in Partners'Capital                                                                                                    |  |  |                           |   | (587,726   | )                       |  |  |      |   | (3,002,548 | )    |  |  |  |   | (2,230,770 | ) |  |  |  |   | (8,265,539 | ) |
| Partners'Capital, beginning ofperiod                                                                                               |  |  |                           |   | 56,365,681 |                         |  |  |      |   | 63,967,867 |      |  |  |  |   | 58,008,725 |   |  |  |  |   | 69,230,858 |   |
| Partners'Capital, end ofperiod                                                                                                     |  |  |                           | $ | 55,777,955 |                         |  |  |      | $ | 60,965,319 |      |  |  |  | $ | 55,777,955 |   |  |  |  | $ | 60,965,319 |   |
| Netasset value per Redeemable Unit (34,075.1690 and 37,994.9855 RedeembleUnits outstanding at June 30, 2006 and 2005,respectively) |  |  |                           | $ | 1,636.91   |                         |  |  |      | $ | 1,604.56   |      |  |  |  | $ | 1,636.91   |   |  |  |  | $ | 1,604.56   |   |
| Netincome (loss) per Redeemable Unit of Limited Partnership Interest andGeneral Partner Unitequivalent                             |  |  |                           | $ | 21.32      |                         |  |  |      | $ | (41.49     | )    |  |  |  | $ | 25.56      |   |  |  |  | $ | (141.80    | ) |
|                                                                                                                                    |

Seeaccompanying Notes to Financial Statements.

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

|                                                                                                  |  |  |                           |   |             |                         |  |  |      |   |            |      |  |  |  |   |             |   |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------------------|--|--|---------------------------|---|-------------|-------------------------|--|--|------|---|------------|------|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                                                             |  |  | ThreeMonths EndedJune 30, |   |             | Six Months EndedJune30, |
|                                                                                             |  |  | 2006                      |   |             | 2005                    |  |  | 2006 |   |            | 2005 |
| Cashflows from operating activities:                                                             |  |  |                           |   |        |                         |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Net income(loss)                                                                                 |  |  |                           | $ | 781,219     |                         |  |  |      | $ | (1,666,949 | )    |  |  |  | $ | 913,444     |   |  |  |  | $ | (5,653,214  | ) |
| Adjustmentsto reconcile net income (loss) to net cash provided by (used in)operating activities: |  |  |                           |   |        |                         |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Changes inoperating assets and liabilities:                                                      |  |  |                           |   |        |                         |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Purchase ofInvestment inPartnerships                                                             |  |  |                           |   | (15,426,368 | )                       |  |  |      |   | —    |      |  |  |  |   | (15,426,368 | ) |  |  |  |   | (19,428,630 | ) |
| Proceedsfrom sale of Investment inPartnerships                                                   |  |  |                           |   | 2,105,050   |                         |  |  |      |   | 5,651,211  |      |  |  |  |   | 4,039,359   |   |  |  |  |   | 6,599,454   |   |
| Netunrealized (appreciation) depreciation on Investment inPartnerships                           |  |  |                           |   | (1,355,083  | )                       |  |  |      |   | (3,084,256 | )    |  |  |  |   | (1,653,513  | ) |  |  |  |   | (3,597,948  | ) |
| (Increase)decrease in restrictedcash                                                             |  |  |                           |   | 138,702     |                         |  |  |      |   | (894,071   | )    |  |  |  |   | 1,000,127   |   |  |  |  |   | 1,654,205   |   |
| (Increase)decrease in net unrealized appreciation on open futures positions                      |  |  |                           |   | 47,119      |                         |  |  |      |   | (449,974   | )    |  |  |  |   | —     |   |  |  |  |   | 96,267      |   |
| (Increase)decrease in unrealized appreciation on open forward contracts                          |  |  |                           |   | 505,878     |                         |  |  |      |   | (162,389   | )    |  |  |  |   | 672,909     |   |  |  |  |   | 1,698,112   |   |
| (Increase)decrease in interest     receivable                                |  |  |                           |   | 45,532      |                         |  |  |      |   | 92         |      |  |  |  |   | 36,929      |   |  |  |  |   | 16,302      |   |
| Increase(decrease) in net unrealized depreciation on open futurespositions                       |  |  |                           |   | —     |                         |  |  |      |   | —    |      |  |  |  |   | (30,126     | ) |  |  |  |   | —     |   |
| Increase(decrease) in unrealized depreciation on open forward contracts                          |  |  |                           |   | (537,097    | )                       |  |  |      |   | (83,178    | )    |  |  |  |   | (445,992    | ) |  |  |  |   | (1,523,832  | ) |
| Accruedexpenses:                                                                                 |  |  |                           |   |        |                         |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Increase (decrease) in brokeragecommissions                                                      |  |  |                           |   | (3,744      | )                       |  |  |      |   | (25,484    | )    |  |  |  |   | (16,349     | ) |  |  |  |   | (50,483     | ) |
| Increase(decrease) in management fees                                                            |  |  |                           |   | (935        | )                       |  |  |      |   | (9,148     | )    |  |  |  |   | (5,376      | ) |  |  |  |   | (18,550     | ) |
| Increase(decrease) in incentive fees                                                             |  |  |                           |   | (38,349     | )                       |  |  |      |   | (10,980    | )    |  |  |  |   | —     |   |  |  |  |   | 63,768      |   |
| Increase(decrease) in other                                                                      |  |  |                           |   | (23,545     | )                       |  |  |      |   | (6,877     | )    |  |  |  |   | (859        | ) |  |  |  |   | 13,426      |   |
| Netcash provided by (used in)     operating activities                       |  |  |                           |   | (13,761,621 | )                       |  |  |      |   | (742,003   | )    |  |  |  |   | (10,915,815 | ) |  |  |  |   | (20,131,123 | ) |
| Cashflows from financing activities:                                                             |  |  |                           |   |        |                         |  |  |      |   |       |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Payments forredemptions—Limited Partners                                                   |  |  |                           |   | (1,531,641  | )                       |  |  |      |   | (1,743,027 | )    |  |  |  |   | (3,325,351  | ) |  |  |  |   | (3,362,440  | ) |
| Netcash provided by (used in)     financing activities                       |  |  |                           |   | (1,531,641  | )                       |  |  |      |   | (1,743,027 | )    |  |  |  |   | (3,325,351  | ) |  |  |  |   | (3,362,440  | ) |
| Netchange in cash                                                                                |  |  |                           |   | (15,293,262 | )                       |  |  |      |   | (2,485,030 | )    |  |  |  |   | (14,241,166 | ) |  |  |  |   | (23,493,563 | ) |
| Unrestrictedcash, at beginning of period                                                         |  |  |                           |   | 15,324,702  |                         |  |  |      |   | 23,553,755 |      |  |  |  |   | 14,272,606  |   |  |  |  |   | 44,562,288  |   |
| Unrestrictedcash, at end of period                                                               |  |  |                           | $ | 31,440      |                         |  |  |      | $ | 21,068,725 |      |  |  |  | $ | 31,440      |   |  |  |  | $ | 21,068,725  |   |
| Non-cashFinancing Activities: Contributions of open commodity futures andforwardpositions        |  |  |                           | $ | —     |                         |  |  |      | $ | —    |      |  |  |  | $ | —     |   |  |  |  | $ | (192,512    | ) |
|                                                                                                  |

See accompanying Notes to FinancialStatements.

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(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 acts as the general partner (the‘‘General Partner’’) of the Partnership. ThePartnership's commodity broker is Citigroup Global Markets Inc.(‘‘CGM’’). CGM is an affiliate of the GeneralPartner. The General Partner is wholly owned by Citigroup GlobalMarkets Holdings Inc. (‘‘CGMHI’’), which is thesole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc.(‘‘Citigroup’’). As of June 30, 2006, alltrading decisions are made for the Partnership by Campbell &Company, Inc. (‘‘Campbell’’), WillowbridgeAssociates, Inc. (‘‘Willowbridge’’), WintonCapital Management Limited (‘‘Winton’’) andGraham Capital Management L.P. (‘‘Graham’’)(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 June 30, 2006 and December31, 2005 and the results of its operations and cash flows for the threeand six months ended June 30, 2006 and 2005. These financial statementspresent the results of interim periods and do not include alldisclosures normally provided in annual financial statements. Youshould read these financial statements together with the financialstatements and notes included in the Partnership's annual reporton Form 10-K filed with the Securities and Exchange Commission for theyear ended December 31, 2005.

Due to the nature of commoditytrading, the results of operations for the interim periods presentedshould not be considered indicative of the results that may be expectedfor the entire year.

2.    Financial Highlights:

Changes in Net Asset Value per Redeemable Unit of LimitedPartnership Interest for the three and six months ended June 30, 2006and 2005 were asfollows:

|                                                        |  |  |                           |   |          |                         |  |  |      |   |          |      |  |  |  |   |          |   |  |  |  |   |          |   |
|--------------------------------------------------------|--|--|---------------------------|---|----------|-------------------------|--|--|------|---|----------|------|--|--|--|---|----------|---|--|--|--|---|----------|---|
|                                                   |  |  | ThreeMonths EndedJune 30, |   |          | Six Months EndedJune30, |
|                                                   |  |  | 2006                      |   |          | 2005                    |  |  | 2006 |   |          | 2005 |
| Netrealized and unrealized gains(losses)*              |  |  |                           | $ | 29.80    |                         |  |  |      | $ | (33.60   | )    |  |  |  | $ | 39.71    |   |  |  |  | $ | (125.45  | ) |
| Interestincome                                         |  |  |                           |   | —  |                         |  |  |      |   | 3.77     |      |  |  |  |   | 3.52     |   |  |  |  |   | 7.30     |   |
| Expenses**                                             |  |  |                           |   | (8.48    | )                       |  |  |      |   | (11.66   | )    |  |  |  |   | (17.67   | ) |  |  |  |   | (23.65   | ) |
| Increase(decrease) for the period                      |  |  |                           |   | 21.32    |                         |  |  |      |   | (41.49   | )    |  |  |  |   | 25.56    |   |  |  |  |   | (141.80  | ) |
| NetAsset Value per Redeemable Unit, beginning ofperiod |  |  |                           |   | 1,615.59 |                         |  |  |      |   | 1,646.05 |      |  |  |  |   | 1,611.35 |   |  |  |  |   | 1,746.36 |   |
| NetAsset Value per Redeemable Unit, end ofperiod       |  |  |                           | $ | 1,636.91 |                         |  |  |      | $ | 1,604.56 |      |  |  |  | $ | 1,636.91 |   |  |  |  | $ | 1,604.56 |   |
|                                                        |

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

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

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(Unaudited)

Financial Highlights(continued):

|                                              |  |  |                           |  |         |                         |  |  |      |  |        |      |  |  |  |  |        |    |  |  |  |  |        |    |
|----------------------------------------------|--|--|---------------------------|--|---------|-------------------------|--|--|------|--|--------|------|--|--|--|--|--------|----|--|--|--|--|--------|----|
|                                         |  |  | ThreeMonths EndedJune 30, |  |         | Six Months EndedJune30, |
|                                         |  |  | 2006                      |  |         | 2005                    |  |  | 2006 |  |        | 2005 |
| Ratioto average net assets: ***              |  |  |                           |  |    |                         |  |  |      |  |   |      |  |  |  |  |   |    |  |  |  |  |   |    |
| Netinvestment loss before incentive fees**** |  |  |                           |  | (7.7    | )%                      |  |  |      |  | (6.7   | )%   |  |  |  |  | (7.3   | )% |  |  |  |  | (6.7   | )% |
| Operatingexpenses                            |  |  |                           |  | 7.7     | %                       |  |  |      |  | 7.7    | %    |  |  |  |  | 7.7    | %  |  |  |  |  | 7.6    | %  |
| Incentivefees                                |  |  |                           |  | — | %                       |  |  |      |  | 0.2    | %    |  |  |  |  | 0.1    | %  |  |  |  |  | 0.5    | %  |
| Totalexpenses                                |  |  |                           |  | 7.7     | %                       |  |  |      |  | 7.9    | %    |  |  |  |  | 7.8    | %  |  |  |  |  | 8.1    | %  |
| Total return:                                |  |  |                           |  |    |                         |  |  |      |  |   |      |  |  |  |  |   |    |  |  |  |  |   |    |
| Total return beforeincentivefees             |  |  |                           |  | 1.3     | %                       |  |  |      |  | (2.3   | )%   |  |  |  |  | 1.7    | %  |  |  |  |  | (7.7   | )% |
| Incentivefees                                |  |  |                           |  | — | %                       |  |  |      |  | (0.2   | )%   |  |  |  |  | (0.1   | )% |  |  |  |  | (0.4   | )% |
| Total return after incentivefees             |  |  |                           |  | 1.3     | %                       |  |  |      |  | (2.5   | )%   |  |  |  |  | 1.6    | %  |  |  |  |  | (8.1   | )% |
|                                              |

|     |                                        |
|-----|----------------------------------------|
| *** | 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 wasformed for the purpose of trading contracts in a variety of commodityinterests, including derivative financial instruments and derivativecommodity instruments. The results of the Partnership's tradingactivities are shown in the Statements of Income and Expenses andPartners' Capital and are discussed in Item 2, Management'sDiscussion and Analysis of Financial Condition and Results ofOperations.

The Customer Agreement between the Partnership andCGM gives the Partnership the legal right to net unrealized gains andlosses on open futures positions.

All of the commodity interestsowned by the Partnership are held for trading purposes. The averagefair values of these interests during the six and twelve months endedJune 30, 2006 and December 31, 2005, based on a monthly calculation,were $30,643 and $557,700, respectively. The fair values of thesecommodity interests, including options thereon, if applicable, at June30, 2006 and December 31, 2005, were $0 and $196,791, respectively.Fair values for exchange traded commodity futures and options are basedon quoted market prices for those futures and options. Fair values forall other financial instruments for which market quotations are notreadily available are based on calculations approved by the GeneralPartner.

4.    Investment in Partnerships:

Effective November 1, 2004, the Partnership allocated capital fortrading to the CMF Winton Master L.P., a limited partnership organizedunder the partnership laws of New York State (the ‘‘WintonMaster’’). The partnership purchased 15,054.1946 Units ofthe Winton Master with cash equal to $14,251,586, and a contribution ofopen commodity futures and forward positions with a fair value of$802,609. The Winton Master was formed in order to permit commoditypools managed now or in the future by Winton, to invest together in onetrading vehicle. The General Partner is the general partner of theWinton Master. Individual and pooled accounts currently managed byWinton, including the Partnership, are permitted to be limited partnersof the Winton Master. The General Partner and Winton 

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(Unaudited)

believe that trading through this structureshould promote efficiency and economy in the trading process. Expensesto investors as a result of the investment in the Winton Master areapproximately the same and redemption rights are not affected.

Effective January 1, 2005, the assets allocated to Campbellfor trading were invested in the CMF Campbell Master Fund L.P.(‘‘Campbell Master’’), a limited partnershiporganized under the partnership laws of the State of New York. ThePartnership purchased 19,621.1422 Units of Campbell Master with cashequal to $19,428,630, and a contribution of open commodity futures andforward positions with a fair value of $192,512. Campbell Master wasformed in order to permit commodity pools managed now or in the futureusing Campbell's Financials Metals and Energy(‘‘FME’’) Portfolio, to invest together in onetrading vehicle. The General Partner is the general partner of CampbellMaster. Individual and pooled accounts currently managed by Campbell,including the Partnership, are permitted to be limited partners ofCampbell Master. The General Partner and Campbell believe that tradingthrough this structure should promote efficiency and economy in thetrading process. Expenses to investors as a result of the investment inCampbell Master are approximately the same and redemption rights arenot affected.

Effective July  1, 2005, the assetsallocated to Willowbridge for trading were invested in the CMFWillowbridge Argo Master Fund L.P. (‘‘WillowbridgeMaster’’), a limited partnership organized under thepartnership laws of the State of New York. The partnership purchased12,259.3490 Units of Willowbridge Master with cash equal to$11,118,119, and a contribution of open commodity futures and forwardpositions with a fair value of $1,141,230. Willowbridge Master wasformed in order to permit commodity pools managed now or in the futureby using Willowbridge's Argo Trading Program, to invest togetherin one trading vehicle. The General Partner is the general partner ofWillowbridge Master. Individual and pooled accounts currently managedby Willowbridge, including the Partnership, are permitted to be limitedpartners of Willowbridge Master. The General Partner and Willowbridgebelieve that trading through this structure should promote efficiencyand economy in the trading process. Expenses to investors as a resultof the investment in Willowbridge Master are approximately the same andredemption rights are not affected.

Effective April 1, 2006, theassets allocated to Graham for trading were invested in the CMF GrahamMaster Fund L.P. (‘‘Graham Master’’), a limitedpartnership organized under the partnership laws of the State of NewYork. The partnership purchased 14,741.1555 Units of Graham Master withcash equal to $14,741,156. Graham Master was formed in order to permitaccounts managed now and in the future by using Grahams'Multi-Trend Program at 125% leverage, to invest together in onetrading vehicle. The General Partner of the Partnership is the generalpartner of Graham Master. Individual and pooled accounts currentlymanaged by Graham, including the Partnership, are permitted to belimited partners of Graham Master. The General Partner and Grahambelieve that trading through this structure promotes efficiency andeconomy in the trading process. Expenses to investors as a result ofthe investment in Graham Master are approximately the same andredemption rights are not affected.

The WintonMaster's, Campbell Master's, Willowbridge Master'sand Graham Master's (the ‘‘Funds’’)trading of futures, forwards and options contracts, if applicable, oncommodities is done primarily on United States of America commodityexchanges and foreign commodity exchanges. The Funds all engage in suchtrading through commodity brokerage accounts maintained with CGM.

A limited partner may withdraw all or part of its capitalcontribution and undistributed profits, if any, from the Funds inmultiples of the net asset value per unit of limited partnershipinterest as of the last day of a month after a request for redemptionhas been made to the General Partner at least 3 days in advance ofmonth-end.

Management and incentive fees are notdirectly charged to the Funds. These fees are charged at thePartnership level. All exchange, clearing, user, give-up, floorbrokerage and National Futures Association fees are borne by the Funds.All other fees, including CGM's direct brokerage commission, arecharged at the Partnership level.

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(Unaudited)

As of June 30, 2006 thepartnership owns 4.2%, 7.0%, 5.9% and 5.9%,respectively of Campbell Master, Willowbridge Master, Winton Master andGraham Master. At December 31, 2005 the Partnership owns 4.7%,7.4% and 8.7%, respectively of Campbell Master,Willowbridge Master and Winton Master. It is Winton's,Campbell's, Willowbridge's and Graham's intention tocontinue to invest the assets allocated to each by the Partnership inthe Winton Master, Campbell Master, Willowbridge Master and GrahamMaster. The performance of the Partnership is directly affected by theperformance of the Funds.

Summarized information reflecting thetotal assets, liabilities and capital for the Funds is shown in thefollowingtables.

|                    |  |  |                          |   |               |                                |  |  |                            |   |            |  |  |  |  |   |               |  |
|--------------------|--|--|--------------------------|---|---------------|--------------------------------|--|--|----------------------------|---|------------|--|--|--|--|---|---------------|--|
|               |  |  | June30, 2006             |
|               |  |  | Investments' TotalAssets |   |               | Investments' Total Liabilities |  |  | Investments' Total Capital |
| CampbellMaster     |  |  |                          | $ | 352,110,193   |                                |  |  |                            | $ | 11,197,755 |  |  |  |  | $ | 340,912,438   |  |
| WillowbridgeMaster |  |  |                          |   | 184,091,051   |                                |  |  |                            |   | 593,903    |  |  |  |  |   | 183,497,148   |  |
| WintonMaster       |  |  |                          |   | 251,307,086   |                                |  |  |                            |   | 2,693,182  |  |  |  |  |   | 248,613,904   |  |
| GrahamMaster       |  |  |                          |   | 251,255,895   |                                |  |  |                            |   | 3,804,157  |  |  |  |  |   | 247,451,738   |  |
| Total              |  |  |                          | $ | 1,038,764,225 |                                |  |  |                            | $ | 18,288,997 |  |  |  |  | $ | 1,020,475,228 |  |
|                    |

|                    |  |  |                          |   |             |                                |  |  |                            |   |            |  |  |  |  |   |             |  |
|--------------------|--|--|--------------------------|---|-------------|--------------------------------|--|--|----------------------------|---|------------|--|--|--|--|---|-------------|--|
|               |  |  | December31, 2005         |
|               |  |  | Investments' TotalAssets |   |             | Investments' Total Liabilities |  |  | Investments' Total Capital |
| CampbellMaster     |  |  |                          | $ | 347,366,314 |                                |  |  |                            | $ | 20,975,541 |  |  |  |  | $ | 326,390,773 |  |
| WillowbridgeMaster |  |  |                          |   | 170,157,028 |                                |  |  |                            |   | 474,977    |  |  |  |  |   | 169,682,051 |  |
| WintonMaster       |  |  |                          |   | 182,130,723 |                                |  |  |                            |   | 3,524,134  |  |  |  |  |   | 178,606,589 |  |
| Total              |  |  |                          | $ | 699,654,065 |                                |  |  |                            | $ | 24,974,652 |  |  |  |  | $ | 674,679,413 |  |
|                    |

Summarized information reflecting thePartnership's investment in, and the operations of the Funds isshown in the following tables.

|                    |             |  |                              |       |        |                                         |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |        |  |  |  |  |   |         |  |  |  |  |   |           |   |  |  |                                       |  |  |         |
|--------------------|-------------|--|------------------------------|-------|--------|-----------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|--------|--|--|--|--|---|---------|--|--|--|--|---|-----------|---|--|--|---------------------------------------|--|--|---------|
|               |             |  | June30, 2006                 |       |        | For the three months ended June 30,2006 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                               |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| Campbell Master    |             |  |                              |       | 25.79  | %                                       |  |  |              | $ | 14,381,496 |          |  |  |                  | $ | (753,024  | )                   |  |  |                      | $ | 2,564  |  |  |  |  | $ | 256     |  |  |  |  | $ | (755,844  | ) |  |  | FinancialsMetals& EnergyPortfolio |  |  | Monthly |
| WillowbridgeMaster |             |  |                              |       | 23.10  | %                                       |  |  |              |   | 12,883,785 |          |  |  |                  |   | 2,255,772 |                     |  |  |                      |   | 13,067 |  |  |  |  |   | 607     |  |  |  |  |   | 2,242,098 |   |  |  | CommodityPortfolio                    |  |  | Monthly |
| WintonMaster       |             |  |                              |       | 26.27  | %                                       |  |  |              |   | 14,654,512 |          |  |  |                  |   | 289,145   |                     |  |  |                      |   | 13,465 |  |  |  |  |   | — |  |  |  |  |   | 275,680   |   |  |  | CommodityPortfolio                    |  |  | Monthly |
| GrahamMaster       |             |  |                              |       | 26.31  | %                                       |  |  |              |   | 14,676,497 |          |  |  |                  |   | 142,256   |                     |  |  |                      |   | 11,829 |  |  |  |  |   | 1,165   |  |  |  |  |   | 129,262   |   |  |  | CommodityPortfolio                    |  |  | Monthly |
| Total              |             |  |                              |       |   |                                         |  |  |              | $ | 56,596,290 |          |  |  |                  | $ | 1,934,149 |                     |  |  |                      | $ | 40,925 |  |  |  |  | $ | 2,028   |  |  |  |  | $ | 1,891,196 |   |  |  |                                  |  |  |    |
|                    |

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(Unaudited)

|                    |             |  |                              |       |        |                                       |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |                   |  |  |  |  |   |       |  |  |  |  |   |           |  |  |  |                                      |  |  |         |
|--------------------|-------------|--|------------------------------|-------|--------|---------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|-------------------|--|--|--|--|---|-------|--|--|--|--|---|-----------|--|--|--|--------------------------------------|--|--|---------|
|               |             |  | June30, 2006                 |       |        | For the six months ended June 30,2006 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                             |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| Campbell Master    |             |  |                              |       | 25.79  | %                                     |  |  |              | $ | 14,381,496 |          |  |  |                  | $ | 268,193   |                     |  |  |                      | $ |   6,677 |  |  |  |  | $ | 526   |  |  |  |  | $ | 260,990   |  |  |  | FinancialsMetals&EnergyPortfolio |  |  | Monthly |
| WillowbridgeMaster |             |  |                              |       | 23.10  | %                                     |  |  |              |   | 12,883,785 |          |  |  |                  |   | 1,051,643 |                     |  |  |                      |   | 24,414            |  |  |  |  |   | 1,220 |  |  |  |  |   | 1,026,009 |  |  |  | CommodityPortfolio                   |  |  | Monthly |
| WintonMaster       |             |  |                              |       | 26.27  | %                                     |  |  |              |   | 14,654,512 |          |  |  |                  |   | 1,155,252 |                     |  |  |                      |   | 36,685            |  |  |  |  |   | 125   |  |  |  |  |   | 1,118,442 |  |  |  | CommodityPortfolio                   |  |  | Monthly |
| GrahamMaster       |             |  |                              |       | 26.31  | %                                     |  |  |              |   | 14,676,497 |          |  |  |                  |   | 142,256   |                     |  |  |                      |   | 11,829            |  |  |  |  |   | 1,165 |  |  |  |  |   | 129,262   |  |  |  | CommodityPortfolio                   |  |  | Monthly |
| Total              |             |  |                              |       |   |                                       |  |  |              | $ | 56,596,290 |          |  |  |                  | $ | 2,617,344 |                     |  |  |                      | $ | 79,605            |  |  |  |  | $ | 3,036 |  |  |  |  | $ | 2,534,703 |  |  |  |                                 |  |  |    |
|                    |

|                    |             |  |                              |       |        |                                         |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |         |  |  |  |  |   |         |  |  |  |  |   |           |  |  |  |                                        |  |  |  |  |         |  |
|--------------------|-------------|--|------------------------------|-------|--------|-----------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|-----------|--|--|--|----------------------------------------|--|--|--|--|---------|--|
|               |             |  | December31, 2005             |       |        | For the three months ended June 30,2005 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                               |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| CampbellMaster     |             |  |                              |       | 26.46  | %                                       |  |  |              | $ | 15,349,869 |          |  |  |                  | $ | 2,165,516 |                     |  |  |                      | $ | 6,394   |  |  |  |  | $ | 812     |  |  |  |  | $ | 2,158,310 |  |  |  | FinancialsMetals & EnergyPortfolio |  |  |  |  | Monthly |  |
| WillowbridgeMaster |             |  |                              |       | 21.67  | %                                       |  |  |              |   | 12,573,482 |          |  |  |                  |   | —   |                     |  |  |                      |   | — |  |  |  |  |   | — |  |  |  |  |   | —   |  |  |  | CommodityPortfolio                     |  |  |  |  | Monthly |  |
| Winton Master      |             |  |                              |       | 26.95  | %                                       |  |  |              |   | 15,632,417 |          |  |  |                  |   | 1,127,196 |                     |  |  |                      |   | 24,287  |  |  |  |  |   | 1,848   |  |  |  |  |   | 1,101,061 |  |  |  | CommodityPortfolio                     |  |  |  |  | Monthly |  |
|               |             |  |                              |       |   |                                         |  |  |              | $ | 43,555,768 |          |  |  |                  | $ | 3,292,712 |                     |  |  |                      | $ | 30,681  |  |  |  |  | $ | 2,660   |  |  |  |  | $ | 3,259,371 |  |  |  |                                   |  |  |  |  |    |  |
|                    |

|                    |             |  |                              |       |        |                                       |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |         |  |  |  |  |   |         |  |  |  |  |   |           |  |  |  |                                       |  |  |  |  |         |  |
|--------------------|-------------|--|------------------------------|-------|--------|---------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|---------|--|--|--|--|---|---------|--|--|--|--|---|-----------|--|--|--|---------------------------------------|--|--|--|--|---------|--|
|               |             |  | December31, 2005             |       |        | For the six months ended June 30,2005 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                             |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| CampbellMaster     |             |  |                              |       | 26.46  | %                                     |  |  |              | $ | 15,349,869 |          |  |  |                  | $ | 1,535,843 |                     |  |  |                      | $ | 14,941  |  |  |  |  | $ | 1,709   |  |  |  |  | $ | 1,519,193 |  |  |  | FinancialsMetals &EnergyPortfolio |  |  |  |  | Monthly |  |
| WillowbridgeMaster |             |  |                              |       | 21.67  | %                                     |  |  |              |   | 12,573,482 |          |  |  |                  |   | —   |                     |  |  |                      |   | — |  |  |  |  |   | — |  |  |  |  |   | —   |  |  |  | CommodityPortfolio                    |  |  |  |  | Monthly |  |
| Winton Master      |             |  |                              |       | 26.95  | %                                     |  |  |              |   | 15,632,417 |          |  |  |                  |   | 2,273,378 |                     |  |  |                      |   | 50,968  |  |  |  |  |   | 3,868   |  |  |  |  |   | 2,218,542 |  |  |  | CommodityPortfolio                    |  |  |  |  | Monthly |  |
|               |             |  |                              |       |   |                                       |  |  |              | $ | 43,555,768 |          |  |  |                  | $ | 3,809,221 |                     |  |  |                      | $ | 65,909  |  |  |  |  | $ | 5,577   |  |  |  |  | $ | 3,737,735 |  |  |  |                                  |  |  |  |  |    |  |
|                    |

5.    FinancialInstrument Risks:

In the normal course of its business, thePartnership and Funds are party to financial instruments withoff-balance sheet risk, including derivative financial instruments andderivative commodity instruments. These financial instruments mayinclude forwards, futures and options, whose values are based upon anunderlying asset, index, or reference rate, and generally representfuture commitments to exchange currencies or cash flows, to purchase orsell other financial instruments at specific terms at specified futuredates, or, in the case of derivative commodity instruments, to have areasonable possibility to be settled in cash, through physical deliveryor with another financial instrument. These instruments may be tradedon an exchange or over-the-counter (‘‘OTC’’).Exchange-traded instruments are standardized and include futures andcertain option contracts. OTC contracts are negotiated betweencontracting parties and include forwards and certain options. Each ofthese instruments is subject to various risks similar to those relatedto the underlying financial instruments including market and creditrisk. In general, the risks 

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsJune 30, 2006(Unaudited)

associated with OTC contracts are greaterthan those associated with exchange-traded instruments because of thegreater risk of default by the counterparty to an OTC contract.

Market risk is the potential for changes in the value of thefinancial instruments traded by the Partnership/Funds due to marketchanges, including interest and foreign exchange rate movements andfluctuations in commodity or security prices. Market risk is directlyimpacted by the volatility and liquidity in the markets in which therelated underlying assets are traded.

Credit risk is thepossibility that a loss may occur due to the failure of a counterpartyto perform according to the terms of a contract. Credit risk withrespect to exchange traded instruments is reduced to the extent that anexchange or clearing organization acts as a counterparty to thetransactions. The Partnership's/Funds' risk of loss in theevent of counterparty default is typically limited to the amountsrecognized as unrealized appreciation in the statements of financialcondition and not represented by the contract or notional amounts ofthe instruments. The Partnership/Funds have credit risk andconcentration risk because the sole counterparty or broker with respectto the Partnership's/Funds' assets is CGM.

TheGeneral Partner monitors and controls thePartnership's/Funds' risk exposure on a daily basis throughfinancial, credit and risk management monitoring systems, andaccordingly believes that it has effective procedures for evaluatingand limiting the credit and market risks to which the Partnership/Fundsare subject. These monitoring systems allow the General Partner tostatistically analyze actual trading results with risk-adjustedperformance indicators and correlation statistics. In addition, on-linemonitoring systems provide account analysis of futures, forwards andoptions positions by sector, margin requirements, gain and losstransactions and collateral positions.

The majority of theseinstruments mature within one year of June 30, 2006. However, due tothe nature of the Partnership's/Funds' businesses, theseinstruments may not be held to maturity.

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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 investment in Partnershipsand cash. The Funds' only assets are their equity in itscommodity futures 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/Funds. While substantiallosses could lead to a decrease in liquidity, no such losses occurredduring the second quarter of 2006.

The Partnership'scapital consists of the capital contributions of the partners asincreased or decreased by realized and/or unrealized gains or losses oncommodity futures trading, expenses, interest income, additions andredemptions of Redeemable Units and distributions of profits, ifany.

For the six months ended June 30, 2006, Partnership capitaldecreased 3.8% from $58,008,725 to $55,777,955. This decreasewas attributable to the redemption of 1,924.9321 Redeemable Unitstotaling $3,144,214, which was partially offset by a net income fromoperations of $913,444. Persons investing $1,000,000 or more will pay areduced brokerage fee, receiving the differential in the form ofadditional Redeemable Units. Future redemptions can impact the amountof funds available for investment in commodity contract positions insubsequent periods.

Critical AccountingPolicies

The preparation of financial statements inconformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities, disclosuresof contingent assets and liabilities at the date of the financialstatements and reported amounts of revenues and expenses during thereporting period. Actual results could differ from these estimates.

All commodity interests of the Funds (including derivative financialinstruments and derivative commodity instruments) are used for tradingpurposes. The commodity interests are recorded on trade date and opencontracts are recorded in the statements of financial condition at fairvalue on the last business day of the period, which represents marketvalue for those commodity interests for which market quotations arereadily available or other measures of fair value deemed appropriate bymanagement of the General Partner for those commodity interests andforeign currencies for which market quotations are not readilyavailable. Investments in commodity interests denominated in foreigncurrencies are translated into U.S. dollars at the exchange ratesprevailing 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. The investment in Partnerships are recorded at fair value,based upon the Partnership's proportionate interest held.

Foreign currency contracts are those contracts where thePartnership/Fund 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/Fund's net equity therein, representingunrealized gain or loss on the contracts as measured by the differencebetween the forward foreign exchange rates at the date of entry intothe contracts and the forward rates at the reporting dates, is includedin the statement of financial condition. Realized gains (losses) andchanges in unrealized values on foreign currency contracts arerecognized in the period in which the contract is closed or the changesoccur and are included in the statements of income and expenses andpartners' capital.

Results ofOperations

During the Partnership's second quarter of2006 the net asset value per unit increased 1.3% from $1,615.59to $1,636.91 as compared to a decrease of 2.5% in the secondquarter of 2005. The Partnership experienced an unrealized gain throughinvestments in the Funds, in the second quarter of 2006 of $1,884,254.Gains were primarily attributable to the trading by the Funds ofcommodity futures in energy, 

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U.S. and non-U.S. interest rates, metals andsofts and were partially offset by losses in currencies, grains,livestock, indices and lumber. The Partnership experienced a nettrading loss before brokerage commissions and related fees in thesecond quarter of 2005 of $506,465. Losses were primarily attributableto the trading of commodity futures in energy, U.S. interest rates,grains, metals, softs and indices and were partially offset by gains incurrencies, non-U.S. interest rates, livestock and lumber.

Thesecond quarter of 2006 was challenging for the Partnership'sAdvisors as both financial and commodity markets entered a highlyvolatile period. Gains earned in interest rate, energy and metalstrading offset losses in currency, grains and stock index trading.

The Partnership's trend-following Advisors were profitable inthe energy sector as gains made in natural gas trading offset losses incrude oil and petroleum products. Trends in the metal sector extendedfrom the first quarter and remained strong for the first half of thesecond quarter. The substantial gains accumulated from record gold,silver and base metal price trends were more than enough to coverlosses during the metals correction in May.

Trading in U.S. andglobal fixed income markets was profitable as central banks continuedto raise global rates to combat inflation pressure.

The lack ofdirection in the currency sector was a result of speculation relatingto U.S. interest rate policy coupled with global inflation concerns.Losses in the equity sector were attributable to a global economicslowdown as most of the major equity indices experienced a materialcorrection in May after reaching multi-year highs. Sharp pricereversals in grains and softs translated into losses as alternatingmeteorological conditions between drought and rainfall contributed toirregular price developments.

During the Partnership's sixmonths ended June 30, 2006, the net asset value per Redeemable unitincreased 1.6% from $1,611.35 to $1,636.91 as compared to andecrease of 8.1% for the six months ended June 30, 2005. ThePartnership experienced a net trading gain before commissions andrelated fees for the six months ended June 30, 2006 of $3,019,130.Gains were primarily attributable to the trading of commodity futuresin U.S. and, non-U.S. interest rates, metals and indices and werepartially offset by losses in currencies, energy, grains, livestock,softs and lumber. The Partnership experienced a net trading loss beforebrokerage commissions and related fees for the six months ended June30, 2005, of $3,260,317. Losses were primarily attributable to thetrading of commodity futures in currencies, energy, grains, livestock,metals, softs and indices and were partially offset by gains in U.S.and non-U.S. interest rates and lumber.

Commodity futuresmarkets are highly volatile. The potential for broad and rapid pricefluctuations increases the risks involved in commodity trading, butalso increases the possibility of profit. The profitability of thePartnership/Funds depends on the existence of major price trends andthe ability of the Advisors to correctly identify those price trends.Price trends are influenced by, among other things, changing supply anddemand relationships, weather, governmental, agricultural, commercialand trade programs and policies, national and international politicaland economic events and changes in interest rates. To the extent thatmarket trends exist and the Advisors are able to identify them, thePartnership expects to increase capital through operations.

Interest income on 80% of the Partnership's dailyequity maintained in cash was earned at the monthly average 30-day U.S.Treasury bill rate determined weekly by CGM based on thenon-competitive yield on three month U.S. Treasury bills maturing 30days from the date in which such weekly rate is determined. CGM maycontinue to maintain the Partnership's assets in cash and/orplace all of the Partnership's assets in 90-day Treasury billsand 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 and six monthsended June 30, 2006 decreased by $145,141 and $158,998, respectively ascompared to the corresponding periods in 2005. The decrease is due tothe Partnership's use of cash to fund additional investments inother partnerships. The interest earned at the Investment inPartnerships level is included in the Partnership's share ofoverall net income (loss) of the other partnerships.

Brokeragecommissions are calculated on the Partnership's net asset valueas of the last day of each month and are affected by tradingperformance and redemptions. Accordingly, they must be compared inrelation to the fluctuations in monthly net asset values. Commissionsand fees for the three and six months 

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ended June 30, 2006 decreased by $49,059 and$147,267, respectively as compared to the corresponding periods in2005. The decrease in brokerage commissions is due to lower average netassets during the three and six months ended June 30, 2006 as comparedto the corresponding periods in 2005.

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 six months ended June 30, 2006 decreased by $7,751 and$40,223, respectively as compared to the corresponding periods in 2005.The decrease in management fees is due to lower average net assetsduring the three and six months ended June 30, 2006 as compared to thecorresponding periods in 2005.

Incentive fees are based on thenew trading profits generated by each Advisor at the end of the quarteras defined in the advisory agreements between the Partnership, theGeneral Partner and each Advisor. Trading performance for the three andsix months ended June 30, 2006, resulted in incentive fees of $0 and$38,349, respectively. Trading performance for the three and six monthsended June 30, 2005 resulted in incentive fees of $142,694 and$296,368, respectively.

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Item 3.    Quantitative and QualitativeDisclosures about Market Risk

All of the Partnership'sassets are subject to the risk of trading loss through its investmentsin the Funds. The Funds are speculative commodity pools. The marketsensitive instruments held by them are acquired for speculative tradingpurposes, and all or substantially all of the Funds' assets aresubject to the risk of trading loss. Unlike an operating company, therisk of market sensitive instruments is integral, not incidental, tothe Funds' main lines of business.

Market movements resultin frequent changes in the fair value of the Funds' openpositions and, consequently in their earnings and cash flow. TheFunds' market risks are influenced by a wide variety of factors,including the level and volatility of interest rates, exchange rates,equity price levels, the value of financial instruments and contracts,the diversification effects of the Funds' open positions and theliquidity of the market in which they trade.

The Funds rapidlyacquire and liquidate both long and short positions in a wide range ofdifferent markets. Consequently, it is not possible to predict how aparticular future market scenario will affect performance, and theFunds' past performances are not necessarily indicative of theirfuture results.

Value at Risk is a measure of the maximum amountwhich the Funds could reasonably be expected to lose in a given marketsector. However, the inherent uncertainty of the Funds'speculative trading and the recurrence in the markets traded by theFunds of market movements far exceeding expectations could result inactual trading or non-trading losses far beyond the indicated Value atRisk or the Funds' experiences to date (i.e., ‘‘riskof ruin’’). In light of the foregoing as well as the risksand uncertainties intrinsic to all future projections, the inclusion ofthe quantification in this section should not be considered toconstitute any assurance or representation that the Funds' lossesin any market sector will be limited to Value at Risk or by theFunds' attempts to manage their market risks.

Exchangemaintenance margin requirements have been used by the Funds as themeasure of their Value at Risk. Maintenance margin requirements are setby exchanges to equal or exceed the maximum losses reasonably expectedto 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.

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The following tables indicates the tradingValue at Risk associated with the Partnership's investments inother Partnerships by market category as of June 30, 2006 and thehighest, lowest and average value during the three months ended June30, 2006. All open position trading risk exposures of the Partnershiphave been included in calculating the figures set forth below. Therehas been no material change in the trading Value at Risk informationpreviously disclosed in the Partnership's Annual Report on Form10-K for the year ended December 31, 2005.

As of June 30, 2006,the Graham's Master total capitalization was $247,451,738, thePartnership owns 5.9% of Graham Master.

June 30,2006(Unaudited)

|                                  |  |  |               |   |            |                         |  |  |                                |  |        |                  |  |  |                      |  |            |  |  |  |  |  |           |  |  |  |  |  |           |  |
|----------------------------------|--|--|---------------|---|------------|-------------------------|--|--|--------------------------------|--|--------|------------------|--|--|----------------------|--|------------|--|--|--|--|--|-----------|--|--|--|--|--|-----------|--|
|                             |  |  |          |   |            |                    |  |  | ThreeMonths Ended June 30,2006 |
| MarketSector                     |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk               |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:                      |  |  |               |   |       |                         |  |  |                                |  |   |                  |  |  |                      |  |       |  |  |  |  |  |      |  |  |  |  |  |      |  |
| —Exchange Traded Contracts |  |  |               | $ | 555,209    |                         |  |  |                                |  | 0.22   | %                |  |  |                      |  | 1,433,009  |  |  |  |  |  | 4,389     |  |  |  |  |  | 261,146   |  |
| — OTC TradedContracts      |  |  |               |   | 6,657,340  |                         |  |  |                                |  | 2.69   | %                |  |  |                      |  | 10,032,744 |  |  |  |  |  | 358,137   |  |  |  |  |  | 2,955,785 |  |
| Energy                           |  |  |               |   | 723,525    |                         |  |  |                                |  | 0.29   | %                |  |  |                      |  | 919,454    |  |  |  |  |  | 115,980   |  |  |  |  |  | 370,898   |  |
| Grains                           |  |  |               |   | 341,797    |                         |  |  |                                |  | 0.14   | %                |  |  |                      |  | 2,340,603  |  |  |  |  |  | 52,279    |  |  |  |  |  | 516,740   |  |
| Interest RatesU.S.               |  |  |               |   | 1,549,109  |                         |  |  |                                |  | 0.63   | %                |  |  |                      |  | 7,281,127  |  |  |  |  |  | 1,549,109 |  |  |  |  |  | 2,304,747 |  |
| Interest RatesNon-U.S.           |  |  |               |   | 3,623,282  |                         |  |  |                                |  | 1.46   | %                |  |  |                      |  | 8,653,251  |  |  |  |  |  | 2,859,855 |  |  |  |  |  | 3,790,563 |  |
| Metals                           |  |  |               |   |       |                         |  |  |                                |  |   |                  |  |  |                      |  |       |  |  |  |  |  |      |  |  |  |  |  |      |  |
| —OTC Traded Contracts      |  |  |               |   | 67,950     |                         |  |  |                                |  | 0.03   | %                |  |  |                      |  | 523,391    |  |  |  |  |  | 10,350    |  |  |  |  |  | 121,262   |  |
| Softs                            |  |  |               |   | 1,413,743  |                         |  |  |                                |  | 0.57   | %                |  |  |                      |  | 1,698,688  |  |  |  |  |  | 148,926   |  |  |  |  |  | 697,213   |  |
| Indices                          |  |  |               |   | 841,858    |                         |  |  |                                |  | 0.34   | %                |  |  |                      |  | 6,960,954  |  |  |  |  |  | 315,426   |  |  |  |  |  | 2,908,206 |  |
| Total                            |  |  |               | $ | 15,773,813 |                         |  |  |                                |  | 6.37   | %                |  |  |                      |  |       |  |  |  |  |  |      |  |  |  |  |  |      |  |
|                                  |

|   |                                     |
|---|-------------------------------------|
| * | Averageof month-end Values at Risk. |

As of June 30, 2006, CampbellMaster's total capitalization was $340,912,438. The Partnershipowns 4.2% of Campbell Master.

June 30, 2006(Unaudited)

|                                  |  |  |               |   |            |                         |  |  |                                |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|----------------------------------|--|--|---------------|---|------------|-------------------------|--|--|--------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                             |  |  |          |   |            |                    |  |  | ThreeMonths Ended June 30,2006 |
| MarketSector                     |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk               |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:                      |  |  |               |   |       |                         |  |  |                                |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —OTC Traded Contracts      |  |  |               | $ | 6,224,029  |                         |  |  |                                |  | 1.83   | %                |  |  |                      | $ | 16,376,992 |  |  |  |  | $ | 5,102,819 |  |  |  |  | $ | 8,637,465 |  |
| Energy                           |  |  |               |   | 3,042,575  |                         |  |  |                                |  | 0.89   | %                |  |  |                      |   | 3,933,850  |  |  |  |  |   | 1,491,285 |  |  |  |  |   | 2,679,025 |  |
| Interest Rates U.S.              |  |  |               |   | 2,309,162  |                         |  |  |                                |  | 0.68   | %                |  |  |                      |   | 6,692,051  |  |  |  |  |   | 2,309,162 |  |  |  |  |   | 4,649,329 |  |
| Interest RatesNon-U.S.           |  |  |               |   | 4,463,586  |                         |  |  |                                |  | 1.31   | %                |  |  |                      |   | 7,579,057  |  |  |  |  |   | 2,772,722 |  |  |  |  |   | 5,654,588 |  |
| Metals                           |  |  |               |   |       |                         |  |  |                                |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               |   | 174,150    |                         |  |  |                                |  | 0.05   | %                |  |  |                      |   | 453,600    |  |  |  |  |   | —   |  |  |  |  |   | 306,450   |  |
| — OTC TradedContracts      |  |  |               |   | 1,212,500  |                         |  |  |                                |  | 0.35   | %                |  |  |                      |   | 1,612,500  |  |  |  |  |   | 439,700   |  |  |  |  |   | 707,233   |  |
| Indices                          |  |  |               |   | 2,233,564  |                         |  |  |                                |  | 0.66   | %                |  |  |                      |   | 7,293,805  |  |  |  |  |   | 1,883,142 |  |  |  |  |   | 3,871,154 |  |
| Total                            |  |  |               | $ | 19,659,566 |                         |  |  |                                |  | 5.77   | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                                  |

|   |                                 |
|---|---------------------------------|
| * | Averagemonth-end Values at Risk |

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As of June 30, 2006, WillowbridgeMaster's total capitalization was $183,497,148. The Partnershipowns 7.0% of Willowbridge Master.

June 30, 2006(Unaudited)

|                                  |  |  |               |   |            |                         |  |  |                                |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |            |  |
|----------------------------------|--|--|---------------|---|------------|-------------------------|--|--|--------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|------------|--|
|                             |  |  |          |   |            |                    |  |  | ThreeMonths Ended June 30,2006 |
| MarketSector                     |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk               |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:                      |  |  |               |   |       |                         |  |  |                                |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |       |  |
| —Exchange Traded Contracts |  |  |               | $ | 5,860,621  |                         |  |  |                                |  | 3.19   | %                |  |  |                      | $ | 16,059,735 |  |  |  |  | $ | 2,867,738 |  |  |  |  | $ | 11,228,040 |  |
| Energy                           |  |  |               |   | 9,175,275  |                         |  |  |                                |  | 5.00   | %                |  |  |                      |   | 12,034,575 |  |  |  |  |   | 1,417,500 |  |  |  |  |   | 10,563,300 |  |
| Grains                           |  |  |               |   | 476,550    |                         |  |  |                                |  | 0.27   | %                |  |  |                      |   | 1,771,875  |  |  |  |  |   | 190,620   |  |  |  |  |   | 959,147    |  |
| Interest RatesU.S.               |  |  |               |   | 3,002,265  |                         |  |  |                                |  | 1.64   | %                |  |  |                      |   | 6,237,000  |  |  |  |  |   | 2,287,440 |  |  |  |  |   | 4,245,255  |  |
| Interest RatesNon-U.S.           |  |  |               |   | 4,337,027  |                         |  |  |                                |  | 2.36   | %                |  |  |                      |   | 11,303,300 |  |  |  |  |   | 4,243,100 |  |  |  |  |   | 6,724,014  |  |
| Softs                            |  |  |               |   | 519,540    |                         |  |  |                                |  | 0.28   | %                |  |  |                      |   | 784,000    |  |  |  |  |   | 220,500   |  |  |  |  |   | 377,347    |  |
| Total                            |  |  |               | $ | 23,371,278 |                         |  |  |                                |  | 12.74  | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |       |  |
|                                  |

|   |                                 |
|---|---------------------------------|
| * | Averagemonth-end Values at Risk |

As of June 30, 2006, WintonMaster's total capitalization was $248,613,904. The Partnershipowns 5.9% of Winton Master.

June 30, 2006(Unaudited)

|                                  |  |  |               |   |            |                          |  |  |                                |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|----------------------------------|--|--|---------------|---|------------|--------------------------|--|--|--------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                             |  |  |          |   |            |                     |  |  | ThreeMonths Ended June 30,2006 |
| MarketSector                     |  |  | Value at Risk |   |            | % ofTotal Capitalization |  |  | HighValue atRisk               |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies                       |  |  |               |   |       |                          |  |  |                                |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               | $ | 3,495,089  |                          |  |  |                                |  | 1.41   | %                |  |  |                      | $ | 5,174,536  |  |  |  |  | $ | 2,485,925 |  |  |  |  | $ | 3,372,319 |  |
| Energy                           |  |  |               |   | 1,276,070  |                          |  |  |                                |  | 0.51   | %                |  |  |                      |   | 5,638,643  |  |  |  |  |   | 1,033,628 |  |  |  |  |   | 2,791,126 |  |
| Grains                           |  |  |               |   | 297,136    |                          |  |  |                                |  | 0.12   | %                |  |  |                      |   | 307,235    |  |  |  |  |   | 146,668   |  |  |  |  |   | 297,790   |  |
| Interest RatesU.S.               |  |  |               |   | 2,813,198  |                          |  |  |                                |  | 1.13   | %                |  |  |                      |   | 9,363,026  |  |  |  |  |   | 347,582   |  |  |  |  |   | 4,047,702 |  |
| Interest RatesNon-U.S.           |  |  |               |   | 6,744,526  |                          |  |  |                                |  | 2.71   | %                |  |  |                      |   | 9,078,252  |  |  |  |  |   | 3,821,899 |  |  |  |  |   | 6,468,534 |  |
| Livestock                        |  |  |               |   | 93,683     |                          |  |  |                                |  | 0.04   | %                |  |  |                      |   | 405,810    |  |  |  |  |   | 90,562    |  |  |  |  |   | 261,223   |  |
| Metals                           |  |  |               |   |       |                          |  |  |                                |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               |   | 515,795    |                          |  |  |                                |  | 0.21   | %                |  |  |                      |   | 702,675    |  |  |  |  |   | 24,300    |  |  |  |  |   | 701,159   |  |
| — OTC TradedContracts      |  |  |               |   | 1,675,370  |                          |  |  |                                |  | 0.68   | %                |  |  |                      |   | 1,791,040  |  |  |  |  |   | 568,612   |  |  |  |  |   | 1,109,716 |  |
| Softs                            |  |  |               |   | 753,606    |                          |  |  |                                |  | 0.30   | %                |  |  |                      |   | 907,159    |  |  |  |  |   | 475,179   |  |  |  |  |   | 807,259   |  |
| Indices                          |  |  |               |   | 3,358,610  |                          |  |  |                                |  | 1.35   | %                |  |  |                      |   | 12,015,494 |  |  |  |  |   | 2,673,947 |  |  |  |  |   | 6,831,089 |  |
| Lumber                           |  |  |               |   | 1,650      |                          |  |  |                                |  | 0.00   | %*               |  |  |                      |   | 3,300      |  |  |  |  |   | 1,650     |  |  |  |  |   | 1,650     |  |
| Total                            |  |  |               | $ | 21,024,733 |                          |  |  |                                |  | 8.46   | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                                  |

|   |                                    |
|---|------------------------------------|
| * | Averageof month-end Values at Risk |

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

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Item 4.    Controls and Procedures

The General Partner of the Partnership, with the participation ofthe General Partner's Chief Executive Officer and the ChiefFinancial Officer, has evaluated the effectiveness of the design andoperation of its disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) of the Exchange Act) with respect to thePartnership as of the end of the period covered by the report, and,based on this evaluation, has concluded that these disclosure controlsand procedures are effective. There was no change in thePartnership's internal control over financial reporting duringthe period covered by this report that has materially affected, or isreasonably likely to materially affect, the Partnership'sinternal 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 year endedDecember 31, 2005 and under Part II. Item I. ‘‘LegalProceedings’’ in the Partnerships' Quarterly Reporton Form 10-Q for the quarter ended March 31, 2006.

EnronCorp.

 On May  24, 2006, the District Court gavefinal approval to Citigroup's settlement of the securities classaction (NEWBY, ET AL. V. ENRON CORP., ET AL.).

Research

 On May  12, 2006, the District Court preliminarilyapproved the class action settlements in IN RE SALOMON ANALYST LEVEL 3LITIGATION, IN RE SALOMON ANALYST XO LITIGATION, and IN RE SALOMONANALYST WILLIAMS LITIGATION.

 On May  18, 2006, theDistrict Court gave final approval to the settlement in NORMAN v.SALOMON SMITH BARNEY.

 On June  20, 2006, theDistrict Court certified the plaintiff class in IN RE SALOMON ANALYSTMETROMEDIA LITIGATION.

 On June  26, 2006, theUnited States Supreme Court granted plaintiffs' petition for awrit of certiorari, vacated the opinion of the United States Court ofAppeals for the Seventh Circuit in DISHER v. CITIGROUP GLOBALMARKETS  INC., and then remanded the case to the Seventh Circuitfor further proceedings in light of the Supreme Court's decisionin Kircher v. Putnam Funds Trust.

AdelphiaCommunications Corporation

 Without admitting anyliability, CGMI and numerous other financial institution defendantshave agreed to settle IN RE ADELPHIA COMMUNICATIONS CORPORATIONSECURITIES AND DERIVATIVE LITIGATION for a total of $250million, subject to final court approval. On June  15, 2006, thecourt granted its preliminary approval of the settlement and setNovember  10, 2006 for a final hearing. CGMI's share of thesettlement is covered by existing reserves.

Item 1A. RiskFactors

There are no material changes from the risk factors setforth under Part I, Item 1A. ‘‘Risk Factors’’in our Annual Report on Form 10-K for the fiscal year ended December31, 2005.

Item 2.    Unregistered Sales of Equity Securitiesand Use of Proceeds

Additional Redeemable Units offeredrepresent a reduced brokerage fee to existing limited partners whoinvested $1,000,000 or more.

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The following chart sets forth thepurchases of Redeemable Units by the Partnership.

|                                     |  |  |                                   |  |          |                                |  |  |                                                                               |   |          |                                                                                                         |  |  |     |  |  |     |
|-------------------------------------|--|--|-----------------------------------|--|----------|--------------------------------|--|--|-------------------------------------------------------------------------------|---|----------|---------------------------------------------------------------------------------------------------------|--|--|-----|--|--|-----|
| Period                              |  |  | (a)TotalNumber ofUnits Purchased* |  |          | (b) AveragePricePaid perUnit** |  |  | (c) Total NumberofUnitsPurchased as Partof Publicly AnnouncedPlansor Programs |   |          | (d) Maximum Number(or ApproximateDollarValue) ofUnitsthat May Yet BePurchased UnderthePlans or Programs |
| April 1, 2006 –April 30, 2006 |  |  |                                   |  | 355.0833 |                                |  |  |                                                                               | $ | 1,720.57 |                                                                                                         |  |  | N/A |  |  | N/A |
| May1, 2006 – May 31, 2006     |  |  |                                   |  | 180.6846 |                                |  |  |                                                                               | $ | 1,678.74 |                                                                                                         |  |  | N/A |  |  | N/A |
| June1, 2006 – June 30, 2006   |  |  |                                   |  | 277.7655 |                                |  |  |                                                                               | $ | 1,636.91 |                                                                                                         |  |  | N/A |  |  | N/A |
|                                |  |  |                                   |  | 813.5334 |                                |  |  |                                                                               | $ | 1,678.74 |                                                                                                         |  |  | 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, 2005.

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Exhibit - 31.1 —Rule 13a-14(a)/15d-14(a) Certification (Certification of President andDirector).

Exhibit - 31.2 — Rule13a-14(a)/15d-14(a) Certification (Certification of Chief FinancialOfficer 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:                                     |  |  | August 14,2006                                              |  |  |   |
| By:                                       |  |  | /s/Daniel R. McAuliffe, Jr.                                 |  |  |   |
|                                      |  |  | Daniel R. McAuliffe,Jr.Chief Financial Officer and Director |  |  |   |
| Date:                                     |  |  | August 14,2006                                              |  |  |   |
|                                           |

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