FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

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

                    OF THE SECURITIES EXCHANGE ACT OF 1934

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

                    OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended September 30, 1997

Commission File Number 33-75056

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

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


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


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


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


<PAGE>



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


                                                                         Page
                                                                        Number

PART I - Financial Information:

            Item 1.     Financial Statements:

                        Statement of Financial Condition at
                        September 30, 1997 and December 31,
                        1996.                                              3

                        Statement of Income and Expenses and
                        Partners' Capital for the three and
                        nine months ended September 30, 1997
                        and 1996.                                          4


                        Notes to Financial Statements                    5 - 8

            Item 2.     Management's Discussion and Analysis
                        of Financial Condition and Results of
                        Operations                                      9 - 10

PART II - Other Information                                               11


                                      2

<PAGE>



                                     PART I
                          ITEM 1. FINANCIAL STATEMENTS




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


<TABLE>
<CAPTION>

                                                         SEPTEMBER 30,     DECEMBER 31,
                                                             1997            1996
                                                         --------------   ------------
                                                         (Unaudited)
ASSETS:                                                  

<S>                                                            <C>             <C>
Equity in commodity futures trading account:
  Cash and cash equivalents                               $145,091,046   $170,574,018

  Net unrealized appreciation on open futures contracts      7,597,750      6,887,203
  Commodity options owned, at market
   value (cost $12,450 and $607,539, in
   1997 and 1996, respectively)                                  6,895        442,696

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

                                                           152,695,691    177,903,917

Interest receivable                                            479,837        558,298

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

                                                          $153,175,528   $178,462,215

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

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities:
 Accrued expenses:
  Commissions                                             $    692,437   $    831,169
  Management fees                                              342,113        412,599
  Other                                                         79,995        108,043
  Incentive fees                                                61,031      3,476,717
Redemptions payable                                          2,475,665      2,005,213
Commodity options written, at market value
   (premiums received $83,070 in 1996)                              --         41,213

                                                          ------------   ------------
                                                             3,651,241      6,874,954

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

General Partner, 2,048.9308 Unit
   equivalents outstanding in 1997 and 1996                  2,504,633      2,561,901
Limited Partners, 120,270.7434 and
  135,181.6379 Units of Limited Partnership
  Interest outstanding in 1997 and 1996,
  respectively                                             147,019,654    169,025,360

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

                                                           149,524,287    171,587,261

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

                                                          $153,175,528   $178,462,215

                                                          ============   ============
</TABLE>
See Notes to Financial Statements 



                                      3

<PAGE>



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





<TABLE>
<CAPTION>
                                                                   THREE-MONTHS     THREE-MONTHS     NINE-MONTHS       NINE-MONTHS
                                                                      ENDED            ENDED           ENDED              ENDED
                                                                   SEPTEMBER 30,    SEPTEMBER 30,    SEPTEMBER 30,     SEPTEMBER 30,
                                                                       1997             1996            1997               1996

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

<S>                                                                       <C>              <C>              <C>              <C>
Income:
Net gains (losses) on trading of commodity futures:
   Realized gains (losses) on closed positions                     $   1,272,924    $  (1,262,655)   $   2,753,659    $   8,914,707
   Change in unrealized gains /losses on open positions                2,840,871        7,325,730          827,978       (3,767,035)

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

                                                                       4,113,795        6,063,075        3,581,637        5,147,672
Less, brokerage commissions and clearing
  fees ($83,076, $94,466, $246,584 and $314,109,
  respectively)                                                       (2,451,605)      (2,477,914)      (7,581,705)      (8,052,478)

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

Net realized and unrealized gains (losses)                             1,662,190        3,585,161       (4,000,068)      (2,904,806)

  Interest income                                                      1,579,945        1,554,404        4,898,034        5,018,184

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

                                                                       3,242,135        5,139,565          897,966        2,113,378

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

Expenses:
  Management fees                                                      1,100,450        1,086,149        3,411,173        3,462,193
  Other expense                                                           15,220           64,439          111,358          219,411
  Incentive fees                                                          61,032               --          808,726          446,772

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

                                                                       1,176,702        1,150,588        4,331,257        4,128,376

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

Net income (loss)                                                      2,065,433        3,988,977       (3,433,291)      (2,014,998)

Additions                                                                 42,621               --          295,260        2,035,483
Redemptions                                                           (9,643,369)     (13,060,839)     (18,924,943)     (38,442,579)


                                                                   -------------    -------------    -------------    -------------
Net decrease in Partners' capital                                     (7,535,315)      (9,071,862)     (22,062,974)     (38,422,094)

Partners' capital, beginning of period                               157,059,602      164,840,196      171,587,261      194,190,428

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

Partners' capital, end of period                                   $ 149,524,287    $ 155,768,334    $ 149,524,287    $ 155,768,334

                                                                   =============    =============    =============    =============
Net Asset Value per Unit
  (122,319.6742    and 143,145.4075 Units outstanding
  at September 30, 1997 and 1996, respectively)                    $    1,222.41    $    1,088.18    $    1,222.41    $    1,088.18

                                                                   =============    =============    =============    =============
Net income (loss) per Unit of Limited Partnership
   Interest and General Partner Unit equivalent                    $       15.37    $       28.57    $      (27.95)   $       (3.48)

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



</TABLE>

                                      4

<PAGE>



                  SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                         NOTES TO FINANCIAL STATEMENTS
                              September 30, 1997
                                  (Unaudited)

1. General:

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

     Smith  Barney  Futures  Management  Inc.  acts as the general  partner (the
"General Partner") of the Partnership. Smith Barney Inc. ("SB"), an affiliate of
the General Partner,  acts as commodity broker for the Partnership.  All trading
decisions  are made for the  Partnership  by Campbell & Company,  Inc.,  John W.
Henry & Company, Inc., Chesapeake Capital Corporation,  Abraham Trading Company,
Rabar Market Research, Inc., AIS Futures Management, Inc. and Telesis Management
Inc.  (collectively,  the "Advisors").  Telesis  Management Inc. was added as an
advisor to the Partnership effective August 1, 1997.

      The accompanying financial statements are unaudited but, in the opinion of
management,  include  all  adjustments  (consisting  only  of  normal  recurring
adjustments)  necessary for a fair presentation of the  Partnership's  financial
condition at September 30, 1997 and the results of its  operations for the three
and nine months ended September 30, 1997 and 1996.  These  financial  statements
present  the  results of interim  periods  and do not  include  all  disclosures
normally  provided in annual  financial  statements.  It is suggested that these
financial  statements be read in conjunction  with the financial  statements and
notes  included  in the  Partnership's  annual  report on Form 10-K  filed  with
Securities and Exchange Commission for the year ended December 31, 1996.

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



                                      5

<PAGE>



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


2.   Net Asset Value Per Unit:

      Changes in net asset  value per Unit for the three and nine  months  ended
September 30, 1997 and 1996, were as follows:

                                 NINE-MONTHS ENDED       THREE-MONTHS ENDED
                                   SEPTEMBER 30,            SEPTEMBER 30,
                                  1997        1996        1997        1996

Net realized and unrealized
 gains (losses)                  $12.20      $25.91     $(32.50)     $(8.94)
Interest income                   12.37       10.25       37.09       30.50
Expenses                          (9.20)      (7.59)     (32.54)     (25.04)
                                --------    --------    --------    --------

Increase (decrease) for
 period                           15.37       28.57      (27.95)      (3.48)

Net Asset Value per Unit,
  beginning of period          1,207.04    1,059.61    1,250.36    1,091.66
                               --------    --------    --------    --------

Net Asset Value per Unit,
  end of period               $1,222.41   $1,088.18   $1,222.41   $1,088.18
                               ========    ========    ========    ========


3.  Trading Activities:

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

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

      All of the  commodity  interests  owned  by the  Partnership  are held for
trading purposes. The fair value of these commodity interests, including options
thereon,  at September 30, 1997 was $7,604,645 and the average fair value during
the nine months then ended, based on monthly calculation, was $10,136,135.

4.   Financial Instrument Risk:

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

                                      6

<PAGE>



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

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

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

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

      The  notional  or  contractual  amounts  of these  instruments,  while not
recorded in the financial  statements,  reflect the extent of the  Partnership's
involvement  in these  instruments.  At  September  30,  1997,  the  notional or
contractual amounts of the

                                      7

<PAGE>



Partnership's   commitment   to  purchase   and  sell  these   instruments   was
$1,419,810,733 and $406,122,482,  respectively,  as detailed below. All of these
instruments  mature within one year of September 30, 1997.  However,  due to the
nature  of the  Partnership's  business,  these  instruments  may not be held to
maturity.   At  September  30,  1997,  the  fair  value  of  the   Partnership's
derivatives, including options thereon, was $7,604,645, as detailed below.

                                    NOTIONAL OR CONTRACTUAL
                                     AMOUNT OF COMMITMENTS
                                  TO PURCHASE       TO SELL           FAIR VALUE


Currencies:
- Exchange Traded Contracts    $    8,792,183   $   64,240,005   $      (41,361)
- OTC Contracts                   143,530,634      167,377,796         (200,063)
Energy                             54,737,660        6,811,070         (307,495)
Interest Rates U.S.               875,912,056       72,892,025        6,135,266
Interest Rates Non U.S.           264,007,932                0          593,822
Grains                             11,685,485       15,608,828          330,875
Metals                             36,195,935       34,939,209           (6,673)
Indices                            31,887,249       19,114,314        1,252,424
Softs                              16,097,679       21,722,255         (206,241)
Livestock                             334,890        3,416,980           54,091
                               --------------   --------------   --------------

Totals                         $1,419,810,733   $  406,122,482   $    7,604,645
                               ==============   ==============   ==============


5.  Pending Merger:

         On September 24, 1997,  Travelers Group Inc.  ("Travelers") and Salomon
Inc  ("Salomon")  announced  an agreement  and plan of merger  pursuant to which
Salomon will become a wholly  owned  subsidiary  of  Travelers  and Smith Barney
Holdings  Inc., the parent company of Smith Barney Inc. and Smith Barney Futures
Management  Inc.,  will be merged into  Salomon  forming  Salomon  Smith  Barney
Holdings Inc. The transaction is expected to be completed by year-end 1997.


                                       8

<PAGE>





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


Liquidity and Capital Resources

      The Partnership does not engage in the sale of goods or services. Its only
assets are its equity in its commodity  futures trading  account,  consisting of
cash and cash equivalents,  net unrealized  appreciation  (depreciation) on open
futures  contracts and interest  receivable.  Because of the low margin deposits
normally required in commodity futures trading, relatively small price movements
may result in substantial  losses to the Partnership.  While substantial  losses
could lead to a decrease in liquidity,  no such losses occurred during the third
quarter of 1997.

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

      For  the  nine  months  ended  September  30,  1997,  Partnership  capital
decreased   12.9%  from   $171,587,261  to   $149,524,287.   This  decrease  was
attributable  to a net loss  from  operations  of  $3,433,291  coupled  with the
redemption of 15,140.4279 Units totaling  $18,924,943 which was partially offset
by the addition of 229.5334  Units  totaling  $295,260 for the nine months ended
September 30, 1997. Future  redemptions can impact the amount of funds available
for investments in commodity contract positions in subsequent periods.

Results of Operations

      During the  Partnership's  third quarter of 1997,  the net asset value per
Unit increased  1.3% from $1,207.04 to $1,222.41,  as compared to an increase of
2.7% in the third  quarter of 1996.  The  Partnership  experienced a net trading
gain before commissions and expenses in the third quarter of 1997 of $4,113,795.
Gains were  recognized in the trading of commodity  futures in currencies,  U.S.
and non U.S.  interest rates and indices and were partially  offset by losses in
grains,   livestock,   metals,   energy  products  and  softs.  The  Partnership
experienced  a net trading  gain before  commissions  and  expenses in the third
quarter of 1996 of $6,063,075.  Gains were recognized in interest rates,  metals
and energy products and were partially offset by losses in indices, agricultural
products and currencies.

      Commodity futures markets are highly volatile.  Broad price
fluctuations and rapid inflation increase the risks involved in

                                      9

<PAGE>



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

      Interest  income on 80% of the  Partnership's  daily equity  maintained in
cash was earned on the  monthly  average  30-day  Treasury  bill rate.  Interest
income for the three months  ended  September  30, 1997  increased by $25,541 as
compared to the  corresponding  period in 1996. This increase is the result of a
higher  average daily cash balance  during the third quarter of 1997 as compared
to 1996.  Interest income for the nine months ended September 30, 1997 decreased
by $120,150 as compared to the corresponding period in 1996 primarily due to the
effect of negative  trading  performance  and  redemptions on the  Partnership's
equity maintained in cash.

      Brokerage  commissions are calculated on the Partnership's net asset value
as of the last day of each  month  and,  therefore,  vary  according  to trading
performance  and  redemptions.  Commissions  for the three and nine months ended
September 30, 1997 decreased by $26,309 and $470,773,  respectively, as compared
to the corresponding periods in 1996.

      Management  fees are  calculated on the portion of the  Partnership's  net
asset value  allocated to each  Advisor at the end of the month and,  therefore,
are affected by trading  performance  and  redemptions.  Management fees for the
three months ended  September  30, 1997  increased by $14,301 as compared to the
corresponding  period  in  1996.  Management  fees  for the  nine  months  ended
September 30, 1997 decreased by $51,020 as compared to the corresponding  period
in 1996.

      Incentive  fees are based on the new  trading  profits  generated  by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the  Partnership,  the General  Partner and each  Advisor.  Trading  performance
resulted in  incentive  fees for the three and nine months ended  September  30,
1997 of $61,032 and $361,954,  respectively.  Trading  performance  for the nine
months ended September 30, 1996 resulted in incentive fees of $446,772.

                                      10

<PAGE>




                           PART II OTHER INFORMATION

Item 1.     Legal Proceedings - None

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

Item 3.     Defaults Upon Senior Securities - None

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

Item 5.     Other Information - None

Item 6.     (a) Exhibits - None

            (b) Reports on Form 8-K - None





                                      11


<PAGE>


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


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


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


Date:    11/12/97


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

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


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


Date:    11/12/97

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

Date:    11/12/97


                                       12

<PAGE>