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 June 30, 1999

Commission File Number 0-26132

            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 June 30, 1999 (unaudited) and
              December 31, 1998.                                   3

              Statement of Income and Expenses
              and Partners' Capital for the three
              and six months ended June 30, 1999
              and 1998 (unaudited).                                4

              Notes to Financial Statements
              (unaudited)                                         5 - 9

    Item 2.   Management's Discussion and
              Analysis of Financial Condition
              and Results of Operations                          10 - 13

    Item 3.   Quantitative and Qualitative
              Disclosures of Market Risk                         14 - 15

PART II - Other Information                                         16


                                        2
<PAGE>

                                     PART I
                          ITEM 1. FINANCIAL STATEMENTS


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



                                                     JUNE 30,    DECEMBER 31,
                                                      1999          1998
                                                ------------   -------------
ASSETS:                                          (Unaudited)


Equity in commodity futures trading account:
  Cash                                           $128,731,520   $136,910,140
  Net unrealized appreciation
   on open futures contracts                       10,274,436      9,155,609
  Commodity options owned at market
   value (cost  $108,110 and $0, respectively)         69,808           --

                                                 ------------   ------------
                                                  139,075,764    146,065,749
Interest receivable                                   375,889        399,031

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

                                                 $139,451,653   $146,464,780

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

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities:
 Accrued expenses:
  Commissions                                    $    631,040   $    684,171
  Management fees                                     368,936        360,801
  Other                                                95,051        721,179
  Incentive fees                                      562,956         89,185
 Redemptions payable                                1,965,925        705,183

                                                 ------------   ------------
                                                    3,623,908      2,560,519

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

General Partner, 2,048.9308 Unit
   equivalents outstanding in 1999 and 1998         2,895,754      2,863,893
Limited Partners, 94,057.7362 and
  100,905.2113 Units of Limited Partnership
  Interest outstanding in 1999 and 1998,
  respectively                                    132,931,991    141,040,368

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

                                                  135,827,745    143,904,261

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

                                                 $139,451,653   $146,464,780

                                                 ============   ============
See Notes to Financial Statements.
                                          3



<PAGE>

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


<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                        JUNE 30,
                                                      -----------------------------    --------------    -------------
                                                            1999            1998              1999           1998

                                                      -------------   -------------    --------------    -------------
<S>                                                         <C>              <C>           <C>                <C>
Income:
  Net gains (losses) on trading of commodity
   futures:
  Realized gains on closed positions                  $   3,997,825    $   3,440,075    $   4,806,383    $   6,899,384
  Change in unrealized gains/losses on open
   positions                                              4,923,014       (5,772,686)       1,080,525      (11,913,855)

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

                                                          8,920,839       (2,332,611)       5,886,908       (5,014,471)
Less, brokerage commissions including clearing fees
  of $69,696, $65,721, $128,663 and
  $158,898, respectively                                 (2,101,822)      (2,066,837)      (4,174,270)      (4,324,843)

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

  Net realized and unrealized gains (losses)              6,819,017       (4,399,448)       1,712,638       (9,339,314)
  Interest income                                         1,177,150        1,307,257        2,363,614        2,812,424

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

                                                          7,996,167       (3,092,191)       4,076,252       (6,526,890)

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



Expenses:                                                 1,107,845          962,005        2,077,351        1,985,152
  Management fees                                            53,672           36,155           89,924           72,707
  Other                                                     562,955             --            562,955          242,074
  Incentive fees
                                                      -------------    -------------    -------------    -------------

                                                          1,724,472          998,160        2,730,230        2,299,933

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

  Net income (loss)                                       6,271,695       (4,090,351)       1,346,022       (8,826,823)
  Additions                                                  30,723           26,830           60,155           59,306
  Redemptions                                            (5,141,681)      (5,653,495)      (9,482,693)     (11,402,225)

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

  Net increase (decrease) in Partners' capital            1,160,737       (9,717,016)      (8,076,516)     (20,169,742)

Partners' capital, beginning of period                  134,667,008      140,928,535      143,904,261      151,381,261

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

Partners' capital, end of period                      $ 135,827,745    $ 131,211,519    $ 135,827,745    $ 131,211,519
                                                      =============    =============    =============    =============

Net asset value per Unit
  (96,106.6670 and 107,489.4645 Units outstanding
  at June 30, 1999 and 1998, respectively)            $    1,413.30    $    1,220.69    $    1,413.30    $    1,220.69
                                                      =============    =============    =============    -------------


Net gain (loss) per Unit of Limited Partnership
  Interest and General Partner Unit equivalent        $       63.45    $      (36.39)   $       15.55    $      (77.74)
                                                      =============    =============    =============    =============
</TABLE>


See Notes to Financial Statements
                                                    4


<PAGE>


                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1999
                                   (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.  The  Partnership's  commodity broker is
Salomon Smith Barney Inc.  ("SSB").  SSB is an affiliate of the General Partner.
The  General  Partner is wholly  owned by Salomon  Smith  Barney  Holdings  Inc.
("SSBH"),  which is the sole owner of SSB. SSBH is a wholly owned  subsidiary of
Citigroup Inc. All trading  decisions are made for the Partnership by Campbell &
Company,  Inc.,  John W.  Henry  &  Company  Inc.,  Trendview  Management  Inc.,
Willowbridge  Associates Inc.,  Stonebrook  Capital  Management,  Inc. and Rabar
Market Research, Inc. (collectively, the "Advisors").

     The accompanying  financial statements are unaudited but, in the opinion of
management,  include  all  adjustments  (consisting  only  of  normal  recurring
adjustments)  necessary for a fair presentation of the  Partnership's  financial
condition at June 30, 1999 and the results of its  operations  for the three and
six months ended June 30, 1999 and 1998. 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 the Securities and Exchange
Commission for the year ended December 31, 1998.

     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 six months ended
June 30,  1999 and 1998,  were as follows:


                                 THREE-MONTHS ENDED          SIX-MONTHS ENDED
                                       JUNE  30,                  JUNE 30,
                                   1999         1998         1999         1998
                              ----------------------      ---------------------

Net realized and unrealized
 gains (losses)             $      69.05 $     (39.18)$      19.35 $     (82.28)
Interest income                    11.92        11.81        23.56        24.87
Expenses                          (17.52)       (9.02)      (27.36)      (20.33)
                                ---------    ---------    ---------    ---------

Increase (decrease) for
 period                            63.45       (36.39)       15.55       (77.74)

Net Asset Value per Unit,
  beginning of period           1,349.85     1,257.08     1,397.75     1,298.43
                                ---------    ---------    ---------    ---------

Net Asset Value per Unit,
  end of period             $   1,413.30 $   1,220.69 $   1,413.30 $   1,220.69
                               =========    =========    =========    =========


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 SSB  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,  if  applicable,  at June 30, 1999 and December 31, 1998 was
  $10,344,243  and $9,155,609,  respectively,  and the average fair value during
  the six and twelve  months then  ended,  based on a monthly  calculation,  was
  $8,000,585 and $8,814,289, respectively.

                              6

<PAGE>


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
may  include  forwards,  futures  and  options,  whose  value is  based  upon an
underlying  asset,  index,  or reference  rate, and generally  represent  future
commitments  to exchange  currencies  or cash  flows,  to purchase or sell other
financial  instruments at specific terms at specified  future dates,  or, in the
case of derivative commodity instruments, to have a reasonable possibility to be
settled in cash, through physical delivery 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 SSB.

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

                              7
<PAGE>

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

         At  June  30,  1999,  the  notional  or  contractual   amounts  of  the
Partnership's commitment to purchase and sell these instruments was $179,568,747
and  $1,626,786,659,  respectively,  as detailed below. All of these instruments
mature  within  one year of June 30,  1999.  However,  due to the  nature of the
Partnership's  business,  these instruments may not be held to maturity. At June
30, 1999, the fair value of the  Partnership's  derivatives,  including  options
thereon, if applicable, was $10,344,243, as detailed below.

                                         JUNE 30, 1999
                                    NOTIONAL OR CONTRACTUAL
                                    AMOUNT OF COMMITMENTS
                                 TO PURCHASE       TO SELL           FAIR VALUE

Currencies:
- Exchange Traded Contracts   $   16,295,788   $   58,118,754   $      163,136
- OTC Contracts                   58,399,901      189,121,408          768,588
Energy                            37,527,499             --          2,099,604
Grains                               556,300       13,204,765          196,956
Interest Rates U.S.                   64,109      351,445,240        1,289,537
Interest Rates Non-U.S             1,675,589      972,433,780        4,742,406
Livestock                          1,907,340        1,498,680          244,150
Metals                            19,945,625       28,675,435          256,210
Softs                              8,315,433        9,118,158          (23,772)
Indices                           34,881,163        3,170,439          607,428
                              --------------   --------------   --------------

Totals                        $  179,568,747   $1,626,786,659   $   10,344,243
                              ==============   ==============   ==============


                                        8
<PAGE>


         At  December  31,  1998,  the  notional or  contractual  amounts of the
Partnership's commitment to purchase and sell these instruments was $710,781,714
and $672,667,460, respectively, and fair value of the Partnership's derivatives,
including options thereon, if applicable, was $9,155,609, as detailed below.

                                    DECEMBER 31,1998
                                NOTIONAL OR CONTRACTUAL
                                AMOUNT OF COMMITMENTS
                               TO PURCHASE       TO SELL       FAIR VALUE

Currencies:
- Exchange Traded Contracts   $  1,854,238   $  8,298,013   $     57,514
- OTC Contracts                101,811,752     92,268,276         56,390
Energy                              29,148     13,483,496        433,210
Grains                             316,896     18,245,823        415,008
Interest Rates U.S.             79,457,250     95,731,294       (740,429)
Interest Rates Non-U.S         496,535,139    404,533,682      7,987,464
Livestock                             --          636,650         20,120
Metals                           2,326,150     29,063,147        468,466
Softs                           13,219,410      7,949,559        383,544
Indices                         15,231,731      2,457,520         74,322
                              ------------   ------------   ------------

Totals                        $710,781,714   $672,667,460   $  9,155,609
                              ============   ============   ============


                                             9


<PAGE>


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

Liquidity and Capital Resources

The  Partnership  does not  engage  in the sale of goods or  services.  Its only
assets are its equity in its commodity  futures trading  account,  consisting of
cash and cash equivalents,  net unrealized  appreciation  (depreciation) on open
futures and  forward  contracts,  commodity  options  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 second quarter of 1999.

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 six months ended June 30, 1999,  Partnership capital decreased 5.6% from
$143,904,261 to  $135,827,745.  This decrease was attributable to the redemption
of 6,891.2523  Units totaling  $9,482,693  which was partially offset by the net
income from  operations  of  $1,346,022  and  additional  sales of 43.7772 Units
totaling $60,155.  Additional Units offered represent a reduced brokerage fee to
existing limited partners  investing  $1,000,000 or more. Future redemptions can
impact the amount of funds  available  for  investments  in  commodity  contract
positions in subsequent periods.

Risk of Computer System Failure (Year 2000 Issue)

                  The Year 2000 issue is the  result of  existing  computers  in
many  businesses  using  only two digits to  identify a year in the date  field.
These  computers and programs,  often referred to as  "information  technology,"
were  designed  and  developed  without  considering  the impact of the upcoming
change in the century. If not corrected,  many computer  applications could fail
or create  erroneous  results at the Year 2000.  Such systems and  processes are
dependent on correctly identifying dates in the next century.

                  The  General   Partner   administers   the   business  of  the
Partnership through various systems and processes maintained by SSBH and SSB. In
addition, the operation of the Partnership is dependent on the capability of the
Partnership's  Advisors,  the brokers and  exchanges  through which the Advisors
trade, and other third parties to prepare adequately for the Year 2000 impact on
their  systems  and  processes.   The  Partnership  itself  has  no  systems  or
information technology applications relevant to its operations.

                                        10
<PAGE>


                  The General Partner,  SSB, SSBH and their parent  organization
Citigroup Inc. have  undertaken a  comprehensive,  firm-wide  evaluation of both
internal and external  systems  (systems  related to third parties) to determine
the  specific  modifications  needed to prepare for the year 2000.  The combined
Year 2000 program in SSB is expected to cost approximately $140 million over the
four years from 1996 through 1999, and has involved over 450 people.  As of June
30, 1999, SSB has completed all compliance and certification work.

                  The systems and components  supporting  the General  Partner's
business that require  remediation  have been brought into Year 2000 compliance.
Final testing and certification was completed as of June 30, 1999.

                  This expenditure and the General Partner's resources dedicated
to the  preparation  for Year 2000 do not and will not have a material impact on
the operation or results of the Partnership.

                  The General Partner has received  statements from the Advisors
that they have completed their Year 2000 remediation program.

                  The most likely and most  significant  risk to the Partnership
associated  with the lack of Year  2000  readiness  is the  failure  of  outside
organizations,  including the commodities exchanges, clearing organizations,  or
regulators  with which the  Partnership  interacts  to  resolve  their Year 2000
issues in a timely  manner.  This risk could  involve the inability to determine
the value of the  Partnership  at some  point in time and would  make  effecting
purchases  or  redemptions  of Units in the  Partnership  infeasible  until such
valuation was determinable.

                  SSB has  successfully  participated in  industry-wide  testing
including:  The Streetwide  Beta Testing  organized by the  Securities  Industry
Association  (SIA),  a  government  securities  clearing  test with the  Federal
Reserve Bank of New York,  The  Depository  Trust  Company,  and The Bank of New
York,  and  Futures  Industry  Association  participants  test.  The  firm  also
participated in the streetwide testing that was conducted from March through May
1999.

                  It is possible that problems may occur that would require some
time to repair.  Moreover,  it is possible that problems will occur outside SSBH
for which SSBH could  experience  a  secondary  effect.  Consequently,  SSBH has
prepared comprehensive, written contingency plans so that alternative procedures
and a framework for critical  decisions are defined before any potential  crisis
occurs.


                              11
<PAGE>

                  The  goal  of  year  2000  contingency  planning  is a set  of
alternate  procedures to be used in the event of a critical  system failure by a
supplier of  counterparty.  Planning  work was  completed in January  1999,  and
testing of  alternative  procedures  will be  completed  in the third and fourth
quarter of 1999.

Results of Operations

         During the  Partnership's  second  quarter of 1999, the net asset value
per Unit increased 4.7% from $1,349.85 to $1,413.30,  as compared to an decrease
of 2.9% in the second quarter of 1998. The Partnership experienced a net trading
gain before brokerage commissions and related fees in the second quarter of 1999
of  $8,920,839.  Gains were primarily  attributable  to the trading of commodity
futures in currencies,  livestock,  indices,  U.S. and non - U.S. interest rates
and energy and were partially offset by losses in metals,  softs and grains. The
Partnership  experienced  a net trading loss before  brokerage  commissions  and
related fees in the second quarter of 1998 of $2,332,611.  Losses were primarily
attributable to the trading of commodity futures in livestock, U.S. and non-U.S.
interest rates, grains and metals and were partially offset by gains in indices,
currencies, softs and energy products.

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

         Interest income on 80% of the Partnership's  daily equity maintained in
cash was earned on the monthly average 30-day U.S. Treasury bill rate determined
weekly by SSB based on the  non-competitive  yield on three month U.S.  Treasury
bills maturing in 30 days from the date in which such weekly rate is determined.
Interest  income for the three and six months  ended June 30, 1999  decreased by
$130,107 and $448,810, respectively, as compared to the corresponding periods in
1998.  The  decrease  in  interest  income  is  primarily  due to the  effect of
redemptions on the Partnership's equity maintained in cash.

         Brokerage  commissions  are calculated on the  Partnership's  net asset
value as of the last day of each month and, therefore, vary according to trading
performance and redemptions.  Accordingly,  they must be compared in relation to

                                   12

<PAGE>

the fluctuations in monthly net asset values. Commissions and fees for the three
months  ended  June  30,  1999   increased  by  $34,985,   as  compared  to  the
corresponding period in 1998. Commissions and fees for the six months ended June
30, 1999 decreased by $150,573 as compared to the corresponding period in 1998.

         Management fees are calculated on the portion of the  Partnership's net
asset value  allocated to each  Advisor at the end of the month and,  therefore,
are affected by trading  performance  and  redemptions.  Management fees for the
three and six months  ended June 30, 1999  increased  by $145,840  and  $92,199,
respectively, as compared to the corresponding periods in 1998.

         Incentive fees are based on the new trading  profits  generated by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the Partnership,  the General Partner and each Advisor.  Trading performance for
the three and six months  ended June 30,  1999  resulted  in  incentive  fees of
$562,955. Trading performance for the six months ended June 30, 1998 resulted in
incentive fees of $242,074.

                                   13
<PAGE>


Item 3.       Quantitative and Qualitative Disclosures of Market Risk

         The Partnership is a speculative  commodity pool. The market  sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company,  the risk of market sensitive  instruments is
integral, not incidental, to the Partnership's main line of business.

         Market movements result in frequent changes in the fair market value of
the  Partnership's  open positions and,  consequently,  in its earnings and cash
flow. The Partnership's  market risk is influenced by a wide variety of factors,
including the level and volatility of interest  rates,  exchange  rates,  equity
price  levels,  the market value of financial  instruments  and  contracts,  the
diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.

         The  Partnership  rapidly  acquires and liquidates  both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance,  and
the Partnership's  past performance is not necessarily  indicative of its future
results.

         Value at Risk is a measure of the maximum amount which the  Partnership
could  reasonably  be expected to lose in a given market  sector.  However,  the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets  traded by the  Partnership  of market  movements  far  exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's  experience to date (i.e., "risk of
ruin").  In  light  of the  foregoing  as well as the  risks  and  uncertainties
intrinsic  to all  future  projections,  the  inclusion  of  the  quantification
included in this section should not be considered to constitute any assurance or
representation  that the  Partnership's  losses  in any  market  sector  will be
limited to Value at Risk or by the  Partnership's  attempts to manage its market
risk.

                         14
<PAGE>



         The following table indicates the trading Value at Risk associated with
the  Partnership's  open  positions by market  category as of June 30, 1999. All
open position  trading risk exposures of the  Partnership  have been included in
calculating the figures set forth below. As of June 30, 1999, the  Partnership's
total capitalization was approximately $135,827,745.  There has been no material
change in the trading Value at Risk information previously disclosed in the Form
10-K for the year ended December 31, 1998.

                                  June 30, 1999

                                                % of Total
Market Sector                 Value at Risk    Capitalization

Currencies
 - Exchange Traded Contracts   $   833,968       0.61%
 - OTC Contracts                 2,668,240       1.96%
Energy                           2,438,600       1.80%
Grains                             506,860       0.37%
Interest rates U.S.              1,940,938       1.43%
Interest rates Non-U.S           5,715,972       4.21%
Livestock                           76,060       0.06%
Metals                           1,206,110       0.89%
Softs                              956,017       0.70%
Indices                          2,543,547       1.87%
                               -----------     -------

Total                          $18,886,312      13.90%
                               ===========     =======



                                   15

<PAGE>


                            PART II OTHER INFORMATION

Item 1.   Legal Proceedings

               For  information  concerning  a purported  class  action  against
          numerous  broker-dealers  including  Salomon  Smith  Barney,  see  the
          description that appears in the sixth paragraph under the caption Item
          3. "Legal  Proceedings"  on Form 10-K for the year ending December 31,
          1998. SSBH has filed a motion to dismiss the amended complaint

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

                                   16
<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:      8/13/99


  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:      8/13/99


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

Date: 8/13/99

                              17