UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.20549

FORM 10-Q

(X) QUARTERLY REPORT UNDER SECTION 13or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR(    ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For theQuarter ended September 30, 2006

Commission FileNumber 0-26132

SMITHBARNEY DIVERSIFIED FUTURES FUNDL.P.

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(Exact nameof registrant as specified in its charter)

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|--------------------------------------------------------------|--|--|-----------------------------------|
| 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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(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 September 30, 2006 and December 31,2005 (unaudited)                                            |  |  | 3                       |
|                                 |  |  | Condensed Schedules of Investments at September 30,2006 and December 31,  2005(unaudited)                                          |  |  | 4 – 5   |
|                                 |  |  | Statements of Income and Expenses and Partners'Capital for the three and nine months ended September 30,  2006and 2005 (unaudited) |  |  | 6                       |
|                                 |  |  | Statementsof Cash Flows for the three and nine months ended September 30,2006 and 2005 (unaudited)                                 |  |  | 7                       |
|                                 |  |  | Notesto Financial Statements (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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PART I

Item 1.Financial Statements

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

|                                                                                                                                        |  |  |                   |   |            |                 |  |  |  |   |            |  |
|----------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------|---|------------|-----------------|--|--|--|---|------------|--|
|                                                                                                                                   |  |  | September30, 2006 |   |            | December31,2005 |
| Assets:                                                                                                                                |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Investmentin Partnerships, at fairvalue                                                                                                |  |  |                   | $ | 53,549,221 |                 |  |  |  | $ | 43,555,768 |  |
| Equityin commodity futures tradingaccount:                                                                                        |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Cash(restricted $0 and $1,000,127 in 2006 and 2005,respectively)                                                                       |  |  |                   |   | 34,708     |                 |  |  |  |   | 15,272,733 |  |
| Unrealizedappreciation on open forwardcontracts                                                                                        |  |  |                   |   | —    |                 |  |  |  |   | 672,909    |  |
|                                                                                                                                   |  |  |                   |   | 53,583,929 |                 |  |  |  |   | 59,501,410 |  |
| Interestreceivable                                                                                                                     |  |  |                   |   | —    |                 |  |  |  |   | 36,929     |  |
|                                                                                                                                   |  |  |                   | $ | 53,583,929 |                 |  |  |  | $ | 59,538,339 |  |
| Liabilitiesand Partners'Capital:                                                                                                       |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Liabilities:                                                                                                                           |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Netunrealized depreciation on open futures positions                                                                                   |  |  |                   | $ | —    |                 |  |  |  | $ | 30,126     |  |
| Unrealizeddepreciation on open forwardcontracts                                                                                        |  |  |                   |   | —    |                 |  |  |  |   | 445,992    |  |
| Accruedexpenses:                                                                                                                       |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Brokeragecommissions                                                                                                                   |  |  |                   |   | 245,593    |                 |  |  |  |   | 275,893    |  |
| Managementfees                                                                                                                         |  |  |                   |   | 82,771     |                 |  |  |  |   | 93,168     |  |
| Other                                                                                                                                  |  |  |                   |   | 33,748     |                 |  |  |  |   | 48,621     |  |
| Redemptionspayable                                                                                                                     |  |  |                   |   | 535,870    |                 |  |  |  |   | 635,814    |  |
|                                                                                                                                   |  |  |                   |   | 897,982    |                 |  |  |  |   | 1,529,614  |  |
|                                                                                                                                   |  |  |                   |   |       |                 |  |  |  |   |       |  |
| Partners'Capital:                                                                                                                      |  |  |                   |   |       |                 |  |  |  |   |       |  |
| General Partner,1,276.7484 Unit equivalents outstanding in 2006 and2005                                                                |  |  |                   |   | 2,031,345  |                 |  |  |  |   | 2,057,289  |  |
| LimitedPartners, 31,837.5435 and 34,723.3527 Redeemable Units of LimitedPartnership Interest outstanding in 2006 and 2005,respectively |  |  |                   |   | 50,654,602 |                 |  |  |  |   | 55,951,436 |  |
|                                                                                                                                   |  |  |                   |   | 52,685,947 |                 |  |  |  |   | 58,008,725 |  |
|                                                                                                                                   |  |  |                   | $ | 53,583,929 |                 |  |  |  | $ | 59,538,339 |  |
|                                                                                                                                        |

Seeaccompanying Notes to Financial Statements.

3

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

|                                      |  |  |           |  |             |                      |  |  |  |  |        |   |
|--------------------------------------|--|--|-----------|--|-------------|----------------------|--|--|--|--|--------|---|
|                                 |  |  | FairValue |  |             | % ofPartners'Capital |
|                                 |  |  |           |  |        |                      |  |  |  |  |   |   |
| InvestmentinPartnerships             |  |  |           |  |        |                      |  |  |  |  |   |   |
|                                 |  |  |           |  |        |                      |  |  |  |  |   |   |
| CMFCampbell Master FundL.P.          |  |  |           |  | $13,358,671 |                      |  |  |  |  | 25.36  | % |
| CMFWillowbridge Argo Master FundL.P. |  |  |           |  | 12,273,926  |                      |  |  |  |  | 23.30  |   |
| CMF WintonMaster L.P.                |  |  |           |  | 14,632,942  |                      |  |  |  |  | 27.77  |   |
| CMFGraham Master FundL.P.            |  |  |           |  | 13,283,682  |                      |  |  |  |  | 25.21  |   |
| TotalFairValue                       |  |  |           |  | $53,549,221 |                      |  |  |  |  | 101.64 | % |
|                                      |

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

See accompanying Notes to FinancialStatements.

4

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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.

5

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

|                                                                                                                                         |  |  |                                |   |            |                              |  |  |      |   |            |      |  |  |  |   |            |   |  |  |  |   |            |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------------------------|---|------------|------------------------------|--|--|------|---|------------|------|--|--|--|---|------------|---|--|--|--|---|------------|---|
|                                                                                                                                    |  |  | ThreeMonths EndedSeptember 30, |   |            | Nine MonthsEndedSeptember30, |
|                                                                                                                                    |  |  | 2006                           |   |            | 2005                         |  |  | 2006 |   |            | 2005 |
| Income:                                                                                                                                 |  |  |                                |   |       |                              |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Net gains (losses) on trading of commodityinterests:                                                                                    |  |  |                                |   |       |                              |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Realized gains(losses) on closedpositions                                                                                               |  |  |                                | $ | —    |                              |  |  |      | $ | 1,046,890  |      |  |  |  | $ | 681,227    |   |  |  |  | $ | (5,873,127 | ) |
| Changein unrealized gains (losses) on open positions and investment inPartnerships                                                      |  |  |                                |   | (546,697   | )                            |  |  |      |   | 385,838    |      |  |  |  |   | 1,791,206  |   |  |  |  |   | 4,045,538  |   |
|                                                                                                                                    |  |  |                                |   | (546,697   | )                            |  |  |      |   | 1,432,728  |      |  |  |  |   | 2,472,433  |   |  |  |  |   | (1,827,589 | ) |
| Interestincome                                                                                                                          |  |  |                                |   | —    |                              |  |  |      |   | 105,552    |      |  |  |  |   | 125,292    |   |  |  |  |   | 389,842    |   |
|                                                                                                                                    |  |  |                                |   | (546,697   | )                            |  |  |      |   | 1,538,280  |      |  |  |  |   | 2,597,725  |   |  |  |  |   | (1,437,747 | ) |
| Expenses:                                                                                                                               |  |  |                                |   |       |                              |  |  |      |   |       |      |  |  |  |   |       |   |  |  |  |   |       |   |
| Brokeragecommissions including clearing fees of $0, $4,882, $8,133 and $37,336respectively                                              |  |  |                                |   | 741,548    |                              |  |  |      |   | 854,677    |      |  |  |  |   | 2,351,493  |   |  |  |  |   | 2,611,889  |   |
| Managementfees                                                                                                                          |  |  |                                |   | 249,340    |                              |  |  |      |   | 284,934    |      |  |  |  |   | 786,976    |   |  |  |  |   | 862,793    |   |
| Incentivefees                                                                                                                           |  |  |                                |   | —    |                              |  |  |      |   | —    |      |  |  |  |   | 38,349     |   |  |  |  |   | 296,368    |   |
| Other                                                                                                                                   |  |  |                                |   | 34,051     |                              |  |  |      |   | 17,667     |      |  |  |  |   | 79,099     |   |  |  |  |   | 63,415     |   |
|                                                                                                                                    |  |  |                                |   | 1,024,939  |                              |  |  |      |   | 1,157,278  |      |  |  |  |   | 3,255,917  |   |  |  |  |   | 3,834,465  |   |
| Netincome(loss)                                                                                                                         |  |  |                                |   | (1,571,636 | )                            |  |  |      |   | 381,002    |      |  |  |  |   | (658,192   | ) |  |  |  |   | (5,272,212 | ) |
| Redemptions—LimitedPartners                                                                                                       |  |  |                                |   | (1,520,372 | )                            |  |  |      |   | (1,491,293 | )    |  |  |  |   | (4,664,586 | ) |  |  |  |   | (4,103,618 | ) |
| Netdecrease in Partners'Capital                                                                                                         |  |  |                                |   | (3,092,008 | )                            |  |  |      |   | (1,110,291 | )    |  |  |  |   | (5,322,778 | ) |  |  |  |   | (9,375,830 | ) |
| Partners'Capital, beginning ofperiod                                                                                                    |  |  |                                |   | 55,777,955 |                              |  |  |      |   | 60,965,319 |      |  |  |  |   | 58,008,725 |   |  |  |  |   | 69,230,858 |   |
| Partners'Capital, end ofperiod                                                                                                          |  |  |                                | $ | 52,685,947 |                              |  |  |      | $ | 59,855,028 |      |  |  |  | $ | 52,685,947 |   |  |  |  | $ | 59,855,028 |   |
| NetAsset Value per Redeemable Unit (33,114.2919 and 37,073.8018 RedeembleUnits outstanding at September 30, 2006 and 2005,respectively) |  |  |                                | $ | 1,591.03   |                              |  |  |      | $ | 1,614.48   |      |  |  |  | $ | 1,591.03   |   |  |  |  | $ | 1,614.48   |   |
| Netincome (loss) per Redeemable Unit of Limited Partnership Interest andGeneral Partner Unitequivalent                                  |  |  |                                | $ | (45.88     | )                            |  |  |      | $ | 9.92       |      |  |  |  | $ | (20.32     | ) |  |  |  | $ | (131.88    | ) |
|                                                                                                                                         |

Seeaccompanying Notes to Financial Statements.

6

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

|                                                                                                  |  |  |                                |   |            |                              |  |  |      |   |             |      |  |  |  |   |             |   |  |  |  |   |             |   |
|--------------------------------------------------------------------------------------------------|--|--|--------------------------------|---|------------|------------------------------|--|--|------|---|-------------|------|--|--|--|---|-------------|---|--|--|--|---|-------------|---|
|                                                                                             |  |  | ThreeMonths EndedSeptember 30, |   |            | Nine MonthsEndedSeptember30, |
|                                                                                             |  |  | 2006                           |   |            | 2005                         |  |  | 2006 |   |             | 2005 |
| Cashflows from operating activities:                                                             |  |  |                                |   |       |                              |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Net income(loss)                                                                                 |  |  |                                | $ | (1,571,636 | )                            |  |  |      | $ | 381,002     |      |  |  |  | $ | (658,192    | ) |  |  |  | $ | (5,272,212  | ) |
| Adjustmentsto reconcile net income (loss) to net cash provided by (used in)operating activities: |  |  |                                |   |       |                              |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Changes inoperating assets and liabilities:                                                      |  |  |                                |   |       |                              |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Purchase ofInvestment inPartnerships                                                             |  |  |                                |   | —    |                              |  |  |      |   | (11,118,119 | )    |  |  |  |   | (14,741,156 | ) |  |  |  |   | (30,546,749 | ) |
| Proceedsfrom sale of Investment inPartnerships                                                   |  |  |                                |   | 1,975,034  |                              |  |  |      |   | 1,231,490   |      |  |  |  |   | 6,014,394   |   |  |  |  |   | 7,830,944   |   |
| Netunrealized (appreciation) depreciation on Investment inPartnerships                           |  |  |                                |   | 1,072,035  |                              |  |  |      |   | (1,387,972  | )    |  |  |  |   | (1,266,691  | ) |  |  |  |   | (4,985,920  | ) |
| (Increase)decrease in restrictedcash                                                             |  |  |                                |   | —    |                              |  |  |      |   | 5,393,223   |      |  |  |  |   | 1,000,127   |   |  |  |  |   | 7,047,428   |   |
| (Increase)decrease in net unrealized appreciation on open futures positions                      |  |  |                                |   | —    |                              |  |  |      |   | 1,333,396   |      |  |  |  |   | —     |   |  |  |  |   | 1,429,663   |   |
| (Increase)decrease in unrealized appreciation on open forward contracts                          |  |  |                                |   | —    |                              |  |  |      |   | 113,511     |      |  |  |  |   | 672,909     |   |  |  |  |   | 1,811,623   |   |
| (Increase)decrease in interest     receivable                                |  |  |                                |   | —    |                              |  |  |      |   | 18,581      |      |  |  |  |   | 36,929      |   |  |  |  |   | 34,883      |   |
| Increase(decrease) in net unrealized depreciation on open futurespositions                       |  |  |                                |   | —    |                              |  |  |      |   | —     |      |  |  |  |   | (30,126     | ) |  |  |  |   | —     |   |
| Increase(decrease) in unrealized depreciation on open forward contracts                          |  |  |                                |   | —    |                              |  |  |      |   | (171,067    | )    |  |  |  |   | (445,992    | ) |  |  |  |   | (1,694,899  | ) |
| Accruedexpenses:                                                                                 |  |  |                                |   |       |                              |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Increase (decrease) in brokeragecommissions                                                      |  |  |                                |   | (13,951    | )                            |  |  |      |   | (5,520      | )    |  |  |  |   | (30,300     | ) |  |  |  |   | (56,003     | ) |
| Increase(decrease) in management fees                                                            |  |  |                                |   | (5,021     | )                            |  |  |      |   | (1,457      | )    |  |  |  |   | (10,397     | ) |  |  |  |   | (20,007     | ) |
| Increase(decrease) in incentive fees                                                             |  |  |                                |   | —    |                              |  |  |      |   | (142,694    | )    |  |  |  |   | —     |   |  |  |  |   | (78,926     | ) |
| Increase(decrease) in other                                                                      |  |  |                                |   | (14,014    | )                            |  |  |      |   | (18,997     | )    |  |  |  |   | (14,873     | ) |  |  |  |   | (5,571      | ) |
| Netcash provided by (used in)     operating activities                       |  |  |                                |   | 1,442,447  |                              |  |  |      |   | (4,374,623  | )    |  |  |  |   | (9,473,368  | ) |  |  |  |   | (24,505,746 | ) |
| Cashflows from financing activities:                                                             |  |  |                                |   |       |                              |  |  |      |   |        |      |  |  |  |   |        |   |  |  |  |   |        |   |
| Payments forredemptions—Limited Partners                                                   |  |  |                                |   | (1,439,179 | )                            |  |  |      |   | (1,433,605  | )    |  |  |  |   | (4,764,530  | ) |  |  |  |   | (4,796,045  | ) |
| Netcash provided by (used in)     financing activities                       |  |  |                                |   | (1,439,179 | )                            |  |  |      |   | (1,433,605  | )    |  |  |  |   | (4,764,530  | ) |  |  |  |   | (4,796,045  | ) |
| Netchange in cash                                                                                |  |  |                                |   | 3,268      |                              |  |  |      |   | (5,808,228  | )    |  |  |  |   | (14,237,898 | ) |  |  |  |   | (29,301,791 | ) |
| Unrestrictedcash, at beginning of period                                                         |  |  |                                |   | 31,440     |                              |  |  |      |   | 21,068,725  |      |  |  |  |   | 14,272,606  |   |  |  |  |   | 44,562,288  |   |
| Unrestrictedcash, at end of period                                                               |  |  |                                | $ | 34,708     |                              |  |  |      | $ | 15,260,497  |      |  |  |  | $ | 34,708      |   |  |  |  | $ | 15,260,497  |   |
| Non-cashFinancing Activities: Contributions of open commodity futures andforwardpositions        |  |  |                                | $ | —    |                              |  |  |      | $ | (1,141,230  | )    |  |  |  | $ | —     |   |  |  |  | $ | (1,333,742  | ) |
|                                                                                                  |

See accompanying Notes to FinancialStatements.

7

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SmithBarney Diversified Futures Fund L.P.Notes to FinancialStatementsSeptember 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 September 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 September 30, 2006 andDecember 31, 2005 and the results of its operations and cash flows forthe three and nine months ended September 30, 2006 and 2005. Thesefinancial statements present the results of interim periods and do notinclude all disclosures normally provided in annual financialstatements. You should read these financial statements together withthe financial statements and notes included in the Partnership'sannual report on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2005.

Due to thenature of commodity trading, the results of operations for the interimperiods presented should not be considered indicative of the resultsthat may be expected for the entire year.

2.    FinancialHighlights:

Changes in Net Asset Value per Redeemable Unit ofLimited Partnership Interest for the three and nine months endedSeptember 30, 2006 and 2005 were asfollows:

|                                                        |  |  |                                |   |          |                              |  |  |      |   |          |      |  |  |  |   |          |   |  |  |  |   |          |   |
|--------------------------------------------------------|--|--|--------------------------------|---|----------|------------------------------|--|--|------|---|----------|------|--|--|--|---|----------|---|--|--|--|---|----------|---|
|                                                   |  |  | ThreeMonths EndedSeptember 30, |   |          | Nine MonthsEndedSeptember30, |
|                                                   |  |  | 2006                           |   |          | 2005                         |  |  | 2006 |   |          | 2005 |
| Netrealized and unrealized gains(losses)*              |  |  |                                | $ | (37.48   | )                            |  |  |      | $ | 15.10    |      |  |  |  | $ | 2.23     |   |  |  |  | $ | (110.35  | ) |
| Interestincome                                         |  |  |                                |   | —  |                              |  |  |      |   | 2.80     |      |  |  |  |   | 3.52     |   |  |  |  |   | 10.10    |   |
| Expenses**                                             |  |  |                                |   | (8.40    | )                            |  |  |      |   | (7.98    | )    |  |  |  |   | (26.07   | ) |  |  |  |   | (31.63   | ) |
| Increase(decrease) for the period                      |  |  |                                |   | (45.88   | )                            |  |  |      |   | 9.92     |      |  |  |  |   | (20.32   | ) |  |  |  |   | (131.88  | ) |
| NetAsset Value per Redeemable Unit, beginning ofperiod |  |  |                                |   | 1,636.91 |                              |  |  |      |   | 1,604.56 |      |  |  |  |   | 1,611.35 |   |  |  |  |   | 1,746.36 |   |
| NetAsset Value per Redeemable Unit, end ofperiod       |  |  |                                | $ | 1,591.03 |                              |  |  |      | $ | 1,614.48 |      |  |  |  | $ | 1,591.03 |   |  |  |  | $ | 1,614.48 |   |
|                                                        |

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

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

8

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

Financial Highlights(continued):

|                                              |  |  |                                |  |         |                              |  |  |      |  |         |      |  |  |  |  |        |    |  |  |  |  |        |    |
|----------------------------------------------|--|--|--------------------------------|--|---------|------------------------------|--|--|------|--|---------|------|--|--|--|--|--------|----|--|--|--|--|--------|----|
|                                         |  |  | ThreeMonths EndedSeptember 30, |  |         | Nine MonthsEndedSeptember30, |
|                                         |  |  | 2006                           |  |         | 2005                         |  |  | 2006 |  |         | 2005 |
| Ratioto average net assets: ***              |  |  |                                |  |    |                              |  |  |      |  |    |      |  |  |  |  |   |    |  |  |  |  |   |    |
| Netinvestment loss before incentive fees**** |  |  |                                |  | (7.6    | )%                           |  |  |      |  | (6.9    | )%   |  |  |  |  | (7.4   | )% |  |  |  |  | (6.8   | )% |
| Operatingexpenses                            |  |  |                                |  | 7.6     | %                            |  |  |      |  | 7.6     | %    |  |  |  |  | 7.7    | %  |  |  |  |  | 7.6    | %  |
| Incentivefees                                |  |  |                                |  | — | %                            |  |  |      |  | — | %    |  |  |  |  | 0.1    | %  |  |  |  |  | 0.5    | %  |
| Totalexpenses                                |  |  |                                |  | 7.6     | %                            |  |  |      |  | 7.6     | %    |  |  |  |  | 7.8    | %  |  |  |  |  | 8.1    | %  |
| Total return:                                |  |  |                                |  |    |                              |  |  |      |  |    |      |  |  |  |  |   |    |  |  |  |  |   |    |
| Total return beforeincentivefees             |  |  |                                |  | (2.8    | )%                           |  |  |      |  | 0.6     | %    |  |  |  |  | (1.2   | )% |  |  |  |  | (7.1   | )% |
| Incentivefees                                |  |  |                                |  | — | %                            |  |  |      |  | — | %    |  |  |  |  | (0.1   | )% |  |  |  |  | (0.5   | )% |
| Total return after incentivefees             |  |  |                                |  | (2.8    | )%                           |  |  |      |  | 0.6     | %    |  |  |  |  | (1.3   | )% |  |  |  |  | (7.6   | )% |
|                                              |

|     |                                        |
|-----|----------------------------------------|
| *** | 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 results ofthe Partnership's trading activities (resulting from itsinvestment in other Partnerships) are shown in the statement of incomeand expenses.

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 of the Partnership is the generalpartner of the Winton Master. Individual and pooled accounts currentlymanaged by Winton, including the Partnership, are permitted to belimited partners of the Winton Master. The General Partner and Wintonbelieve that trading through this structure should promote efficiencyand economy in the trading process. Expenses to investors as a resultof the investment in the Winton Master are approximately the same andredemption rights are not affected.

Effective January 1,2005, the assets allocated to Campbell for trading were invested in theCMF Campbell Master Fund L.P. (‘‘CampbellMaster’’), a limited partnership organized under thepartnership 

9

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

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 of the Partnership is the generalpartner of Campbell Master. Individual and pooled accounts currentlymanaged by Campbell, including the Partnership, are permitted to belimited partners of Campbell Master. The General Partner and Campbellbelieve that trading through this structure should promote efficiencyand economy in the trading process. Expenses to investors as a resultof the investment in Campbell Master are approximately the same andredemption rights are not affected.

EffectiveJuly  1, 2005, the assets allocated to Willowbridge for tradingwere invested in the CMF Willowbridge Argo Master Fund L.P.(‘‘Willowbridge Master’’), a limitedpartnership organized under the partnership laws of the State of NewYork. The partnership purchased 12,259.3490 Units of WillowbridgeMaster with cash equal to $11,118,119, and a contribution of opencommodity futures and forward positions with a fair value of$1,141,230. Willowbridge Master was formed in order to permit commoditypools managed now or in the future using Willowbridge's ArgoTrading Program, to invest together in one trading vehicle. The GeneralPartner of the Partnership is the general partner of WillowbridgeMaster. Individual and pooled accounts currently managed byWillowbridge, 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 using Grahams' Multi-TrendProgram at 125% leverage, to invest together in one tradingvehicle. The General Partner of the Partnership is the general partnerof Graham Master. Individual and pooled accounts currently managed byGraham, including the Partnership, are permitted to be limited partnersof Graham Master. The General Partner and Graham believe that tradingthrough this structure promotes efficiency and economy in the tradingprocess. Expenses to investors as a result of the investment in GrahamMaster are approximately the same and redemption rights are notaffected.

Winton Master's, Campbell Master's,Willowbridge Master's and Graham Master's (the‘‘Funds’’) trading of futures, forwards andoptions contracts, if applicable, on commodities is done primarily onUnited States of America commodity exchanges and foreign commodityexchanges. The Funds all engage in such trading through commoditybrokerage accounts maintained with CGM.

A limitedpartner may withdraw all or part of its capital contribution andundistributed profits, if any, from the Funds in multiples of the netasset value per unit of limited partnership interest as of the last dayof a month after a request for redemption has been made to the GeneralPartner at least 3 days in advance of month-end.

Management and incentive fees are not directly charged tothe Funds. These fees are charged at the Partnership level. Allexchange, clearing, user, give-up, floor brokerage and National FuturesAssociation fees are borne by the Funds. All other fees, includingCGM's direct brokerage commission, are charged at the Partnershiplevel.

As of September 30, 2006 the partnership owns4.2%, 6.6%, 5.7% and 5.8%, respectively ofCampbell Master, Willowbridge Master, Winton Master and Graham Master.At December 31, 2005 the Partnership owns 4.7%, 7.4% and8.7%, respectively of Campbell Master, Willowbridge Master andWinton Master. It is Winton's, Campbell's,Willowbridge's and Graham's intention to continue to investthe assets allocated 

10

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

to each by the Partnership in the WintonMaster, Campbell Master, Willowbridge Master and Graham Master. Theperformance of the Partnership is directly affected by the performanceof the Funds.

Summarized information reflecting the totalassets, liabilities and capital for the Funds is shown in the followingtables.

|                    |  |  |                          |   |               |                                |  |  |                            |   |            |  |  |  |  |   |             |  |
|--------------------|--|--|--------------------------|---|---------------|--------------------------------|--|--|----------------------------|---|------------|--|--|--|--|---|-------------|--|
|               |  |  | September30, 2006        |
|               |  |  | Investments' TotalAssets |   |               | Investments' Total Liabilities |  |  | Investments' Total Capital |
| CampbellMaster     |  |  |                          | $ | 331,655,712   |                                |  |  |                            | $ | 13,975,205 |  |  |  |  | $ | 317,680,507 |  |
| WillowbridgeMaster |  |  |                          |   | 186,164,106   |                                |  |  |                            |   | 913,159    |  |  |  |  |   | 185,250,947 |  |
| WintonMaster       |  |  |                          |   | 255,612,473   |                                |  |  |                            |   | 1,242,389  |  |  |  |  |   | 254,370,084 |  |
| GrahamMaster       |  |  |                          |   | 233,518,778   |                                |  |  |                            |   | 3,523,441  |  |  |  |  |   | 229,995,337 |  |
| Total              |  |  |                          | $ | 1,006,951,069 |                                |  |  |                            | $ | 19,654,194 |  |  |  |  | $ | 987,296,875 |  |
|                    |

|                    |  |  |                          |   |             |                                |  |  |                            |   |            |  |  |  |  |   |             |  |
|--------------------|--|--|--------------------------|---|-------------|--------------------------------|--|--|----------------------------|---|------------|--|--|--|--|---|-------------|--|
|               |  |  | 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. The Partnership's share of theFunds' Net Income (Loss) is included in change in unrealizedgains (losses) on open positions and investment in Partnerships on thePartnership's Statement of Income and Expenses andPartners' Capital.

|                    |             |  |                              |       |        |                                              |  |  |              |   |            |          |  |  |                  |   |          |                     |  |  |                      |   |        |  |  |  |  |   |       |  |  |  |  |   |          |   |  |  |                                       |  |  |         |
|--------------------|-------------|--|------------------------------|-------|--------|----------------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|----------|---------------------|--|--|----------------------|---|--------|--|--|--|--|---|-------|--|--|--|--|---|----------|---|--|--|---------------------------------------|--|--|---------|
|               |             |  | September30, 2006            |       |        | For the three months ended September 30,2006 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                                    |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |          | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| Campbell Master    |             |  |                              |       | 25.36  | %                                            |  |  |              | $ | 13,358,671 |          |  |  |                  | $ | (268,777 | )                   |  |  |                      | $ | 4,765  |  |  |  |  | $ | 260   |  |  |  |  | $ | (273,802 | ) |  |  | FinancialsMetals& EnergyPortfolio |  |  | Monthly |
| WillowbridgeMaster |             |  |                              |       | 23.30  | %                                            |  |  |              |   | 12,273,926 |          |  |  |                  |   | (372,369 | )                   |  |  |                      |   | 10,556 |  |  |  |  |   | 580   |  |  |  |  |   | (383,505 | ) |  |  | CommodityPortfolio                    |  |  | Monthly |
| WintonMaster       |             |  |                              |       | 27.77  | %                                            |  |  |              |   | 14,632,942 |          |  |  |                  |   | 488,241  |                     |  |  |                      |   | 10,324 |  |  |  |  |   | 86    |  |  |  |  |   | 477,831  |   |  |  | CommodityPortfolio                    |  |  | Monthly |
| GrahamMaster       |             |  |                              |       | 25.21  | %                                            |  |  |              |   | 13,283,682 |          |  |  |                  |   | (356,927 | )                   |  |  |                      |   | 9,432  |  |  |  |  |   | 862   |  |  |  |  |   | (367,221 | ) |  |  | CommodityPortfolio                    |  |  | Monthly |
| Total              |             |  |                              |       |   |                                              |  |  |              | $ | 53,549,221 |          |  |  |                  | $ | (509,832 | )                   |  |  |                      | $ | 35,077 |  |  |  |  | $ | 1,788 |  |  |  |  | $ | (546,697 | ) |  |  |                                  |  |  |    |
|                    |

11

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

|                    |             |  |                              |       |        |                                             |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |         |  |  |  |  |   |       |  |  |  |  |   |           |   |  |  |                                      |  |  |         |
|--------------------|-------------|--|------------------------------|-------|--------|---------------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|---------|--|--|--|--|---|-------|--|--|--|--|---|-----------|---|--|--|--------------------------------------|--|--|---------|
|               |             |  | September30, 2006            |       |        | For the nine months ended September 30,2006 |  |  |         |   |            |     |
| Investment         |             |  | %of Partnership's Net Assets |       |        | FairValue                                   |  |  | Income(loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                    | Commissions |  |                              | Other |
| Campbell Master    |             |  |                              |       | 25.36  | %                                           |  |  |              | $ | 13,358,671 |          |  |  |                  | $ | (585      | )                   |  |  |                      | $ | 11,442  |  |  |  |  | $ | 785   |  |  |  |  | $ | (12,812   | ) |  |  | FinancialsMetals&EnergyPortfolio |  |  | Monthly |
| WillowbridgeMaster |             |  |                              |       | 23.30  | %                                           |  |  |              |   | 12,273,926 |          |  |  |                  |   | 679,274   |                     |  |  |                      |   | 34,969  |  |  |  |  |   | 1,801 |  |  |  |  |   | 642,504   |   |  |  | CommodityPortfolio                   |  |  | Monthly |
| WintonMaster       |             |  |                              |       | 27.77  | %                                           |  |  |              |   | 14,632,942 |          |  |  |                  |   | 1,643,483 |                     |  |  |                      |   | 47,008  |  |  |  |  |   | 202   |  |  |  |  |   | 1,596,273 |   |  |  | CommodityPortfolio                   |  |  | Monthly |
| GrahamMaster       |             |  |                              |       | 25.21  | %                                           |  |  |              |   | 13,283,682 |          |  |  |                  |   | (214,670  | )                   |  |  |                      |   | 21,262  |  |  |  |  |   | 2,031 |  |  |  |  |   | (237,963  | ) |  |  | CommodityPortfolio                   |  |  | Monthly |
| Total              |             |  |                              |       |   |                                             |  |  |              | $ | 53,549,221 |          |  |  |                  | $ | 2,107,502 |                     |  |  |                      | $ | 114,681 |  |  |  |  | $ | 4,819 |  |  |  |  | $ | 1,988,002 |   |  |  |                                 |  |  |    |
|                    |

|                    |             |  |                              |       |        |                                              |  |  |              |   |            |          |  |  |                  |   |          |                     |  |  |                      |   |        |  |  |  |  |   |       |  |  |  |  |   |          |   |  |  |                                        |  |  |  |  |         |  |
|--------------------|-------------|--|------------------------------|-------|--------|----------------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|----------|---------------------|--|--|----------------------|---|--------|--|--|--|--|---|-------|--|--|--|--|---|----------|---|--|--|----------------------------------------|--|--|--|--|---------|--|
|               |             |  | December31, 2005             |       |        | For the three months ended September 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 |          |  |  |                  | $ | 27,321   |                     |  |  |                      | $ | 5,680  |  |  |  |  | $ | 686   |  |  |  |  | $ | 20,955   |   |  |  | FinancialsMetals & EnergyPortfolio |  |  |  |  | Monthly |  |
| WillowbridgeMaster |             |  |                              |       | 21.67  | %                                            |  |  |              |   | 12,573,482 |          |  |  |                  |   | 706,653  |                     |  |  |                      |   | 15,831 |  |  |  |  |   | 1,153 |  |  |  |  |   | 689,669  |   |  |  | CommodityPortfolio                     |  |  |  |  | Monthly |  |
| Winton Master      |             |  |                              |       | 26.95  | %                                            |  |  |              |   | 15,632,417 |          |  |  |                  |   | (154,146 | )                   |  |  |                      |   | 34,418 |  |  |  |  |   | 1,613 |  |  |  |  |   | (190,177 | ) |  |  | CommodityPortfolio                     |  |  |  |  | Monthly |  |
|               |             |  |                              |       |   |                                              |  |  |              | $ | 43,555,768 |          |  |  |                  | $ | 579,828  |                     |  |  |                      | $ | 55,929 |  |  |  |  | $ | 3,452 |  |  |  |  | $ | 520,447  |   |  |  |                                   |  |  |  |  |    |  |
|                    |

|                    |             |  |                              |       |        |                                             |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |         |  |  |  |  |   |       |  |  |  |  |   |           |  |  |  |                                       |  |  |  |  |         |  |
|--------------------|-------------|--|------------------------------|-------|--------|---------------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|---------|--|--|--|--|---|-------|--|--|--|--|---|-----------|--|--|--|---------------------------------------|--|--|--|--|---------|--|
|               |             |  | December31, 2005             |       |        | For the nine months ended September 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 |          |  |  |                  | $ | 1,563,164 |                     |  |  |                      | $ | 20,621  |  |  |  |  | $ | 2,395 |  |  |  |  | $ | 1,540,148 |  |  |  | FinancialsMetals &EnergyPortfolio |  |  |  |  | Monthly |  |
| WillowbridgeMaster |             |  |                              |       | 21.67  | %                                           |  |  |              |   | 12,573,482 |          |  |  |                  |   | 706,653   |                     |  |  |                      |   | 15,831  |  |  |  |  |   | 1,153 |  |  |  |  |   | 689,669   |  |  |  | CommodityPortfolio                    |  |  |  |  | Monthly |  |
| Winton Master      |             |  |                              |       | 26.95  | %                                           |  |  |              |   | 15,632,417 |          |  |  |                  |   | 2,119,232 |                     |  |  |                      |   | 85,386  |  |  |  |  |   | 5,481 |  |  |  |  |   | 2,028,365 |  |  |  | CommodityPortfolio                    |  |  |  |  | Monthly |  |
|               |             |  |                              |       |   |                                             |  |  |              | $ | 43,555,768 |          |  |  |                  | $ | 4,389,049 |                     |  |  |                      | $ | 121,838 |  |  |  |  | $ | 9,029 |  |  |  |  | $ | 4,258,182 |  |  |  |                                  |  |  |  |  |    |  |
|                    |

5.    FinancialInstrument Risks:

In the normal course of its business, thePartnership, through its investments in the Funds is party to financialinstruments with off-balance sheet risk, including derivative financialinstruments and derivative commodity instruments. These financialinstruments may include forwards, futures and options, whose values arebased upon an underlying asset, index, or reference rate, and generallyrepresent future commitments to exchange currencies or cash flows, topurchase or sell other financial instruments at specific terms atspecified future dates, or, in the case of derivative commodityinstruments, to have a reasonable possibility to be settled in cash,through physical delivery or with another financial instrument. Theseinstruments may be traded on an exchange or over-the-counter(‘‘OTC’’). Exchange-traded instruments arestandardized and include futures and certain option contracts. OTCcontracts are negotiated between contracting parties and includeforwards and certain options. Each of these instruments is subject tovarious risks similar to those related to the underlying financialinstruments 

12

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

including market and credit risk. In general,the risks associated with OTC contracts are greater than thoseassociated with exchange-traded instruments because of the greater riskof default by the counterparty to an OTC contract.

Market riskis the potential for changes in the value of the financial instrumentstraded by the Partnership/Funds due to market changes, includinginterest and foreign exchange rate movements and fluctuations incommodity or security prices. Market risk is directly impacted by thevolatility and liquidity in the markets in which the related underlyingassets are traded.

Credit risk is the possibility that a lossmay occur due to the failure of a counterparty to perform according tothe terms of a contract. Credit risk with respect to exchange tradedinstruments is reduced to the extent that an exchange or clearingorganization acts as a counterparty to the transactions. ThePartnership's/Funds' risk of loss in the event ofcounterparty default is typically limited to the amounts recognized asunrealized appreciation in the statements of financial condition andnot represented by the contract or notional amounts of the instruments.The Partnership/Funds have credit risk and concentration risk becausethe sole counterparty or broker with respect to thePartnership's/Funds' assets is CGM.

The GeneralPartner monitors and controls the Partnership's/Funds' riskexposure on a daily basis through financial, credit and risk managementmonitoring systems, and accordingly believes that it has effectiveprocedures for evaluating and limiting the credit and market risks towhich the Partnership/Funds are subject. These monitoring systems allowthe General Partner to statistically analyze actual trading resultswith risk-adjusted performance indicators and correlation statistics.In addition, on-line monitoring systems provide account analysis offutures, forwards and options positions by sector, margin requirements,gain and loss transactions and collateral positions.

Themajority of these instruments mature within one year of September 30,2006. However, due to the nature of thePartnership's/Funds' businesses, these instruments may notbe held to maturity.

13

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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 the Funds andcash. The Funds' only assets are their equity in its commodityfutures 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 third quarter of 2006.

The Partnership'scapital consists of the capital contributions of the partners asincreased or decreased by its investment in the Funds, expenses,interest income, additions and redemptions of Redeemable Units anddistributions of profits, if any.

For the nine months endedSeptember 30, 2006, Partnership capital decreased 9.2% from$58,008,725 to $52,685,947. This decrease was attributable to theredemption of 2,885.8092 Redeemable Units totaling $4,664,586, coupledwith a net loss from operations of $658,192. Future redemptions canimpact the amount of funds available for investment in commoditycontract positions in subsequent periods.

CriticalAccounting Policies

The preparation of financial statementsin conformity with U.S. generally accepted accounting principlesrequires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, disclosures of contingentassets and liabilities at the date of the financial statements andreported amounts of revenues and expenses during the reporting period.Actual results could differ from these estimates.

All commodityinterests of the Funds (including derivative financial instruments andderivative commodity instruments) are used for trading purposes. Thecommodity interests are recorded on trade date and open contracts arerecorded in the statements of financial condition at fair value on thelast business day of the period, which represents market value forthose commodity interests for which market quotations are readilyavailable 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 investments in other partnerships are recorded at fairvalue, based upon the Partnership's proportionate interestheld.

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 third quarter of2006 the Net Asset Value per Redeemable Unit decreased 2.8% from$1,636.91 to $1,591.03 as compared to an increase of 0.6% in thethird quarter of 2005. The Partnership experienced a net trading lossbefore brokerage commissions and related fees in the third quarter of2006 of $546,697. Losses were primarily attributable to the trading bythe Funds of commodity futures in currencies, energy, grains, non-U.S.interest rates, metals and livestock and were partially offset by gainsin U.S. interest rates, softs, indices and lumber. The Partnershipexperienced a net trading gain 

14

----

before brokerage commissions and related feesin the third quarter of 2005 of $1,432,728. Gains were primarilyattributable to the trading of commodity futures in energy, grains,metals and indices and were partially offset by losses in currencies,U.S. and non-U.S. interest rates, livestock, softs and lumber.

The third quarter presented a challenging investment landscape forthe advisors. The fund was negatively impacted by a number of pricetrend reversals in both financial and commodity markets. Gains earnedin US interest rates, soft commodities, and equity indices were offsetby losses in currencies, metals, and energy.

The Advisors wereprofitable in trading soft commodities, especially in sugar and cotton,as reports suggested record production of new crops resulting in pricedeclines. Buoyant global equity markets were also beneficial for thefund as falling bond yields and energy prices supported global equityvaluations. While small losses were realized in the global fixed incomemarkets, trading in U.S. interest rates was profitable as the slowinghousing market and deteriorating consumer spending further strengthenedthe perception that the U.S. monetary policy had changed course.

Losses were taken in energy, metals, and currency trading. In theenergy markets, losses were accumulated due to unanticipated pricedeclines across the petroleum complex. A series of unrelated eventsassociated with favorable inventory data and moderated geopoliticalconcerns triggered a downward but non-orderly drop in crude prices.Declines in natural gas prices driven by weather and reduced demand forelectricity generation also adversely impacted performance. The Fundposted gains from trading in Japanese yen as the dollar strengthened onspeculation that Japan's central bank would refrain from raisinginterest rates again this year. However, these gains were insufficientto offset losses from trading in euro and British pound. Gains from theindustrial metals only partially offset losses in precious metals whereprices reflected unfavorable trading ranges and sharp pricereversals.

During the Partnership's nine months endedSeptember 30, 2006, the Net Asset Value per Redeemable Unit decreased1.3% from $1,611.35 to $1,591.03 as compared to a decrease of7.6% for the nine months ended September 30, 2005. ThePartnership experienced a net trading gain before commissions andrelated fees for the nine months ended September 30, 2006 of$2,472,433. Gains were primarily attributable to the trading by theFunds of commodity futures in U.S. and, non-U.S. interest rates, metalsand indices and were partially offset by losses in currencies, energy,grains, livestock, softs and lumber. The Partnership experienced a nettrading loss before brokerage commissions and related fees for the ninemonths ended September 30, 2005, of $1,827,589. Losses were primarilyattributable to the trading of commodity futures in currencies, grains,U.S. interest rates, livestock, metals and softs and were partiallyoffset by gains in energy, non-U.S. interest rates, indices andlumber.

Commodity futures markets are highly volatile. Thepotential for broad and rapid price fluctuations increases the risksinvolved in commodity trading, but also increases the possibility ofprofit. The profitability of the Partnership/Funds depends on theexistence of major price trends and the ability of the Advisors tocorrectly identify 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 ininterest rates. To the extent that market trends exist and the Advisorsare able to identify them, the Partnership/ Funds expects to increasecapital through operations.

Interest income on 80% of thePartnership's daily equity maintained in cash allocated to it bythe Funds was earned at the monthly average 30-day U.S. Treasury billrate determined weekly by CGM based on the non-competitive yield onthree month U.S. Treasury bills maturing 30 days from the date in whichsuch weekly rate is determined. CGM may continue to maintain thePartnership's assets in cash and/or place all of thePartnership's assets in 90-day Treasury bills and pay thePartnership 80% of the interest earned on the Treasury billspurchased. CGM will retain 20% of any interest earned onTreasury bills. Interest income for the three and nine months endedSeptember 30, 2006 decreased by $105,552 and $264,550, 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.

15

----

Brokerage commissions are calculated onthe Partnership's net asset value as of the last day of eachmonth and are affected by trading performance and redemptions.Accordingly, they must be compared in relation to the fluctuations inmonthly net asset values. Commissions and fees for the three and ninemonths ended September 30, 2006 decreased by $113,129 and $260,396,respectively as compared to the corresponding periods in 2005. Thedecrease in brokerage commissions is due to lower average net assetsduring the three and nine months ended September 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 nine months ended September 30, 2006 decreased by $35,594and $75,817, respectively as compared to the corresponding periods in2005. The decrease in management fees is due to lower average netassets during the three and nine months ended September 30, 2006 ascompared to the corresponding periods in 2005.

Incentive feesare based on the new trading profits generated by each Advisor at theend of the quarter as defined in the advisory agreements between thePartnership, the General Partner and each Advisor. Trading performancefor the three and nine months ended September 30, 2006, resulted inincentive fees of $0 and $38,349, respectively. Trading performance forthe three and nine months ended September 30, 2005 resulted inincentive fees of $0 and $296,368, respectively.

16

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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.

17

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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 September 30, 2006 and thehighest, lowest and average value during the three months endedSeptember 30, 2006. All open position trading risk exposures of thePartnership have been included in calculating the figures set forthbelow. At December 31, 2005, the table presented on thePartnerships' Annual Report indicated the trading Value at Riskassociated with the Partnership's open position by marketcategory.

As of September 30, 2006, the Graham's Mastertotal capitalization was $229,995,337, the Partnership owned5.8% of Graham Master.

September 30, 2006(Unaudited)

|                         |  |  |               |   |            |                         |  |  |                                     |  |        |                  |  |  |                      |   |           |  |  |  |  |   |           |  |  |  |  |   |           |  |
|-------------------------|--|--|---------------|---|------------|-------------------------|--|--|-------------------------------------|--|--------|------------------|--|--|----------------------|---|-----------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                    |  |  |          |   |            |                    |  |  | ThreeMonths Ended September 30,2006 |
| MarketSector            |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk                    |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:             |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |      |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —OTC              |  |  |               | $ | 5,750,924  |                         |  |  |                                     |  | 2.50   | %                |  |  |                      | $ | 6,566,306 |  |  |  |  | $ | 1,385,168 |  |  |  |  | $ | 3,938,103 |  |
| Energy                  |  |  |               |   | 189,000    |                         |  |  |                                     |  | 0.08   | %                |  |  |                      |   | 775,300   |  |  |  |  |   | 91,000    |  |  |  |  |   | 346,433   |  |
| Grains                  |  |  |               |   | 239,562    |                         |  |  |                                     |  | 0.10   | %                |  |  |                      |   | 689,600   |  |  |  |  |   | 239,562   |  |  |  |  |   | 500,419   |  |
| Interest RatesU.S.      |  |  |               |   | 1,990,800  |                         |  |  |                                     |  | 0.87   | %                |  |  |                      |   | 1,990,800 |  |  |  |  |   | 101,360   |  |  |  |  |   | 748,642   |  |
| Interest Rates Non-U.S. |  |  |               |   | 2,436,575  |                         |  |  |                                     |  | 1.06   | %                |  |  |                      |   | 4,572,318 |  |  |  |  |   | 1,300,259 |  |  |  |  |   | 2,338,322 |  |
| Metals:                 |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |      |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded  |  |  |               |   | 37,500     |                         |  |  |                                     |  | 0.02   | %                |  |  |                      |   | 37,500    |  |  |  |  |   | 10,000    |  |  |  |  |   | 12,500    |  |
| — OTC             |  |  |               |   | 265,386    |                         |  |  |                                     |  | 0.12   | %                |  |  |                      |   | 756,150   |  |  |  |  |   | 43,345    |  |  |  |  |   | 139,821   |  |
| Softs                   |  |  |               |   | 652,162    |                         |  |  |                                     |  | 0.28   | %                |  |  |                      |   | 657,569   |  |  |  |  |   | 396,182   |  |  |  |  |   | 544,994   |  |
| Indices                 |  |  |               |   | 9,891,409  |                         |  |  |                                     |  | 4.30   | %                |  |  |                      |   | 9,891,409 |  |  |  |  |   | 918,882   |  |  |  |  |   | 5,472,919 |  |
| Total                   |  |  |               | $ | 21,453,318 |                         |  |  |                                     |  | 9.33   | %                |  |  |                      |   |      |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                         |

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

As of September 30, 2006,Campbell Master's total capitalization was $317,680,507. ThePartnership owned 4.2% of Campbell Master.

September 30,2006(Unaudited)

|                         |  |  |               |   |            |                         |  |  |                                     |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|-------------------------|--|--|---------------|---|------------|-------------------------|--|--|-------------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                    |  |  |          |   |            |                    |  |  | ThreeMonths Ended September 30,2006 |
| MarketSector            |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk                    |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:             |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —OTC              |  |  |               | $ | 13,041,103 |                         |  |  |                                     |  | 4.10   | %                |  |  |                      | $ | 13,613,647 |  |  |  |  | $ | 5,183,428 |  |  |  |  | $ | 8,546,131 |  |
| Energy                  |  |  |               |   | 3,834,100  |                         |  |  |                                     |  | 1.21   | %                |  |  |                      |   | 6,296,700  |  |  |  |  |   | 2,756,800 |  |  |  |  |   | 4,744,467 |  |
| Interest RatesU.S.      |  |  |               |   | 410,829    |                         |  |  |                                     |  | 0.13   | %                |  |  |                      |   | 1,620,310  |  |  |  |  |   | 199,533   |  |  |  |  |   | 629,917   |  |
| Interest Rates Non-U.S. |  |  |               |   | 1,842,983  |                         |  |  |                                     |  | 0.58   | %                |  |  |                      |   | 4,243,379  |  |  |  |  |   | 1,754,068 |  |  |  |  |   | 2,321,761 |  |
| Metals:                 |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded  |  |  |               |   | 225,500    |                         |  |  |                                     |  | 0.07   | %                |  |  |                      |   | 225,500    |  |  |  |  |   | 129,000   |  |  |  |  |   | 183,383   |  |
| —OTC              |  |  |               |   | 1,160,142  |                         |  |  |                                     |  | 0.37   | %                |  |  |                      |   | 1,212,500  |  |  |  |  |   | 805,520   |  |  |  |  |   | 986,106   |  |
| Indices                 |  |  |               |   | 9,569,298  |                         |  |  |                                     |  | 3.01   | %                |  |  |                      |   | 9,569,298  |  |  |  |  |   | 1,935,462 |  |  |  |  |   | 5,920,076 |  |
| Total                   |  |  |               | $ | 30,083,955 |                         |  |  |                                     |  | 9.47   | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                         |

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

18

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As of September 30, 2006, WillowbridgeMaster's total capitalization was $185,250,947. The Partnershipowned 6.6% of Willowbridge Master.

September 30, 2006(Unaudited)

|                         |  |  |               |   |            |                         |  |  |                                     |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|-------------------------|--|--|---------------|---|------------|-------------------------|--|--|-------------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                    |  |  |          |   |            |                    |  |  | ThreeMonths Ended September 30,2006 |
| MarketSector            |  |  | Value at Risk |   |            | % ofTotalCapitalization |  |  | HighValue atRisk                    |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:             |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded  |  |  |               | $ | 3,743,173  |                         |  |  |                                     |  | 2.02   | %                |  |  |                      | $ | 7,745,700  |  |  |  |  | $ | 1,121,900 |  |  |  |  | $ | 3,886,457 |  |
| Energy                  |  |  |               |   | 7,176,000  |                         |  |  |                                     |  | 3.87   | %                |  |  |                      |   | 10,936,000 |  |  |  |  |   | 3,976,500 |  |  |  |  |   | 8,088,500 |  |
| Grains                  |  |  |               |   | 1,527,200  |                         |  |  |                                     |  | 0.82   | %                |  |  |                      |   | 1,527,200  |  |  |  |  |   | 289,200   |  |  |  |  |   | 1,087,195 |  |
| Interest RatesU.S.      |  |  |               |   | 3,864,000  |                         |  |  |                                     |  | 2.09   | %                |  |  |                      |   | 3,864,000  |  |  |  |  |   | 362,000   |  |  |  |  |   | 3,192,600 |  |
| Interest Rates Non-U.S. |  |  |               |   | 9,439,773  |                         |  |  |                                     |  | 5.10   | %                |  |  |                      |   | 9,499,826  |  |  |  |  |   | 650,146   |  |  |  |  |   | 6,337,231 |  |
| Metals:                 |  |  |               |   |       |                         |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded  |  |  |               |   | 920,000    |                         |  |  |                                     |  | 0.49   | %                |  |  |                      |   | 3,258,000  |  |  |  |  |   | 920,000   |  |  |  |  |   | 1,392,667 |  |
| Softs                   |  |  |               |   | 864,800    |                         |  |  |                                     |  | 0.47   | %                |  |  |                      |   | 1,048,000  |  |  |  |  |   | 144,800   |  |  |  |  |   | 821,333   |  |
| Total                   |  |  |               | $ | 27,534,946 |                         |  |  |                                     |  | 14.86  | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                         |

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

As of September 30, 2006, WintonMaster's total capitalization was $254,370,084. The Partnershipowned 5.7% of Winton Master.

September 30, 2006(Unaudited)

|                        |  |  |               |   |            |                          |  |  |                                     |  |        |                  |  |  |                      |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|------------------------|--|--|---------------|---|------------|--------------------------|--|--|-------------------------------------|--|--------|------------------|--|--|----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                   |  |  |          |   |            |                     |  |  | ThreeMonths Ended September 30,2006 |
| MarketSector           |  |  | Value at Risk |   |            | % ofTotal Capitalization |  |  | HighValue atRisk                    |  |        | LowValue at Risk |  |  | AverageValue atRisk* |
| Currencies:            |  |  |               |   |       |                          |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded |  |  |               | $ | 4,037,796  |                          |  |  |                                     |  | 1.59   | %                |  |  |                      | $ | 4,838,344  |  |  |  |  | $ | 2,506,658 |  |  |  |  | $ | 4,016,334 |  |
| Energy                 |  |  |               |   | 588,575    |                          |  |  |                                     |  | 0.23   | %                |  |  |                      |   | 3,465,600  |  |  |  |  |   | 588,575   |  |  |  |  |   | 1,996,647 |  |
| Grains                 |  |  |               |   | 551,952    |                          |  |  |                                     |  | 0.22   | %                |  |  |                      |   | 591,674    |  |  |  |  |   | 188,657   |  |  |  |  |   | 452,208   |  |
| Interest RatesU.S.     |  |  |               |   | 4,545,650  |                          |  |  |                                     |  | 1.79   | %                |  |  |                      |   | 4,545,650  |  |  |  |  |   | 332,923   |  |  |  |  |   | 3,203,058 |  |
| Interest RatesNon-U.S. |  |  |               |   | 8,481,585  |                          |  |  |                                     |  | 3.33   | %                |  |  |                      |   | 8,481,585  |  |  |  |  |   | 3,996,398 |  |  |  |  |   | 6,663,421 |  |
| Livestock              |  |  |               |   | 110,343    |                          |  |  |                                     |  | 0.04   | %                |  |  |                      |   | 183,465    |  |  |  |  |   | 78,165    |  |  |  |  |   | 142,568   |  |
| Metals:                |  |  |               |   |       |                          |  |  |                                     |  |   |                  |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded |  |  |               |   | 701,250    |                          |  |  |                                     |  | 0.28   | %                |  |  |                      |   | 1,067,170  |  |  |  |  |   | 405,020   |  |  |  |  |   | 849,593   |  |
| — OTC            |  |  |               |   | 2,525,950  |                          |  |  |                                     |  | 0.99   | %                |  |  |                      |   | 2,764,433  |  |  |  |  |   | 1,721,910 |  |  |  |  |   | 2,319,815 |  |
| Indices                |  |  |               |   | 12,465,611 |                          |  |  |                                     |  | 4.90   | %                |  |  |                      |   | 12,465,611 |  |  |  |  |   | 3,187,773 |  |  |  |  |   | 7,609,794 |  |
| Lumber                 |  |  |               |   | 1,100      |                          |  |  |                                     |  | 0.00   | %**              |  |  |                      |   | 1,800      |  |  |  |  |   | 1,100     |  |  |  |  |   | 1,100     |  |
| Softs                  |  |  |               |   | 597,876    |                          |  |  |                                     |  | 0.24   | %                |  |  |                      |   | 753,230    |  |  |  |  |   | 409,900   |  |  |  |  |   | 489,692   |  |
| Total                  |  |  |               | $ | 34,607,688 |                          |  |  |                                     |  | 13.61  | %                |  |  |                      |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
|                        |

|   |                                    |
|---|------------------------------------|
| * | 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 quarters ended March 31, 2006 and June 30,2006.

Enron Corp.

In light of the settlement of thesecurities class action (Newby, et al. v. Enron Corp., et al.),the plaintiffs have agreed to dismiss the following lawsuits againstCitigroup and its affiliates: California Public Employees'Retirement System v. Banc of America Securities LLC, et al., HeadwatersCapital LLC v. Lay et al., and Variable Annuity Life Ins. Co. v.Credit Suisse First Boston Corp., et al. Plaintiffs in two othercases, which are not part of the Newby class, have alsovoluntarily dismissed their claims against Citigroup and itsaffiliates: Steiner v. Enron Corp., et al. and Town of NewHartford v. Lay, et al.

Research

On August 17,2006, the United States District Court for the Southern District of NewYork approved the class action settlement of Citigroup and itsaffiliates in In Re Salomon Analyst AT&T Litigation, and onSeptember 29, 2006 that same court approved the class actionsettlements in In Re Salomon Analyst Level 3 Litigation, In ReSalomon Analyst XO Litigation and In Re Salomon Analyst WilliamsLitigation. 

On September 14, 2006, Citigroup and itsaffiliates settled all claims in Sturm, et al. v. Citigroup, etal. The settlement was covered by existing reserves.

OnOctober 6, 2006, the United States Court of Appeals granted a review ofthe district court's decision certifying a plaintiff class inIn Re Salomon Analyst Metromedia Litigation.

AdelphiaCommunications Corporation

Defendant banks in In Re AdelphiaCommunications Corporation Securities and Derivative Litigation,including the Citigroup Parties, have entered into settlementagreements with the Los Angeles County Employees Retirement Associationand with The Division of Investment of the New Jersey Department ofTreasury. The Citigroup Parties' share of the settlement wascovered by existing reserves. 

Item 1A. Risk Factors

There are no material changes from the risk factors set forth underPart I, Item 1A. ‘‘Risk Factors’’ in our AnnualReport on Form 10-K for the fiscal year ended December 31,2005.

Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds

Additional Redeemable Units offered represent areduced brokerage fee to existing limited partners who invested$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 |
| July 1, 2006 –July 31, 2006           |  |  |                                   |  | 301.6727 |                                |  |  |                                                                               | $ | 1,582.68 |                                                                                                         |  |  | N/A |  |  | N/A |
| August1, 2006 – August 31, 2006       |  |  |                                   |  | 322.3974 |                                |  |  |                                                                               | $ | 1,572.75 |                                                                                                         |  |  | N/A |  |  | N/A |
| September1, 2006 – September 30, 2006 |  |  |                                   |  | 336.8070 |                                |  |  |                                                                               | $ | 1,591.03 |                                                                                                         |  |  | N/A |  |  | N/A |
|                                        |  |  |                                   |  | 960.8771 |                                |  |  |                                                                               | $ | 1,582.15 |                                                                                                         |  |  | 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.

Exhibit- 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification ofPresident and Director).

Exhibit - 31.2 —Rule 13a-14(a)/15d-14(a) Certification (Certification of ChiefFinancial Officer 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:                                     |  |  | November 14,2006                                  |  |  |   |
| By:                                       |  |  | /s/Jennifer Magro                                 |  |  |   |
|                                      |  |  | Jennifer MagroChiefFinancial Officer and Director |  |  |   |
| Date:                                     |  |  | November 14,2006                                  |  |  |   |
|                                           |

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