FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                     OF THE SECURITIES EXCHANGE ACT OF 1934

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

                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended September 30, 1999

Commission File Number 0-26132

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

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


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


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


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


<PAGE>


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

                                                                       Page
                                                                      Number

PART I - Financial Information:

                Item 1. Financial Statements:

                        Statement of Financial Condition at
                        September 30, 1999 and December 31,
                        1998 (unaudited).                                3

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

                        Notes to Financial Statements
                        (unaudited)                                     5 - 9

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

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

PART II - Other Information                                              16

                                       2
<PAGE>

                                     PART I
                          ITEM 1. FINANCIAL STATEMENTS




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

<TABLE>
<CAPTION>

                                                     SEPTEMBER 30,                 DECEMBER 31,
                                                        1999                           1998
                                                ---------------------          ----------------------
<S>                                                   <C>                              <C>
ASSETS:


Equity in commodity futures trading account:
  Cash                                                 $ 126,660,401                   $ 136,910,140
  Net unrealized appreciation
   on open futures contracts                               5,239,001                       9,155,609
  Commodity options owned at market
   value (cost  $194,588)                                    146,814                               -

                                                ---------------------          ----------------------
                                                         132,046,216                     146,065,749
Interest receivable                                          380,432                         399,031

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

                                                       $ 132,426,648                   $ 146,464,780

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

LIABILITIES AND PARTNERS' CAPITAL:

Liabilities:
 Accrued expenses:
  Commissions                                              $ 590,626                       $ 684,171
  Management fees                                            346,402                         360,801
  Other                                                      138,328                         721,179
  Incentive fees                                             105,488                          89,185
 Redemptions payable                                       1,079,021                         705,183
 Commodity options written, at market
  value (premium received $225,000)                          145,014                               -
                                                ---------------------          ----------------------
                                                           2,404,879                       2,560,519

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

General Partner, 2,048.9308 Unit
   equivalents outstanding
   in 1999 and 1998                                        2,846,662                       2,863,893
Limited Partners, 91,536.0365 and
  100,905.2113 Units of Limited
  Partnership Interest outstanding
  in 1999 and 1998, respectively                         127,175,107                     141,040,368

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

                                                         130,021,769                     143,904,261

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

                                                       $ 132,426,648                   $ 146,464,780

                                                =====================          ======================
</TABLE>
See Notes to Financial Statements.
                                                                   3







<PAGE>

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



                                                           THREE MONTHS ENDED                           NINE MONTHS ENDED
                                                              SEPTEMBER 30,                               SEPTEMBER 30,
                                                   ------------------------------------        -------------------------------------
                                                        1999                 1998                   1999                 1998

                                                   ---------------      ---------------        ---------------      ----------------
<S>                                                       <C>               <C>                     <C>                   <C>
Income:
  Net gains (losses) on trading of commodity
   futures:
  Realized gains on closed positions                  $ 4,725,792          $ 3,144,783            $ 9,532,175          $ 10,044,167
  Change in unrealized gains (losses) on open
   positions                                           (4,964,921)          22,514,363             (3,884,396)           10,600,508

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

                                                         (239,129)          25,659,146              5,647,779            20,644,675
Less, brokerage commissions including clearing fees
 of $62,565, $54,068, $191,228 and $212,966, respective(2,011,553)          (2,075,208)            (6,185,823)           (6,400,051)

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

  Net realized and unrealized gains (losses)           (2,250,682)          23,583,938               (538,044)           14,244,624
  Interest income                                       1,196,022            1,315,045              3,559,636             4,127,469

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

                                                       (1,054,660)          24,898,983              3,021,592            18,372,093

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

Expenses:
  Management fees                                       1,084,471            1,015,615              3,161,822             3,000,767
  Incentive fees                                          105,488            2,731,568                668,443             2,973,642
  Other                                                    43,278               27,147                133,202                99,854

                                                   ---------------      ---------------        ---------------      ----------------
                                                        1,233,237            3,774,330              3,963,467             6,074,263

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

  Net income (loss)                                    (2,287,897)          21,124,653               (941,875)           12,297,830

  Additions                                                31,389               27,051                 91,544                86,357
  Redemptions                                          (3,549,468)          (3,831,733)           (13,032,161)          (15,233,958)

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

  Net increase (decrease) in Partners' capital         (5,805,976)          17,319,971            (13,882,492)           (2,849,771)

Partners' capital, beginning of period                135,827,745          131,211,519            143,904,261           151,381,261

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

Partners' capital, end of period                    $ 130,021,769        $ 148,531,490          $ 130,021,769         $ 148,531,490
                                                   ---------------      ---------------        ---------------      ----------------

Net asset value per Unit
  (93,584.9673 and 104,587.5966 Units outstanding
  at September 30, 1999 and 1998, respectively)        $ 1,389.34           $ 1,420.16             $ 1,389.34            $ 1,420.16
                                                   ---------------      ---------------        ---------------      ----------------

Net gain (loss) per Unit of Limited Partnership
  Interest and General Partner Unit equivalent           $ (23.96)            $ 199.47                $ (8.41)             $ 121.73
                                                   ---------------      ---------------        ---------------      ----------------

</TABLE>

See Notes to Financial Statements
                                                              4



<PAGE>


                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                          NOTES TO FINANCIAL STATEMENTS
                               September 30, 1999
                                   (Unaudited)

1. General:

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

     Smith  Barney  Futures  Management  LLC acts as the  general  partner  (the
"General  Partner") of the Partnership.  The General Partner changed its form of
organization   from  a  corporation  to  a  limited   liability   company.   The
Partnership's  commodity broker is Salomon Smith Barney Inc. ("SSB").  SSB is an
affiliate of the General Partner. The General Partner is wholly owned by Salomon
Smith Barney Holdings Inc.  ("SSBH"),  which is the sole owner of SSB. SSBH is a
wholly owned subsidiary of Citigroup Inc. All trading decisions are made for the
Partnership by Campbell & Company, Inc., John W. Henry & Company Inc., Trendview
Management LLC,  Willowbridge  Associates Inc.,  Stonebrook Capital  Management,
Inc. and Rabar Market Research, Inc. (collectively, the "Advisors").

         The accompanying financial statements are unaudited but, in the opinion
of management,  include all  adjustments  (consisting  only of normal  recurring
adjustments)  necessary for a fair presentation of the  Partnership's  financial
condition  at  September  30, 1999 and  December  31, 1998  (unaudited)  and the
results of its operations for the three and nine months ended September 30, 1999
and 1998. These financial  statements present the results of interim periods and
do not include all disclosures normally provided in annual financial statements.
It is suggested that these financial  statements be read in conjunction with the
financial  statements and notes included in the  Partnership's  annual report on
Form 10-K filed with the Securities  and Exchange  Commission for the year ended
December 31, 1998.

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

                                       5
<PAGE>


2.      Net Asset Value Per Unit:

     Changes  in net asset  value per Unit for the three and nine  months  ended
September 30, 1999 and 1998, were as follows:


                                 THREE-MONTHS ENDED        NINE-MONTHS ENDED
                                     SEPTEMBER 30,            SEPTEMBER 30,
                                   1999        1998         1999        1998

Net realized and unrealized
 gains (losses)                $  (23.57)   $  222.74    $   (4.22)   $  140.46
Interest income                    12.57        12.37        36.13        37.24
Expenses                          (12.96)      (35.64)      (40.32)      (55.97)
                               ---------    ---------    ---------    ---------

Increase (decrease) for
 period                           (23.96)      199.47        (8.41)      121.73

Net Asset Value per Unit,
  beginning of period           1,413.30     1,220.69     1,397.75     1,298.43
                               ---------    ---------    ---------    ---------

Net Asset Value per Unit,
  end of period                $1,389.34    $1,420.16    $1,389.34    $1,420.16
                               =========    =========    =========    =========


3.  Trading Activities:

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

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

        All of the commodity  interests  owned by the  Partnership  are held for
  trading  purposes.  The fair  value of these  commodity  interests,  including
  options  thereon,  if applicable,  at September 30, 1999 and December 31, 1998
  was $5,240,801 and $9,155,609, respectively, and the average fair value during
  the nine and twelve  months then ended,  based on a monthly  calculation,  was
  $7,777,393 and $8,814,289, respectively.

                                       6

<PAGE>


4.      Financial Instrument Risk:

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

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

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

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

                                       7
<PAGE>

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

         At September  30,  1999,  the  notional or  contractual  amounts of the
Partnership's commitment to purchase and sell these instruments was $747,064,459
and  $754,506,298,  respectively,  as detailed below.  All of these  instruments
mature within one year of September 30, 1999. However,  due to the nature of the
Partnership's  business,  these  instruments  may not be held  to  maturity.  At
September 30, 1999, the fair value of the Partnership's  derivatives,  including
options thereon, if applicable, was $5,240,801, as detailed below.

                                              SEPTEMBER 30, 1999
                                                 (Unaudited)
                                           NOTIONAL OR CONTRACTUAL
                                            AMOUNT OF COMMITMENTS
                                     TO PURCHASE       TO SELL       FAIR VALUE

Currencies:
- Exchange Traded Contracts          $ 31,431,487   $ 16,116,512   $    646,345
- OTC Contracts                       214,165,493    100,390,715        793,311
Energy                                 39,320,993             --      2,758,252
Grains                                  2,147,254      3,751,018         20,761
Interest Rates U.S.                   154,035,084     44,976,219       (196,633)
Interest Rates Non-U.S                251,968,524    555,683,607      1,084,987
Livestock                               3,535,270             --          6,130
Metals                                 32,795,828      8,341,982          1,503
Softs                                   9,656,244      5,277,806        246,428
Indices                                 8,008,282     19,968,439       (120,283)
                                     ------------   ------------   ------------

Totals                               $747,064,459   $754,506,298   $  5,240,801
                                     ============   ============   ============

                                       8

<PAGE>


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

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

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

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



                                       9

<PAGE>


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

Liquidity and Capital Resources

         The Partnership  does not engage in the sale of goods or services.  Its
only assets are its equity in its commodity futures trading account,  consisting
of cash and cash equivalents, net unrealized appreciation (depreciation) on open
futures and  forward  contracts,  commodity  options  and  interest  receivable.
Because  of the low margin  deposits  normally  required  in  commodity  futures
trading,  relatively  small price movements may result in substantial  losses to
the Partnership. While substantial losses could lead to a decrease in liquidity,
no such losses occurred during the third quarter of 1999.

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

         For the nine months  ended  September  30,  1999,  Partnership  capital
decreased 9.6% from $143,904,261 to $130,021,769. This decrease was attributable
to the redemption of 9,435.3488  Units totaling  $13,032,161  coupled with a net
loss from operations of $941,875 and partially offset by the additional sales of
66.1740 Units totaling  $91,544.  Additional  Units offered  represent a reduced
brokerage fee to existing limited partners investing  $1,000,000 or more. Future
redemptions  can  impact  the  amount  of funds  available  for  investments  in
commodity contract positions in subsequent periods.

Risk of Computer System Failure (Year 2000 Issue)

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

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

                                       10
<PAGE>

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

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

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

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

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

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

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

                                       11
<PAGE>

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

Results of Operations

         During the Partnership's third quarter of 1999, the net asset value per
unit  decreased  1.7% from  $1,413.30 to $1,389.34 as compared to an increase of
16.3% in the third quarter of 1998.  The  Partnership  experienced a net trading
loss before brokerage  commissions and related fees in the third quarter of 1999
of  $239,129.  Losses were  primarily  attributable  to the trading of commodity
futures in grains,  U.S.  and non-U.S.  interest  rates,  livestock,  metals and
indices and were partially  offset by gains in currency,  energy and softs.  The
Partnership  experienced a net trading gain before  commissions and related fees
in the third quarter of 1998 of $25,659,146.  Gains were primarily  attributable
to the trading of  commodity  futures in  livestock,  grains,  U.S. and non-U.S.
interest rates and energy and were partially offset by losses  recognized in the
trading of indices, currencies, grains, softs and metals.

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

         Interest income on 80% of the Partnership's  daily equity maintained in
cash was earned on the monthly average 30-day U.S. Treasury bill rate determined
weekly by SSB based on the  non-competitive  yield on three month U.S.  Treasury
bills maturing in 30 days from the date in which such weekly rate is determined.
Interest income for the three and nine months ended September 30, 1999 decreased
by $119,023 and $567,833, respectively, as compared to the corresponding periods
in 1998.  The  decrease in  interest  income is  primarily  due to the effect of
redemptions on the Partnership's equity maintained in cash.

                                       12
<PAGE>

         Brokerage  commissions  are calculated on the  Partnership's  net asset
value as of the last day of each month and, therefore, vary according to trading
performance and redemptions.  Accordingly,  they must be compared in relation to
the fluctuations in monthly net asset values. Commissions and fees for the three
and nine months ended  September  30, 1999  decreased  by $63,655 and  $214,228,
respectively, as compared to the corresponding periods in 1998.

         Management fees are calculated on the portion of the  Partnership's net
asset value  allocated to each  Advisor at the end of the month and,  therefore,
are affected by trading  performance  and  redemptions.  Management fees for the
three and nine  months  ended  September  30,  1999  increased  by  $68,856  and
$161,055, respectively, as compared to the corresponding periods in 1998.

         Incentive fees are based on the new trading  profits  generated by each
Advisor at the end of the quarter, as defined in the advisory agreements between
the Partnership,  the General Partner and each Advisor.  Trading performance for
the three and nine months ended September 30, 1999 resulted in incentive fees of
$105,488 and $668,443, respectively.  Trading performance for the three and nine
months ended  September  30, 1998 resulted in incentive  fees of $2,731,568  and
$2,973,642, respectively.

                                       13
<PAGE>


Item 3.       Quantitative and Qualitative Disclosures of Market Risk

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

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

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

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

                                       14
<PAGE>



         The following table indicates the trading Value at Risk associated with
the  Partnership's  open positions by market  category as of September 30, 1999.
All open position  trading risk exposures of the Partnership  have been included
in  calculating  the figures set forth  below.  As of September  30,  1999,  the
Partnership's  total  capitalization was approximately  $130,021,769.  There has
been no material  change in the  trading  Value at Risk  information  previously
disclosed in the Form 10-K for the year ended December 31, 1998.

                                                September 30, 1999
                                                    (Unaudited)
                                                                   % of Total
Market Sector                           Value at Risk            Capitalization

Currencies
 - Exchange Traded Contracts             $   607,461                     0.47%
 - OTC Contracts                           3,558,083                     2.74%
Energy                                     2,455,000                     1.89%
Grains                                       195,900                     0.15%
Interest rates U.S.                        1,003,055                     0.77%
Interest rates Non-U.S.                    5,045,239                     3.88%
Livestock                                     71,600                     0.06%
Metals                                     1,945,000                     1.50%
Softs                                        926,356                     0.70%
Indices                                    1,532,338                     1.18%
                                         -----------                    ------

Total                                    $17,340,032                    13.34%
                                         ===========                    ======

                                       15



<PAGE>


                            PART II OTHER INFORMATION

Item 1.  Legal Proceedings

         For  information  concerning the suit filed by Harris Trust and Savings
Bank (as  trustee  for  Ameritech  Pension  Trust)  and others  against  Salomon
Brothers Inc., and Salomon Brothers Realty Corporation, see the description that
appears in the second and third  paragraphs  under the  caption  Item 3.  "Legal
Proceedings" on Form 10-K for the year ended December 31, 1998. In October 1999,
plaintiffs  filed a petition for certiorari  with the U. S. Supreme  Court.  The
petition  seeks  review of the U.S.  Court of Appeals for the Seventh  Circuit's
decision  reversing the denial of  defendants'  motion for summary  judgment and
dismissing the sole remaining ERISA claim against the Company.

         For information  concerning a purported class action in Florida against
numerous  broker-dealers  including Salomon Smith Barney Inc.  ("SSB"),  see the
description that appears in the sixth paragraph under the caption Item 3. "Legal
Proceedings"  on Form 10-K for the year ending  December  31,  1998.  In October
1999, plaintiff filed a second amended complaint.

         In March 1999, a complaint  seeking in excess of $250 million was filed
by a hedge fund and its investment  advisor  against SSB in the Supreme Court of
the  State of New  York,  County of New York  (MKP  Master  Fund,  LDC et al. v.
Salomon Smith Barney Inc.).  Plaintiffs allege that, while acting as their prime
broker SSB breached its contracts with plaintiffs, converted plaintiffs' monies,
and engaged in tortious  conduct,  including  breaching its fiduciary duties. In
October  1999,  the Court  granted in part and  denied in part  SSB's  motion to
dismiss the complaint.  The court dismissed  plaintiffs' tort claims,  including
the breach of  fiduciary  duty  claims,  but allowed the breach of contract  and
conversion  claims to  stand.  The  Company  intends  to  contest  this  lawsuit
vigorously.


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

Item 3.   Defaults Upon Senior Securities - None

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

Item 5.   Other Information - None

Item 6.   (a) Exhibits - None

              (b) Reports on Form 8-K - None

                                       16
<PAGE>

                                   SIGNATURES

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

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.


By:        Smith Barney Futures Management LLC
           (General Partner)


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

Date:      11/12/99


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

By:        Smith Barney Futures Management LLC
           (General Partner)


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


Date:      11/12/99


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

Date: 11/12/99

                                       17