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UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly period ended June 30, 2007

OR (    ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

Commission File Number 000-26132

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.

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(Exact name of registrant as specified in its charter)

|                                                               |  |  |                                     |
|---------------------------------------------------------------|--|--|-------------------------------------|
| New York                                                      |  |  | 13-3729162                          |
| (State or other jurisdiction ofincorporation or organization) |  |  | (I.R.S. EmployerIdentification No.) |

c/o Citigroup Managed Futures LLC 731 Lexington Ave - 25th Fl New York, New York 10022

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(Address of principal executive offices) (Zip Code)

(212) 599-2011

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(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           

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in rule 12b-2 of the Exchange Act (check one):

Large accelerated filer                        Accelerated filer                        Non-Accelerated filer    X   

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes                        No    X   

As of July 31, 2007, 28,812.2634 Limited Partnership Redeemable Units were outstanding.

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SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.FORM 10-QINDEX

|                                       |  |  |                                                                                                                                     |  |  |                         |
|---------------------------------------|--|--|-------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------------|
|                                  |  |  |                                                                                                                                |  |  | Page Number             |
| PART I – Financial Information: |  |  |                                                                                                                                |
| Item 1.                               |  |  | Financial Statements:                                                                                                               |  |  |                    |
|                                  |  |  | Statements of Financial Condition at June 30, 2007 and December 31, 2006 (unaudited)                                           |  |  | 3                       |
|                                  |  |  | Schedules of Investments at June 30, 2007 and December 31, 2006 (unaudited)                                                    |  |  | 4 – 5   |
|                                  |  |  | Statements of Income and Expenses and Partners’ Capital for the three and six months ended June 30, 2007 and 2006 (unaudited) |  |  | 6                       |
|                                  |  |  | Statements of Cash Flows for the three and six months ended June 30, 2007 and 2006 (unaudited)                                      |  |  | 7                       |
|                                  |  |  | Notes to Financial Statements (unaudited)                                                                                           |  |  | 8 – 13  |
| Item 2.                               |  |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                         |  |  | 14 – 16 |
| Item 3.                               |  |  | Quantitative and Qualitative Disclosures about Market Risk                                                                          |  |  | 17 – 19 |
| Item 4.                               |  |  | Controls and Procedures                                                                                                             |  |  | 20                      |
| PART II – Other Information     |  |  | 21                                                                                                                                  |

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PART I

Item 1. Financial Statements

Smith Barney Diversified Futures Fund L.P.Statements of Financial Condition(Unaudited)

|                                                                                                                                           |  |  |               |   |            |                  |  |  |  |   |            |  |
|-------------------------------------------------------------------------------------------------------------------------------------------|--|--|---------------|---|------------|------------------|--|--|--|---|------------|--|
|                                                                                                                                      |  |  | June 30, 2007 |   |            | December 31,2006 |
| Assets:                                                                                                                                   |  |  |               |   |       |                  |  |  |  |   |       |  |
| Investment in Partnerships, at fair value                                                                                                 |  |  |               | $ | 52,427,317 |                  |  |  |  | $ | 54,294,756 |  |
| Cash                                                                                                                                      |  |  |               |   | 48,147     |                  |  |  |  |   | 48,213     |  |
|                                                                                                                                      |  |  |               | $ | 52,475,464 |                  |  |  |  | $ | 54,342,969 |  |
| Liabilities and Partners’ Capital:                                                                                                  |  |  |               |   |       |                  |  |  |  |   |       |  |
| Liabilities:                                                                                                                              |  |  |               |   |       |                  |  |  |  |   |       |  |
| Accrued expenses:                                                                                                                         |  |  |               |   |       |                  |  |  |  |   |       |  |
| Brokerage commissions                                                                                                                     |  |  |               | $ | 240,513    |                  |  |  |  | $ | 249,072    |  |
| Management fees                                                                                                                           |  |  |               |   | 80,651     |                  |  |  |  |   | 83,980     |  |
| Incentive fees                                                                                                                            |  |  |               |   | 55,195     |                  |  |  |  |   | 26,786     |  |
| Other                                                                                                                                     |  |  |               |   | 36,018     |                  |  |  |  |   | 30,444     |  |
| Redemptions payable                                                                                                                       |  |  |               |   | 538,178    |                  |  |  |  |   | 556,176    |  |
|                                                                                                                                      |  |  |               |   | 950,555    |                  |  |  |  |   | 946,458    |  |
|                                                                                                                                      |  |  |               |   |       |                  |  |  |  |   |       |  |
| Partners’ Capital:                                                                                                                  |  |  |               |   |       |                  |  |  |  |   |       |  |
| General Partner, 311.4862 and 1,276.7484 Unit equivalents outstanding in 2007 and 2006, respectively                                      |  |  |               |   | 545,581    |                  |  |  |  |   | 2,122,569  |  |
| Limited Partners, 29,105.4080 and 30,841.7629 Redeemable Units of Limited Partnership Interest outstanding in 2007 and 2006, respectively |  |  |               |   | 50,979,328 |                  |  |  |  |   | 51,273,942 |  |
|                                                                                                                                      |  |  |               |   | 51,524,909 |                  |  |  |  |   | 53,396,511 |  |
|                                                                                                                                      |  |  |               | $ | 52,475,464 |                  |  |  |  | $ | 54,342,969 |  |

See accompanying notes to financial statements.

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Smith Barney Diversified Futures Fund L.P. Schedule of Investments June 30, 2007(Unaudited)

|                                        |  |  |            |  |             |                             |  |  |  |  |        |         |
|----------------------------------------|--|--|------------|--|-------------|-----------------------------|--|--|--|--|--------|---------|
|                                   |  |  | Fair Value |  |             | % of Partners’Capital |
| Investment in Partnerships             |  |  |            |  |        |                             |  |  |  |  |   |         |
| CMF Campbell Master Fund L.P.          |  |  |            |  | $14,828,244 |                             |  |  |  |  | 28.78  | %  |
| CMF Willowbridge Argo Master Fund L.P. |  |  |            |  | 7,888,561   |                             |  |  |  |  | 15.31  |         |
| CMF Winton Master L.P.                 |  |  |            |  | 15,302,553  |                             |  |  |  |  | 29.70  |         |
| CMF Graham Capital Master Fund L.P.    |  |  |            |  | 14,407,959  |                             |  |  |  |  | 27.96  |         |
| Total fair value                       |  |  |            |  | $52,427,317 |                             |  |  |  |  | 101.75 | %  |

See accompanying notes to financial statements.

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Smith Barney Diversified Futures Fund L.P.Schedule of InvestmentsDecember 31, 2006(Unaudited)

|                                        |  |  |            |   |            |                             |  |  |  |  |        |         |
|----------------------------------------|--|--|------------|---|------------|-----------------------------|--|--|--|--|--------|---------|
|                                   |  |  | Fair Value |   |            | % of Partners’Capital |
| Investment in Partnerships             |  |  |            |   |       |                             |  |  |  |  |   |         |
| CMF Campbell Master Fund L.P.          |  |  |            | $ | 14,378,898 |                             |  |  |  |  | 26.93  | %  |
| CMF Willowbridge Argo Master Fund L.P. |  |  |            |   | 11,937,682 |                             |  |  |  |  | 22.35  |         |
| CMF Winton Master L.P.                 |  |  |            |   | 14,767,400 |                             |  |  |  |  | 27.66  |         |
| CMF Graham Capital Master Fund L.P.    |  |  |            |   | 13,210,776 |                             |  |  |  |  | 24.74  |         |
| Total fair value                       |  |  |            | $ | 54,294,756 |                             |  |  |  |  | 101.68 | %  |

See accompanying notes to financial statements.

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Smith Barney Diversified Futures Fund L.P. Statements of Income and Expenses and Partners’ Capital(Unaudited)

|                                                                                                                                       |  |  |                            |   |            |                          |  |  |      |   |            |         |  |  |  |   |            |         |  |  |  |   |            |         |
|---------------------------------------------------------------------------------------------------------------------------------------|--|--|----------------------------|---|------------|--------------------------|--|--|------|---|------------|---------|--|--|--|---|------------|---------|--|--|--|---|------------|---------|
|                                                                                                                                  |  |  | Three Months EndedJune 30, |   |            | Six Months EndedJune 30, |
|                                                                                                                                  |  |  | 2007                       |   |            | 2006                     |  |  | 2007 |   |            | 2006    |
| Income:                                                                                                                               |  |  |                            |   |       |                          |  |  |      |   |       |         |  |  |  |   |       |         |  |  |  |   |       |         |
| Net gains on trading of commodity interests and investment in Partnerships:                                                           |  |  |                            |   |       |                          |  |  |      |   |       |         |  |  |  |   |       |         |  |  |  |   |       |         |
| Realized gains on closed positions                                                                                                    |  |  |                            | $ | —    |                          |  |  |      | $ | 8,955      |         |  |  |  | $ | —    |         |  |  |  | $ | 681,227    |         |
| Change in unrealized gains on open positions and investment in Partnerships                                                           |  |  |                            |   | 8,740,090  |                          |  |  |      |   | 1,875,299  |         |  |  |  |   | 4,359,370  |         |  |  |  |   | 2,337,903  |         |
|                                                                                                                                  |  |  |                            |   | 8,740,090  |                          |  |  |      |   | 1,884,254  |         |  |  |  |   | 4,359,370  |         |  |  |  |   | 3,019,130  |         |
| Interest income                                                                                                                       |  |  |                            |   | —    |                          |  |  |      |   | —    |         |  |  |  |   | —    |         |  |  |  |   | 125,292    |         |
|                                                                                                                                  |  |  |                            |   | 8,740,090  |                          |  |  |      |   | 1,884,254  |         |  |  |  |   | 4,359,370  |         |  |  |  |   | 3,144,422  |         |
| Expenses:                                                                                                                             |  |  |                            |   |       |                          |  |  |      |   |       |         |  |  |  |   |       |         |  |  |  |   |       |         |
| Brokerage commissions including clearing fees of $0, $0, $0 and $8,133, respectively                                                  |  |  |                            |   | 691,475    |                          |  |  |      |   | 808,949    |         |  |  |  |   | 1,388,370  |         |  |  |  |   | 1,609,945  |         |
| Management fees                                                                                                                       |  |  |                            |   | 231,557    |                          |  |  |      |   | 271,726    |         |  |  |  |   | 465,590    |         |  |  |  |   | 537,636    |         |
| Incentive fees                                                                                                                        |  |  |                            |   | 55,195     |                          |  |  |      |   | —    |         |  |  |  |   | 55,195     |         |  |  |  |   | 38,349     |         |
| Other                                                                                                                                 |  |  |                            |   | 20,492     |                          |  |  |      |   | 22,360     |         |  |  |  |   | 43,803     |         |  |  |  |   | 45,048     |         |
|                                                                                                                                  |  |  |                            |   | 998,719    |                          |  |  |      |   | 1,103,035  |         |  |  |  |   | 1,952,958  |         |  |  |  |   | 2,230,978  |         |
| Net income                                                                                                                            |  |  |                            |   | 7,741,371  |                          |  |  |      |   | 781,219    |         |  |  |  |   | 2,406,412  |         |  |  |  |   | 913,444    |         |
| Redemptions—General Partner                                                                                                     |  |  |                            |   | —    |                          |  |  |      |   | —    |         |  |  |  |   | (1,441,407 | )  |  |  |  |   | —    |         |
| Redemptions—Limited Partners                                                                                                    |  |  |                            |   | (1,392,447 | )                   |  |  |      |   | (1,368,945 | )  |  |  |  |   | (2,836,607 | )  |  |  |  |   | (3,144,214 | )  |
| Net increase (decrease) in Partners’ Capital                                                                                    |  |  |                            |   | 6,348,924  |                          |  |  |      |   | (587,726   | )  |  |  |  |   | (1,871,602 | )  |  |  |  |   | (2,230,770 | )  |
| Partners’ Capital, beginning of period                                                                                          |  |  |                            |   | 45,175,985 |                          |  |  |      |   | 56,365,681 |         |  |  |  |   | 53,396,511 |         |  |  |  |   | 58,008,725 |         |
| Partners’ Capital, end of period                                                                                                |  |  |                            | $ | 51,524,909 |                          |  |  |      | $ | 55,777,955 |         |  |  |  | $ | 51,524,909 |         |  |  |  | $ | 55,777,955 |         |
| Net Asset Value per Redeemable Unit (29,416.8942 and 34,075.1690 Redeemble Units outstanding at June 30, 2007 and 2006, respectively) |  |  |                            | $ | 1,751.54   |                          |  |  |      | $ | 1,636.91   |         |  |  |  | $ | 1,751.54   |         |  |  |  |   | 1,636.91   |         |
| Net income per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent                                    |  |  |                            | $ | 258.26     |                          |  |  |      | $ | 21.32      |         |  |  |  | $ | 89.06      |         |  |  |  | $ | 25.56      |         |

See accompanying notes to financial statements.

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Smith Barney Diversified Futures Fund L.P. Statements of Cash Flows(Unaudited)

|                                                                                             |  |  |                            |   |            |                          |  |  |      |   |             |         |  |  |  |   |            |         |  |  |  |   |             |         |
|---------------------------------------------------------------------------------------------|--|--|----------------------------|---|------------|--------------------------|--|--|------|---|-------------|---------|--|--|--|---|------------|---------|--|--|--|---|-------------|---------|
|                                                                                        |  |  | Three Months EndedJune 30, |   |            | Six Months EndedJune 30, |
|                                                                                        |  |  | 2007                       |   |            | 2006                     |  |  | 2007 |   |             | 2006    |
| Cash flows from operating activities:                                                       |  |  |                            |   |       |                          |  |  |      |   |        |         |  |  |  |   |       |         |  |  |  |   |        |         |
| Net income                                                                                  |  |  |                            | $ | 7,741,371  |                          |  |  |      | $ | 781,219     |         |  |  |  | $ | 2,406,412  |         |  |  |  | $ | 913,444     |         |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |                            |   |       |                          |  |  |      |   |        |         |  |  |  |   |       |         |  |  |  |   |        |         |
| Changes in operating assets and liabilities:                                                |  |  |                            |   |       |                          |  |  |      |   |        |         |  |  |  |   |       |         |  |  |  |   |        |         |
| Purchase of investment in Partnerships                                                      |  |  |                            |   | —    |                          |  |  |      |   | (15,426,368 | )  |  |  |  |   | —    |         |  |  |  |   | (15,426,368 | )  |
| Proceeds from sale of investment in Partnerships                                            |  |  |                            |   | 3,512,110  |                          |  |  |      |   | 2,641,163   |         |  |  |  |   | 6,226,809  |         |  |  |  |   | 4,920,549   |         |
| Net unrealized (appreciation) depreciation on investment in Partnerships                    |  |  |                            |   | (8,740,090 | )                   |  |  |      |   | (1,891,196  | )  |  |  |  |   | (4,359,370 | )  |  |  |  |   | (2,534,703  | )  |
| (Increase) decrease in restricted cash                                                      |  |  |                            |   | —    |                          |  |  |      |   | 138,702     |         |  |  |  |   | —    |         |  |  |  |   | 1,000,127   |         |
| (Increase) decrease in net unrealized appreciation on open futures positions                |  |  |                            |   | —    |                          |  |  |      |   | 47,119      |         |  |  |  |   | —    |         |  |  |  |   | —     |         |
| (Increase) decrease in unrealized appreciation on open forward contracts                    |  |  |                            |   | —    |                          |  |  |      |   | 505,878     |         |  |  |  |   | —    |         |  |  |  |   | 672,909     |         |
| (Increase) decrease in interest receivable                                                  |  |  |                            |   | —    |                          |  |  |      |   | 45,532      |         |  |  |  |   | —    |         |  |  |  |   | 36,929      |         |
| Increase (decrease) in net unrealized depreciation on open futures positions                |  |  |                            |   | —    |                          |  |  |      |   | —     |         |  |  |  |   | —    |         |  |  |  |   | (30,126     | )  |
| Increase (decrease) in unrealized depreciation on open forward contracts                    |  |  |                            |   | —    |                          |  |  |      |   | (537,097    | )  |  |  |  |   | —    |         |  |  |  |   | (445,992    | )  |
| Accrued expenses:                                                                           |  |  |                            |   |       |                          |  |  |      |   |        |         |  |  |  |   |       |         |  |  |  |   |        |         |
| Increase (decrease) in brokerage commissions                                                |  |  |                            |   | 23,926     |                          |  |  |      |   | (3,744      | )  |  |  |  |   | (8,559     | )  |  |  |  |   | (16,349     | )  |
| Increase (decrease) in management fees                                                      |  |  |                            |   | 7,977      |                          |  |  |      |   | (935        | )  |  |  |  |   | (3,329     | )  |  |  |  |   | (5,376      | )  |
| Increase (decrease) in incentive fees                                                       |  |  |                            |   | 55,195     |                          |  |  |      |   | (38,349     | )  |  |  |  |   | 28,409     |         |  |  |  |   | —     |         |
| Increase (decrease) in other                                                                |  |  |                            |   | (8,062     | )                   |  |  |      |   | (23,545     | )  |  |  |  |   | 5,574      |         |  |  |  |   | (859        | )  |
| Net cash provided by (used in) operating activities                                         |  |  |                            |   | 2,592,427  |                          |  |  |      |   | (13,761,621 | )  |  |  |  |   | 4,295,946  |         |  |  |  |   | (10,915,815 | )  |
| Cash flows from financing activities:                                                       |  |  |                            |   |       |                          |  |  |      |   |        |         |  |  |  |   |       |         |  |  |  |   |        |         |
| Payments for redemptions—Limited Partners                                             |  |  |                            |   | (2,600,186 | )                   |  |  |      |   | (1,531,641  | )  |  |  |  |   | (2,854,605 | )  |  |  |  |   | (3,325,351  | )  |
| Payments for redemptions—General Partner                                              |  |  |                            |   | —    |                          |  |  |      |   | —     |         |  |  |  |   | (1,441,407 | )  |  |  |  |   | —     |         |
| Net cash provided by (used in) financing activities                                         |  |  |                            |   | (2,600,186 | )                   |  |  |      |   | (1,531,641  | )  |  |  |  |   | (4,296,012 | )  |  |  |  |   | (3,325,351  | )  |
| Net change in cash                                                                          |  |  |                            |   | (7,759     | )                   |  |  |      |   | (15,293,262 | )  |  |  |  |   | (66        | )  |  |  |  |   | (14,241,166 | )  |
| Cash, at beginning of period                                                                |  |  |                            |   | 55,906     |                          |  |  |      |   | 15,324,702  |         |  |  |  |   | 48,213     |         |  |  |  |   | 14,272,606  |         |
| Cash, at end of period                                                                      |  |  |                            | $ | 48,147     |                          |  |  |      | $ | 31,440      |         |  |  |  | $ | 48,147     |         |  |  |  | $ | 31,440      |         |

See accompanying notes to financial statements.

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Smith Barney Diversified Futures Fund L.P.Notes to Financial StatementsJune 30, 2007 (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 directly or indirectly 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.

Citigroup Managed Futures LLC, a Delaware Limited Liability Company, acts as the general partner (the ‘‘General Partner’’) and commodity pool operator of the Partnership. The Partnership’s commodity broker is Citigroup Global Markets Inc. (‘‘CGM’’). CGM is an affiliate of the General Partner. The General Partner is wholly owned by Citigroup Global Markets Holdings Inc. (‘‘CGMHI’’), which is the sole owner of CGM. CGMHI is a wholly owned subsidiary of Citigroup Inc. (‘‘Citigroup’’). As of June 30, 2007, all trading decisions are made for the Partnership by Campbell & Company, Inc. (‘‘Campbell’’), Willowbridge Associates, Inc. (‘‘Willowbridge’’), Winton Capital Management Limited (‘‘Winton’’) and Graham Capital Management L.P. (‘‘Graham’’) (each an ‘‘Advisor’’ and collectively, the ‘‘Advisors’’).

The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition at June 30, 2007 and December 31, 2006 and the results of its operations and cash flows for the three and six months ended June 30, 2007 and 2006. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission (the ‘‘SEC’’) for the year ended December 31, 2006.

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.

Certain prior period amounts have been reclassified to conform to the presentation for the current period.

2.    Financial Highlights:

Changes in Net Asset Value per Redeemable Unit of Limited Partnership Interest for the three and six months ended June 30, 2007 and 2006 were as follows:

|                                                          |  |  |                            |   |          |                          |  |  |      |   |          |         |  |  |  |   |          |         |  |  |  |   |          |         |
|----------------------------------------------------------|--|--|----------------------------|---|----------|--------------------------|--|--|------|---|----------|---------|--|--|--|---|----------|---------|--|--|--|---|----------|---------|
|                                                     |  |  | Three Months EndedJune 30, |   |          | Six Months EndedJune 30, |
|                                                     |  |  | 2007                       |   |          | 2006                     |  |  | 2007 |   |          | 2006    |
| Net realized and unrealized gains*                       |  |  |                            | $ | 268.54   |                          |  |  |      | $ | 29.80    |         |  |  |  | $ | 107.38   |         |  |  |  | $ | 39.71    |         |
| Interest income                                          |  |  |                            |   | —  |                          |  |  |      |   | —  |         |  |  |  |   | —  |         |  |  |  |   | 3.52     |         |
| Expenses **                                              |  |  |                            |   | (10.28   | )                   |  |  |      |   | (8.48    | )  |  |  |  |   | (18.32   | )  |  |  |  |   | (17.67   | )  |
| Increase for the period                                  |  |  |                            |   | 258.26   |                          |  |  |      |   | 21.32    |         |  |  |  |   | 89.06    |         |  |  |  |   | 25.56    |         |
| Net Asset Value per Redeemable Unit, beginning of period |  |  |                            |   | 1,493.28 |                          |  |  |      |   | 1,615.59 |         |  |  |  |   | 1,662.48 |         |  |  |  |   | 1,611.35 |         |
| Net Asset Value per Redeemable Unit, end of period       |  |  |                            | $ | 1,751.54 |                          |  |  |      | $ | 1,636.91 |         |  |  |  | $ | 1,751.54 |         |  |  |  | $ | 1,636.91 |         |

| * | Includes brokerage commissions. |
|---|---------------------------------|

| ** | Excludes brokerage commissions. |
|----|---------------------------------|

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Smith Barney Diversified Futures Fund L.P.Notes to Financial StatementsJune 30, 2007 (Unaudited)

Financial Highlights (continued):

|                                                |  |  |                            |  |        |                          |  |  |      |  |         |          |  |  |  |  |        |          |  |  |  |  |        |          |
|------------------------------------------------|--|--|----------------------------|--|--------|--------------------------|--|--|------|--|---------|----------|--|--|--|--|--------|----------|--|--|--|--|--------|----------|
|                                           |  |  | Three Months EndedJune 30, |  |        | Six Months EndedJune 30, |
|                                           |  |  | 2007                       |  |        | 2006                     |  |  | 2007 |  |         | 2006     |
| Ratio to average net assets: ***               |  |  |                            |  |   |                          |  |  |      |  |    |          |  |  |  |  |   |          |  |  |  |  |   |          |
| Net investment loss before incentive fees **** |  |  |                            |  | (7.8   | )%                  |  |  |      |  | (7.7    | )%  |  |  |  |  | (7.8   | )%  |  |  |  |  | (7.3   | )%  |
| Operating expenses                             |  |  |                            |  | 7.8    | %                   |  |  |      |  | 7.7     | %   |  |  |  |  | 7.8    | %   |  |  |  |  | 7.7    | %   |
| Incentive fees                                 |  |  |                            |  | 0.1    | %                   |  |  |      |  | — | %   |  |  |  |  | 0.1    | %   |  |  |  |  | 0.1    | %   |
| Total expenses                                 |  |  |                            |  | 7.9    | %                   |  |  |      |  | 7.7     | %   |  |  |  |  | 7.9    | %   |  |  |  |  | 7.8    | %   |
| Total return:                                  |  |  |                            |  |   |                          |  |  |      |  |    |          |  |  |  |  |   |          |  |  |  |  |   |          |
| Total return before incentive fees             |  |  |                            |  | 17.4   | %                   |  |  |      |  | 1.3     | %   |  |  |  |  | 5.5    | %   |  |  |  |  | 1.7    | %   |
| Incentive fees                                 |  |  |                            |  | (0.1   | )%                  |  |  |      |  | — | %   |  |  |  |  | (0.1   | )%  |  |  |  |  | (0.1   | )%  |
| Total return after incentive fees              |  |  |                            |  | 17.3   | %                   |  |  |      |  | 1.3     | %   |  |  |  |  | 5.4    | %   |  |  |  |  | 1.6    | %   |

| *** | Annualized (other than incentive fees). |
|-----|-----------------------------------------|

| **** | Interest income less total expenses (exclusive of incentive fees). |
|------|--------------------------------------------------------------------|

The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner class using the Limited Partners’ share of income, expenses and average net assets.

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 Partnership investments are in other Partnerships which trade these instruments. The results of the Partnership’s trading activities (resulting from its investment in other Partnerships) are shown in the statements of income and expenses and partners’ capital and are discussed in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Customer Agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures positions.

Any commodity interests owned by the Partnership are held for trading purposes. The average fair value of these interests during the six and twelve months ended June 30, 2007 and December 31, 2006, based on a monthly calculation, were $0 and $21,395, respectively. The results of the Partnership’s trading activities are shown in the statement of income and expenses.

4.    Investment in Partnerships:

On November 1, 2004, the assets allocated to Winton for trading were invested in CMF Winton Master L.P., a limited partnership organized under the partnership laws of New York State (the ‘‘Winton Master’’). The Partnership purchased 15,054.1946 Units of the Winton Master with cash of $14,251,586, and a contribution of open commodity futures and forward positions with a fair value of $802,609. Winton Master was formed in order to permit commodity pools managed now or in the future by Winton using its Diversified Program, to invest together in one trading vehicle. The General Partner of the Partnership is the general partner of the Winton Master. Individual and pooled accounts currently managed by Winton, including the Partnership, are permitted to be limited partners of the Winton Master. The General Partner and Winton believe that trading through this structure should promote efficiency and economy in the trading process. Expenses to investors as a result of the investment in the Winton Master are approximately the same and redemption rights are not affected.

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Smith Barney Diversified Futures Fund L.P.Notes to Financial StatementsJune 30, 2007 (Unaudited)

On January 1, 2005, the assets allocated to Campbell for trading were invested in CMF Campbell Master Fund L.P. (‘‘Campbell Master’’), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 19,621.1422 Units of Campbell Master with cash of $19,428,630, and a contribution of open commodity futures and forward positions with a fair value of $192,512. Campbell Master was formed in order to permit commodity pools managed now or in the future by Campbell using its Financials Metals and Energy (‘‘FME’’) Portfolio, to invest together in one trading vehicle. The General Partner is also the general partner of Campbell Master. Individual and pooled accounts currently managed by Campbell, including the Partnership, are permitted to be limited partners of Campbell Master. The General Partner and Campbell believe that trading through this structure should promote efficiency and economy in the trading process. Expenses to investors as a result of the investment in Campbell Master are approximately the same and redemption rights are not affected.

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Argo Master Fund L.P. (‘‘Willowbridge Master’’), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 12,259.3490 Units of Willowbridge Master with cash of $11,118,119, and a contribution of open commodity futures and forward positions with a fair value of $1,141,230. Willowbridge Master was formed in order to permit commodity pools managed now or in the future by Willowbridge using its Argo Trading Program to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be limited partners of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process. Expenses to investors as a result of the investment in Willowbridge Master are approximately the same and redemption rights are not affected.

On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Master Fund L.P. (‘‘Graham Master’’), a limited partnership organized under the partnership laws of the State of New York. The partnership purchased 14,741.1555 Units of Graham Master with cash of $14,741,156. Graham Master was formed in order to permit accounts managed now and in the future by Graham using the Multi-Trend Program at 125% Leverage, to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be limited partners of Graham Master. The General Partner and Graham believe that trading through this structure promotes efficiency and economy in the trading process. Expenses to investors as a result of the investment in Graham Master are approximately the same and redemption rights are not affected.

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

A limited partner may withdraw all or part of its capital contribution and undistributed profits, if any, from the Funds in multiples of the net asset value per unit of limited partnership interest as of the last day of a month after a request for redemption has been made to the General Partner at least 3 days in advance of month-end.

Management and incentive fees are charged at the Partnership level. All exchange, clearing, user, give-up, floor brokerage and National Futures Association fees are borne by the Funds. All other fees, including CGM’s direct brokerage commission, are charged at the Partnership level.

As of June 30, 2007 the Partnership owned 4.8%, 4.7%, 4.0% and 6.4%, respectively of Campbell Master, Willowbridge Master, Winton Master and Graham Master. At December 31, 2006 the Partnership owned 4.4%, 6.5%, 5.4% and 5.8%, respectively of Campbell Master, Willowbridge Master, Winton Master and Graham Master. It is Winton’s, Campbell’s, Willowbridge’s and Graham’s intention to continue to 

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Smith Barney Diversified Futures Fund L.P.Notes to Financial StatementsJune 30, 2007 (Unaudited)

invest the assets allocated to each by the Partnership in the Winton Master, Campbell Master, Willowbridge Master and Graham Master. The performance of the Partnership is directly affected by the performance of the Funds.

Summarized information reflecting the total assets, liabilities and capital for the Funds is shown in the following tables.

|                     |  |  |               |   |               |                   |  |  |               |   |            |  |  |  |  |   |               |  |
|---------------------|--|--|---------------|---|---------------|-------------------|--|--|---------------|---|------------|--|--|--|--|---|---------------|--|
|                |  |  | June 30, 2007 |
|                |  |  | Total Assets  |   |               | Total Liabilities |  |  | Total Capital |
| Campbell Master     |  |  |               | $ | 319,173,792   |                   |  |  |               | $ | 9,367,825  |  |  |  |  | $ | 309,805,967   |  |
| Willowbridge Master |  |  |               |   | 169,272,450   |                   |  |  |               |   | 577,466    |  |  |  |  |   | 168,694,984   |  |
| Winton Master       |  |  |               |   | 391,048,128   |                   |  |  |               |   | 4,917,702  |  |  |  |  |   | 386,130,426   |  |
| Graham Master       |  |  |               |   | 224,962,674   |                   |  |  |               |   | 675,793    |  |  |  |  |   | 224,286,881   |  |
| Total               |  |  |               | $ | 1,104,457,044 |                   |  |  |               | $ | 15,538,786 |  |  |  |  | $ | 1,088,918,258 |  |

|                     |  |  |                   |   |               |                   |  |  |               |   |            |  |  |  |  |   |               |  |
|---------------------|--|--|-------------------|---|---------------|-------------------|--|--|---------------|---|------------|--|--|--|--|---|---------------|--|
|                |  |  | December 31, 2006 |
|                |  |  | Total Assets      |   |               | Total Liabilities |  |  | Total Capital |
| Campbell Master     |  |  |                   | $ | 338,859,002   |                   |  |  |               | $ | 11,768,612 |  |  |  |  | $ | 327,090,390   |  |
| Willowbridge Master |  |  |                   |   | 184,225,476   |                   |  |  |               |   | 657,346    |  |  |  |  |   | 183,568,130   |  |
| Winton Master       |  |  |                   |   | 276,590,109   |                   |  |  |               |   | 3,706,951  |  |  |  |  |   | 272,883,158   |  |
| Graham Master       |  |  |                   |   | 229,982,015   |                   |  |  |               |   | 3,308,499  |  |  |  |  |   | 226,673,516   |  |
| Total               |  |  |                   | $ | 1,029,656,602 |                   |  |  |               | $ | 19,441,408 |  |  |  |  | $ | 1,010,215,194 |  |

Summarized information reflecting the Partnership’s investment in, and the operations of the Funds is shown in the following tables. The Partnership’s share of the Funds’ net income (loss) is included in change in unrealized gains (losses) on open positions and investment in the Funds on the Partnership’s statement of income and expenses and partners’ capital.

|                     |             |  |                                     |       |        |                                          |  |  |               |   |            |          |  |  |                   |   |           |                      |  |  |                       |   |        |  |  |  |  |   |       |  |  |  |  |   |           |  |  |  |                                   |  |  |         |
|---------------------|-------------|--|-------------------------------------|-------|--------|------------------------------------------|--|--|---------------|---|------------|----------|--|--|-------------------|---|-----------|----------------------|--|--|-----------------------|---|--------|--|--|--|--|---|-------|--|--|--|--|---|-----------|--|--|--|-----------------------------------|--|--|---------|
|                |             |  | June 30, 2007                       |       |        | For the three months ended June 30, 2007 |  |  |          |   |            |     |
| Investment          |             |  | % of Partnership’s Net Assets |       |        | Fair Value                               |  |  | Income (Loss) |   |            | Expenses |  |  | Net Income (Loss) |   |           | Investment Objective |  |  | Redemptions Permitted |
|                     | Commissions |  |                                     | Other |
| Campbell Master     |             |  |                                     |       | 28.78  | %                                   |  |  |               | $ | 14,828,244 |          |  |  |                   | $ | 1,949,497 |                      |  |  |                       | $ | 3,264  |  |  |  |  | $ | 548   |  |  |  |  | $ | 1,945,685 |  |  |  | Financials & Metals Portfolio |  |  | Monthly |
| Willowbridge Master |             |  |                                     |       | 15.31  | %                                   |  |  |               |   | 7,888,561  |          |  |  |                   |   | 2,018,212 |                      |  |  |                       |   | 5,755  |  |  |  |  |   | 450   |  |  |  |  |   | 2,012,007 |  |  |  | CommodityPortfolio                |  |  | Monthly |
| Winton Master       |             |  |                                     |       | 29.70  | %                                   |  |  |               |   | 15,302,553 |          |  |  |                   |   | 1,946,313 |                      |  |  |                       |   | 7,900  |  |  |  |  |   | 437   |  |  |  |  |   | 1,937,976 |  |  |  | CommodityPortfolio                |  |  | Monthly |
| Graham Master       |             |  |                                     |       | 27.96  | %                                   |  |  |               |   | 14,407,959 |          |  |  |                   |   | 2,860,477 |                      |  |  |                       |   | 15,440 |  |  |  |  |   | 615   |  |  |  |  |   | 2,844,422 |  |  |  | CommodityPortfolio                |  |  | Monthly |
| Total               |             |  |                                     |       |   |                                          |  |  |               | $ | 52,427,317 |          |  |  |                   | $ | 8,774,499 |                      |  |  |                       | $ | 32,359 |  |  |  |  | $ | 2,050 |  |  |  |  | $ | 8,740,090 |  |  |  |                              |  |  |    |

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|                     |             |  |                                   |       |        |                                        |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                       |   |        |  |  |  |  |   |       |  |  |  |  |   |           |  |  |  |                                 |  |  |         |
|---------------------|-------------|--|-----------------------------------|-------|--------|----------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|-----------------------|---|--------|--|--|--|--|---|-------|--|--|--|--|---|-----------|--|--|--|---------------------------------|--|--|---------|
|                |             |  | June 30, 2007                     |       |        | For the six months ended June 30, 2007 |  |  |         |   |            |     |
| Investment          |             |  | % ofPartnership’sNet Assets |       |        | FairValue                              |  |  | Income(Loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | Redemptions Permitted |
|                     | Commissions |  |                                   | Other |
| Campbell Master     |             |  |                                   |       | 28.78  | %                                 |  |  |              | $ | 14,828,244 |          |  |  |                  | $ | 1,274,994 |                     |  |  |                       | $ | 7,564  |  |  |  |  | $ | 976   |  |  |  |  | $ | 1,266,454 |  |  |  | Financials &MetalsPortfolio |  |  | Monthly |
| Willowbridge Master |             |  |                                   |       | 15.31  | %                                 |  |  |              |   | 7,888,561  |          |  |  |                  |   | 82,885    |                     |  |  |                       |   | 15,220 |  |  |  |  |   | 1,029 |  |  |  |  |   | 66,636    |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Winton Master       |             |  |                                   |       | 29.70  | %                                 |  |  |              |   | 15,302,553 |          |  |  |                  |   | 1,105,010 |                     |  |  |                       |   | 21,486 |  |  |  |  |   | 961   |  |  |  |  |   | 1,082,563 |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Graham Master       |             |  |                                   |       | 27.96  | %                                 |  |  |              |   | 14,407,959 |          |  |  |                  |   | 1,971,163 |                     |  |  |                       |   | 26,220 |  |  |  |  |   | 1,226 |  |  |  |  |   | 1,943,717 |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Total               |             |  |                                   |       |   |                                        |  |  |              | $ | 52,427,317 |          |  |  |                  | $ | 4,434,052 |                     |  |  |                       | $ | 70,490 |  |  |  |  | $ | 4,192 |  |  |  |  | $ | 4,359,370 |  |  |  |                            |  |  |    |

|                     |             |  |                                     |       |        |                                          |  |  |               |   |            |          |  |  |                   |   |           |                      |  |  |                      |   |        |  |  |  |  |   |         |  |  |  |  |   |           |         |  |  |                                  |  |  |         |
|---------------------|-------------|--|-------------------------------------|-------|--------|------------------------------------------|--|--|---------------|---|------------|----------|--|--|-------------------|---|-----------|----------------------|--|--|----------------------|---|--------|--|--|--|--|---|---------|--|--|--|--|---|-----------|---------|--|--|----------------------------------|--|--|---------|
|                |             |  | December 31, 2006                   |       |        | For the three months ended June 30, 2006 |  |  |          |   |            |     |
| Investment          |             |  | % of Partnership’s Net Assets |       |        | Fair Value                               |  |  | Income (Loss) |   |            | Expenses |  |  | Net Income (Loss) |   |           | Investment Objective |  |  | RedemptionsPermitted |
|                     | Commissions |  |                                     | Other |
| Campbell Master     |             |  |                                     |       | 26.93  | %                                   |  |  |               | $ | 14,378,898 |          |  |  |                   | $ | (753,024  | )               |  |  |                      | $ | 2,564  |  |  |  |  | $ | 256     |  |  |  |  | $ | (755,844  | )  |  |  | Financials &Metals Portfolio |  |  | Monthly |
| Willowbridge Master |             |  |                                     |       | 22.35  | %                                   |  |  |               |   | 11,937,682 |          |  |  |                   |   | 2,255,772 |                      |  |  |                      |   | 13,067 |  |  |  |  |   | 607     |  |  |  |  |   | 2,242,098 |         |  |  | CommodityPortfolio               |  |  | Monthly |
| Winton Master       |             |  |                                     |       | 27.66  | %                                   |  |  |               |   | 14,767,400 |          |  |  |                   |   | 289,145   |                      |  |  |                      |   | 13,465 |  |  |  |  |   | — |  |  |  |  |   | 275,680   |         |  |  | CommodityPortfolio               |  |  | Monthly |
| Graham Master       |             |  |                                     |       | 24.74  | %                                   |  |  |               |   | 13,210,776 |          |  |  |                   |   | 142,256   |                      |  |  |                      |   | 11,829 |  |  |  |  |   | 1,165   |  |  |  |  |   | 129,262   |         |  |  | CommodityPortfolio               |  |  | Monthly |
| Total               |             |  |                                     |       |   |                                          |  |  |               | $ | 54,294,756 |          |  |  |                   | $ | 1,934,149 |                      |  |  |                      | $ | 40,925 |  |  |  |  | $ | 2,028   |  |  |  |  | $ | 1,891,196 |         |  |  |                             |  |  |    |

|                     |             |  |                                   |       |        |                                        |  |  |              |   |            |          |  |  |                  |   |           |                     |  |  |                      |   |        |  |  |  |  |   |       |  |  |  |  |   |           |  |  |  |                                 |  |  |         |
|---------------------|-------------|--|-----------------------------------|-------|--------|----------------------------------------|--|--|--------------|---|------------|----------|--|--|------------------|---|-----------|---------------------|--|--|----------------------|---|--------|--|--|--|--|---|-------|--|--|--|--|---|-----------|--|--|--|---------------------------------|--|--|---------|
|                |             |  | December 31, 2006                 |       |        | For the six months ended June 30, 2006 |  |  |         |   |            |     |
| Investment          |             |  | % ofPartnership’sNet Assets |       |        | FairValue                              |  |  | Income(Loss) |   |            | Expenses |  |  | Net Income(Loss) |   |           | InvestmentObjective |  |  | RedemptionsPermitted |
|                     | Commissions |  |                                   | Other |
| Campbell Master     |             |  |                                   |       | 26.93  | %                                 |  |  |              | $ | 14,378,898 |          |  |  |                  | $ | 268,193   |                     |  |  |                      | $ | 6,677  |  |  |  |  | $ | 526   |  |  |  |  | $ | 260,990   |  |  |  | Financials &MetalsPortfolio |  |  | Monthly |
| Willowbridge Master |             |  |                                   |       | 22.35  | %                                 |  |  |              |   | 11,937,682 |          |  |  |                  |   | 1,051,643 |                     |  |  |                      |   | 24,414 |  |  |  |  |   | 1,220 |  |  |  |  |   | 1,026,009 |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Winton Master       |             |  |                                   |       | 27.66  | %                                 |  |  |              |   | 14,767,400 |          |  |  |                  |   | 1,155,252 |                     |  |  |                      |   | 36,685 |  |  |  |  |   | 125   |  |  |  |  |   | 1,118,442 |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Graham Master       |             |  |                                   |       | 24.74  | %                                 |  |  |              |   | 13,210,776 |          |  |  |                  |   | 142,256   |                     |  |  |                      |   | 11,829 |  |  |  |  |   | 1,165 |  |  |  |  |   | 129,262   |  |  |  | CommodityPortfolio              |  |  | Monthly |
| Total               |             |  |                                   |       |   |                                        |  |  |              | $ | 54,294,756 |          |  |  |                  | $ | 2,617,344 |                     |  |  |                      | $ | 79,605 |  |  |  |  | $ | 3,036 |  |  |  |  | $ | 2,534,703 |  |  |  |                            |  |  |    |

5.    Financial Instrument Risks:

In the normal course of its business, the Partnership, through its investments in the Funds is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures and options, whose values are 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 

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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 Funds 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 Funds’ risk of loss in the event of counterparty default is typically limited to the amounts recognized as unrealized appreciation (depreciation) in the statements of financial condition and not represented by the contract or notional amounts of the instruments. The Funds have credit risk and concentration risk because the sole counterparty or broker with respect to the Funds’ assets is CGM.

The General Partner monitors and controls the Funds’ 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 Funds are subject. These monitoring systems allow the General Partner to statistically analyze actual trading results with risk-adjusted performance indicators and correlation statistics. In addition, on-line monitoring systems provide account analysis of futures, forwards and options positions by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these instruments mature within one year of June 30, 2007. However, due to the nature of the Funds’ businesses, these instruments may not be held to maturity.

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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 investment in the Funds and cash. The Funds’ only assets are their equity in its commodity futures trading account, consisting of cash and cash equivalents, net unrealized appreciation on open futures and forward contracts and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Funds. While substantial losses could lead to a decrease in liquidity, no such losses occurred during the second quarter of 2007.

The Partnership’s capital consists of the capital contributions of the partners as increased or decreased by its investment in the Funds, expenses, interest income, additions and redemptions of Redeemable Units and distributions of profits, if any.

For the six months ended June 30, 2007, Partnership capital decreased 3.5% from $53,396,511 to $51,524,909. This decrease was attributable to the redemption of 1,736.3549 Redeemable Units of Limited Partnership Interest totaling $2,836,607 and 965.2622 General Partner Units totaling $1,441,407, which was partially offset by a net income from operations of $2,406,412. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

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

All commodity interests of the Partnership which are held by the Funds, (including derivative financial instruments and derivative commodity instruments) are used for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded in the statements of financial condition at fair value on the last business day of the period, which represents market value for those commodity interests for which market quotations are readily available or other measures of fair value deemed appropriate by management of the General Partner for those commodity interests and foreign currencies for which market quotations are not readily available, including dealer quotes for swaps and certain option contracts. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing on the last business day of the period. Realized gains (losses) and changes in unrealized values on open positions are recognized in the period in which the contract is closed or the changes occur and are included in net gains (losses) on trading of commodity interests. The investments in other partnerships are recorded at fair value, based upon the Partnership’s proportionate interest held.

Foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Fund’s net equity therein, representing unrealized gain or loss on the contracts, as measured by the difference between the forward foreign exchange rates at the date of entry into the contracts and the forward rates at the reporting dates, is included in the statement of financial condition. Realized gains (losses) and changes in unrealized values on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur and are included in the statements of income and expenses and partners’ capital.

The Partnership may purchase and write (sell) options. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Partnership writes an option, the premium received is recorded as a liability in the statements of financial condition and marked to market daily. When the Partnership purchases an option, the premium paid is recorded as an asset in the statements of financial condition and marked to market daily.

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In July 2006, the Financial Accounting Standards Board (the ‘‘FASB’’) released FASB Interpretation No. 48 ‘‘Accounting for Uncertainty in Income Taxes’’ (FIN 48).  FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority.  Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Partnership adopted FIN 48 as of January 31, 2007 and the application of this standard did not impact the financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, fair value measurements. This accounting standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and the interim periods within those fiscal years. As of June 30, 2007, the Partnership is still evaluating the impact the adoption of SFAS No. 157 will have on the financial statement amounts; however, additional disclosures will be required about the inputs used to develop the measurements and the effect of certain measurements on changes in Partners’ Capital for the period.

Results of Operations

During the Partnership’s second quarter of 2007 the Net Asset Value per Redeemable Unit increased 17.3% from $1,493.28 to $1,751.54 as compared to an increase of 1.3% in the second quarter of 2006. The Partnership experienced net gains of trading commodity interest and investment in Partnerships before brokerage commissions and related fees in the second quarter of 2007 of $8,740,090. Gains were primarily attributable to the trading by the Funds of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates, and indices and were partially offset by losses in metals, livestock, softs and lumber. The Partnership experienced net gains of trading commodity interest and investment in Partnerships before brokerage commissions and related fees in the second quarter of 2006 of $1,884,254. Gains were primarily attributable to the trading by the Funds of commodity futures in energy, U.S. and non-U.S. interest rates, metals and softs and were partially offset by losses in currencies, grains, livestock, indices and lumber.

Favorable trading conditions during the second quarter, especially in the financial sectors, provided gains for the Partnership. Profits earned in global and U.S. fixed income markets, currency, and equity indices were more than sufficient to offset small losses accumulated in trading metals and soft commodities.

The global economy remained stable in the quarter as relatively low interest rates and high levels of liquidity in the capital markets were the backdrop to the highest corporate activities in recent history. Gains were realized from trading in fixed income markets domestically and globally on stronger than expected economic data and increased inflationary pressures. Profits were earned in trading currency as trends in the Japanese yen, the New Zealand dollar and the Pound Sterling persisted. Equity indices added to gains for the quarter as the global equity rally continued unabated.

Slightly offsetting gains were losses in metals and soft commodities. Losses were taken in metals as the U.S. dollar unexpectedly strengthened in May and signs of slowing Chinese economic growth caused prices to move erratically. Soft commodities prices were dominated by sharp reversals, especially in cocoa and coffee, resulting in losses for the sector.

During the Partnership’s six months ended June 30, 2007 the Net Asset Value per Redeemable Unit increased 5.4% from $1,662.48 to $1,751.54 as compared to an increase of 1.6% for the six months ended June 30, 2006. The Partnership experienced net gains of trading commodity interest and investment in Partnerships before brokerage commissions and related fees for the six months ended June 30, 2007, of $4,359,370. Gains were primarily attributable to the trading by the Funds of commodity futures in currencies, non-U.S. interest rates, lumber and indices and were partially offset by losses in energy, grains, U.S. interest rates, livestock, metals and softs. The Partnership experienced net gains of trading 

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commodity interest and investment in Partnerships before commissions and related fees for the six months ended June 30, 2006 of $3,019,130. Gains were primarily attributable to the trading of commodity futures by the Partnership and also by the Funds in U.S. and non-U.S. interest rates, metals and indices and were partially offset by losses in currencies, energy, grains, livestock, softs and lumber.

Commodity futures markets are highly volatile. The potential for broad and rapid price fluctuations increases the risks involved in commodity trading, but also increases the possibility of profit. The profitability of the Partnership depends on the existence of major price trends and the ability of the Advisors to correctly 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 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.

CGM will pay monthly interest to the Partnership on its applicable share of 80% of the average daily equity maintained in cash in the Funds’ brokerage account at a 30-day U.S. Treasury bill rate determined by CGM and/or will place all of the Funds’ assets in 90-day Treasury bills. The Partnership will receive 80% of its applicable share of the interest earned on the Treasury bills through its investments in other Partnerships and CGM will be paid 20% of the interest. The interest earned at the investment in Partnerships level is included in the Partnership share of overall net income (loss) of the other Partnerships in 2007 as compared to 2006.

Brokerage commissions are calculated on the Partnership’s net asset value as of the last day of each month and are affected by 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 six months ended June 30, 2007 decreased by $117,474 and 221,575, respectively as compared to the corresponding periods in 2006. The decrease in brokerage commissions is due to lower average net assets during the three and six months ended June 30, 2007 as compared to the corresponding periods in 2006.

Management fees are calculated on the portion of the Partnership’s net asset value allocated to each Advisor at the end of the month and, therefore, are affected by trading performance and redemptions. Management fees for the three and six months ended June 30, 2007 decreased by $40,169 and $72,046, respectively as compared to the corresponding periods in 2006. The decrease in management fees is due to lower average net assets during the three and six months ended June 30, 2007 as compared to the corresponding periods in 2006.

Incentive fees are based on the new trading profits generated by each Advisor at the end of the quarter as defined in the advisory agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three and six months ended June 30, 2007, resulted in incentive fees of $55,195. Trading performance for the three and six months ended June 30, 2006, resulted in incentive fees of $0 and $38,349, respectively.

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk

All of the Partnership’s assets are subject to the risk of trading loss through its investments in the Funds. The Funds are speculative commodity pools. The market sensitive instruments held by them are acquired for speculative trading purposes, and all or substantially all of the Funds’ 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 Funds’ main lines of business.

Market movements result in frequent changes in the fair value of the Funds’ open positions and, consequently in their earnings and cash flow. The Funds’ 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 the liquidity of the market in which they trade.

The Funds rapidly acquire and liquidate 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 Funds’ past performances are not necessarily indicative of their future results.

Value at Risk is a measure of the maximum amount which the Funds could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Funds’ speculative trading and the recurrence in the markets traded by the Funds of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Funds’ experiences 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 in this section should not be considered to constitute any assurance or representation that the Funds’ losses in any market sector will be limited to Value at Risk or by the Funds’ attempts to manage their market risks.

Exchange maintenance margin requirements have been used by the Funds as the measure of their Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

The following tables indicates the trading Value at Risk associated with the Partnership’s investments in the Funds by market category as of June 30, 2007 and the highest, lowest and average value during the three months ended June 30, 2007. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below.

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As of June 30, 2007, the Graham’s Master total capitalization was $224,286,881, the Partnership owned 6.4% of Graham Master.

June 30, 2007 (Unaudited)

|                                  |  |  |               |   |            |                          |  |  |                                  |  |        |                  |  |  |                       |   |            |  |  |  |  |   |            |  |  |  |  |   |            |  |
|----------------------------------|--|--|---------------|---|------------|--------------------------|--|--|----------------------------------|--|--------|------------------|--|--|-----------------------|---|------------|--|--|--|--|---|------------|--|--|--|--|---|------------|--|
|                             |  |  |          |   |            |                     |  |  | Three Months Ended June 30, 2007 |
| Market Sector                    |  |  | Value at Risk |   |            | % of TotalCapitalization |  |  | HighValue at Risk                |  |        | LowValue at Risk |  |  | AverageValue at Risk* |
| Currencies:                      |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |       |  |  |  |  |   |       |  |
| —OTC Contracts             |  |  |               | $ | 22,052,214 |                          |  |  |                                  |  | 9.83   | %           |  |  |                       | $ | 36,315,056 |  |  |  |  | $ | 19,944,640 |  |  |  |  | $ | 29,852,618 |  |
| Energy                           |  |  |               |   | 337,400    |                          |  |  |                                  |  | 0.15   | %           |  |  |                       |   | 871,000    |  |  |  |  |   | 248,000    |  |  |  |  |   | 548,033    |  |
| Grains                           |  |  |               |   | 281,987    |                          |  |  |                                  |  | 0.13   | %           |  |  |                       |   | 320,700    |  |  |  |  |   | 4,000      |  |  |  |  |   | 101,729    |  |
| Interest Rates U.S.              |  |  |               |   | 2,393,000  |                          |  |  |                                  |  | 1.07   | %           |  |  |                       |   | 3,124,000  |  |  |  |  |   | 38,467     |  |  |  |  |   | 1,711,917  |  |
| Interest Rates Non-U.S.          |  |  |               |   | 2,492,256  |                          |  |  |                                  |  | 1.11   | %           |  |  |                       |   | 7,772,547  |  |  |  |  |   | 2,492,256  |  |  |  |  |   | 5,841,706  |  |
| Livestock                        |  |  |               |   | 6,750      |                          |  |  |                                  |  | 0.00   | %**         |  |  |                       |   | 6,750      |  |  |  |  |   | 3,000      |  |  |  |  |   | 4,875      |  |
| Metals:                          |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |       |  |  |  |  |   |       |  |
| —Exchange Traded Contracts |  |  |               |   | 10,000     |                          |  |  |                                  |  | 0.01   | %           |  |  |                       |   | 144,000    |  |  |  |  |   | 4,000      |  |  |  |  |   | 45,333     |  |
| —OTC Contracts             |  |  |               |   | 7,146      |                          |  |  |                                  |  | 0.00   | %**         |  |  |                       |   | 598,409    |  |  |  |  |   | 3,586      |  |  |  |  |   | 117,810    |  |
| Softs                            |  |  |               |   | 147,019    |                          |  |  |                                  |  | 0.07   | %           |  |  |                       |   | 256,809    |  |  |  |  |   | 103,845    |  |  |  |  |   | 184,967    |  |
| Indices                          |  |  |               |   | 4,762,306  |                          |  |  |                                  |  | 2.12   | %           |  |  |                       |   | 10,593,315 |  |  |  |  |   | 633,683    |  |  |  |  |   | 7,545,680  |  |
| Total                            |  |  |               | $ | 32,490,078 |                          |  |  |                                  |  | 14.49  | %           |  |  |                       |   |       |  |  |  |  |   |       |  |  |  |  |   |       |  |

| * | Average of month-end Values at Risk. |
|---|--------------------------------------|

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

As of June 30, 2007, Campbell Master’s total capitalization was $309,805,967. The Partnership owned 4.8% of Campbell Master.

June 30, 2007 (Unaudited)

|                                  |  |  |               |   |            |                          |  |  |                                  |  |        |                  |  |  |                       |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|----------------------------------|--|--|---------------|---|------------|--------------------------|--|--|----------------------------------|--|--------|------------------|--|--|-----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                             |  |  |          |   |            |                     |  |  | Three Months Ended June 30, 2007 |
| Market Sector                    |  |  | Value at Risk |   |            | % of TotalCapitalization |  |  | HighValue at Risk                |  |        | LowValue at Risk |  |  | AverageValue at Risk* |
| Currencies:                      |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —OTC Contracts             |  |  |               | $ | 8,078,023  |                          |  |  |                                  |  | 2.61   | %           |  |  |                       | $ | 11,367,341 |  |  |  |  | $ | 6,780,223 |  |  |  |  | $ | 8,267,143 |  |
| Energy                           |  |  |               |   | 969,350    |                          |  |  |                                  |  | 0.31   | %           |  |  |                       |   | 969,350    |  |  |  |  |   | 357,600   |  |  |  |  |   | 735,117   |  |
| Interest Rates U.S.              |  |  |               |   | 4,120,200  |                          |  |  |                                  |  | 1.33   | %           |  |  |                       |   | 4,293,650  |  |  |  |  |   | 53,207    |  |  |  |  |   | 2,943,000 |  |
| Interest Rates Non-U.S.          |  |  |               |   | 7,860,338  |                          |  |  |                                  |  | 2.54   | %           |  |  |                       |   | 10,281,295 |  |  |  |  |   | 3,366,038 |  |  |  |  |   | 8,412,667 |  |
| Metals:                          |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               |   | 296,000    |                          |  |  |                                  |  | 0.10   | %           |  |  |                       |   | 390,000    |  |  |  |  |   | 124,000   |  |  |  |  |   | 299,333   |  |
| —OTC Contracts             |  |  |               |   | 1,143,021  |                          |  |  |                                  |  | 0.37   | %           |  |  |                       |   | 2,315,924  |  |  |  |  |   | 854,405   |  |  |  |  |   | 1,303,427 |  |
| Indices                          |  |  |               |   | 5,742,025  |                          |  |  |                                  |  | 1.85   | %           |  |  |                       |   | 10,594,273 |  |  |  |  |   | 5,347,848 |  |  |  |  |   | 8,194,370 |  |
| Total                            |  |  |               | $ | 28,208,957 |                          |  |  |                                  |  | 9.11   | %           |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |

| * | Average of month-end Values at Risk |
|---|-------------------------------------|

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As of June 30, 2007, Willowbridge Master’s total capitalization was $168,694,984. The Partnership owned 4.7% of Willowbridge Master.

June 30, 2007 (Unaudited)

|                                  |  |  |               |   |            |                          |  |  |                                  |  |        |                  |  |  |                       |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|----------------------------------|--|--|---------------|---|------------|--------------------------|--|--|----------------------------------|--|--------|------------------|--|--|-----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                             |  |  |          |   |            |                     |  |  | Three Months Ended June 30, 2007 |
| Market Sector                    |  |  | Value at Risk |   |            | % of TotalCapitalization |  |  | HighValue at Risk                |  |        | LowValue at Risk |  |  | AverageValue at Risk* |
| Currencies:                      |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               | $ | 3,189,836  |                          |  |  |                                  |  | 1.89   | %           |  |  |                       | $ | 5,480,328  |  |  |  |  | $ | 2,665,600 |  |  |  |  | $ | 3,958,243 |  |
| Energy                           |  |  |               |   | 5,049,600  |                          |  |  |                                  |  | 2.99   | %           |  |  |                       |   | 11,515,000 |  |  |  |  |   | 2,275,050 |  |  |  |  |   | 5,155,200 |  |
| Grains                           |  |  |               |   | 820,800    |                          |  |  |                                  |  | 0.49   | %           |  |  |                       |   | 1,621,620  |  |  |  |  |   | 483,840   |  |  |  |  |   | 662,240   |  |
| Interest Rates U.S.              |  |  |               |   | 2,649,000  |                          |  |  |                                  |  | 1.57   | %           |  |  |                       |   | 3,312,000  |  |  |  |  |   | 528,000   |  |  |  |  |   | 1,907,000 |  |
| Interest Rates Non-U.S.          |  |  |               |   | 6,208,816  |                          |  |  |                                  |  | 3.68   | %           |  |  |                       |   | 7,731,444  |  |  |  |  |   | 1,711,761 |  |  |  |  |   | 6,524,384 |  |
| Livestock                        |  |  |               |   | 144,000    |                          |  |  |                                  |  | 0.09   | %           |  |  |                       |   | 148,500    |  |  |  |  |   | 4,500     |  |  |  |  |   | 48,000    |  |
| Metals:                          |  |  |               |   |       |                          |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               |   | 1,248,000  |                          |  |  |                                  |  | 0.74   | %           |  |  |                       |   | 4,047,000  |  |  |  |  |   | 768,000   |  |  |  |  |   | 2,551,333 |  |
| Softs                            |  |  |               |   | 595,200    |                          |  |  |                                  |  | 0.35   | %           |  |  |                       |   | 1,244,600  |  |  |  |  |   | 249,600   |  |  |  |  |   | 689,933   |  |
| Total                            |  |  |               | $ | 19,905,252 |                          |  |  |                                  |  | 11.80  | %           |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |

| * | Average of month-end Values at Risk |
|---|-------------------------------------|

As of June 30, 2007, Winton Master’s total capitalization was $386,130,426. The Partnership owned 4.0% of Winton Master.

June 30, 2007 (Unaudited)

|                                  |  |  |               |   |            |                           |  |  |                                  |  |        |                  |  |  |                       |   |            |  |  |  |  |   |           |  |  |  |  |   |           |  |
|----------------------------------|--|--|---------------|---|------------|---------------------------|--|--|----------------------------------|--|--------|------------------|--|--|-----------------------|---|------------|--|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                             |  |  |          |   |            |                      |  |  | Three Months Ended June 30, 2007 |
| Market Sector                    |  |  | Value at Risk |   |            | % of Total Capitalization |  |  | HighValue at Risk                |  |        | LowValue at Risk |  |  | AverageValue at Risk* |
| Currencies:                      |  |  |               |   |       |                           |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               | $ | 3,908,381  |                           |  |  |                                  |  | 1.01   | %           |  |  |                       | $ | 4,966,647  |  |  |  |  | $ | 3,372,271 |  |  |  |  | $ | 4,151,347 |  |
| Energy                           |  |  |               |   | 1,263,912  |                           |  |  |                                  |  | 0.33   | %           |  |  |                       |   | 1,520,262  |  |  |  |  |   | 766,962   |  |  |  |  |   | 1,253,446 |  |
| Grains                           |  |  |               |   | 1,598,280  |                           |  |  |                                  |  | 0.41   | %           |  |  |                       |   | 1,761,864  |  |  |  |  |   | 1,269,309 |  |  |  |  |   | 1,495,152 |  |
| Interest Rates U.S.              |  |  |               |   | 7,743,898  |                           |  |  |                                  |  | 2.01   | %           |  |  |                       |   | 3,214,600  |  |  |  |  |   | 178,160   |  |  |  |  |   | 1,577,895 |  |
| Interest Rates Non-U.S           |  |  |               |   | 1,279,300  |                           |  |  |                                  |  | 0.33   | %           |  |  |                       |   | 9,740,034  |  |  |  |  |   | 5,561,866 |  |  |  |  |   | 7,876,534 |  |
| Livestock                        |  |  |               |   | 92,065     |                           |  |  |                                  |  | 0.02   | %           |  |  |                       |   | 95,785     |  |  |  |  |   | 16,176    |  |  |  |  |   | 74,861    |  |
| Lumber                           |  |  |               |   | 1,100      |                           |  |  |                                  |  | 0.00   | %**         |  |  |                       |   | 2,200      |  |  |  |  |   | 1,100     |  |  |  |  |   | 1,100     |  |
| Metals:                          |  |  |               |   |       |                           |  |  |                                  |  |   |                  |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |
| —Exchange Traded Contracts |  |  |               |   | 577,230    |                           |  |  |                                  |  | 0.15   | %           |  |  |                       |   | 1,046,820  |  |  |  |  |   | 577,230   |  |  |  |  |   | 764,360   |  |
| —OTC Contracts             |  |  |               |   | 1,797,497  |                           |  |  |                                  |  | 0.47   | %           |  |  |                       |   | 2,373,605  |  |  |  |  |   | 1,387,850 |  |  |  |  |   | 1,955,157 |  |
| Softs                            |  |  |               |   | 1,068,674  |                           |  |  |                                  |  | 0.28   | %           |  |  |                       |   | 1,110,995  |  |  |  |  |   | 739,983   |  |  |  |  |   | 948,868   |  |
| Indices                          |  |  |               |   | 8,891,528  |                           |  |  |                                  |  | 2.30   | %           |  |  |                       |   | 11,623,923 |  |  |  |  |   | 6,709,777 |  |  |  |  |   | 9,466,436 |  |
| Total                            |  |  |               | $ | 28,221,865 |                           |  |  |                                  |  | 7.31   | %           |  |  |                       |   |       |  |  |  |  |   |      |  |  |  |  |   |      |  |

| * | Average of month-end Values at Risk |
|---|-------------------------------------|

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

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Item 4.    Controls and Procedures

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

Management is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-115(e) under the Exchange Act) as of June 30, 2007 and, based on that evaluation, the CEO and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. These controls include policies and procedures that:

|              |                                                                                                                                                                   |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; |

|              |                                                                                                                                                                                                                                                                                                                                     |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and |

|              |                                                                                                                                                                                                                        |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements. |

There were no changes in the Partnership’s internal control over financial reporting during the fiscal quarter ended June 30, 2007 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings.

The following information supplements and amends our discussion set forth under Part I, Item 3 ‘‘Legal Proceedings’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

Research

Customer Class Actions.

On May 3, 2007, the District Court remanded DISHER V. CITIGROUP GLOBAL MARKETS, INC., to Illinois state court. On June 13, 2007, Citigroup moved in state court to dismiss the action.

Mutual Funds

In May 2007, CGMI finalized its settlement agreement with the NYSE and the New Jersey Bureau of Securities on the matter related to its market-timing practices prior to September 2003.

IPO Securities Litigation

On May 18, 2007, the Second Circuit denied plaintiffs’ petition for rehearing en banc of the Second Circuit’s decision reversing the district court’s class certification.

IPO Antitrust Litigation

On June 18, 2007, the United States Supreme Court ruled that the securities law precludes application of the antitrust laws to the claims asserted by plaintiffs, effectively terminating the litigation.

Item 1A. Risk Factors.

There are no material changes from the risk factors set forth under Part I, Item 1A. ‘‘Risk Factors’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, and under Part II, Item 1A ‘‘Risk Factors’’ in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

Additional Redeemable Units offered represent a reduced brokerage fee to existing limited partners who invested $1,000,000 or more.

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

|                                      |  |  |                                    |  |          |                                 |  |  |                                                                                 |   |          |                                                                                                           |  |  |        |  |  |        |
|--------------------------------------|--|--|------------------------------------|--|----------|---------------------------------|--|--|---------------------------------------------------------------------------------|---|----------|-----------------------------------------------------------------------------------------------------------|--|--|--------|--|--|--------|
| Period                               |  |  | (a) TotalNumber ofUnits Purchased* |  |          | (b) Average PricePaid perUnit** |  |  | (c) Total Number ofUnitsPurchased as Partof Publicly AnnouncedPlans or Programs |   |          | (d) Maximum Number(or ApproximateDollar Value) ofUnitsthat May Yet BePurchased Under thePlans or Programs |
| April 1, 2007 – April 30, 2007 |  |  |                                    |  | 303.5363 |                                 |  |  |                                                                                 | $ | 1,572.82 |                                                                                                           |  |  | N/A    |  |  | N/A    |
| May 1, 2007 – May 31, 2007     |  |  |                                    |  | 225.2280 |                                 |  |  |                                                                                 | $ | 1,673.24 |                                                                                                           |  |  | N/A    |  |  | N/A    |
| June 1, 2007 – June 30, 2007   |  |  |                                    |  | 307.2599 |                                 |  |  |                                                                                 | $ | 1,751.54 |                                                                                                           |  |  | N/A    |  |  | N/A    |
|                                 |  |  |                                    |  | 836.0242 |                                 |  |  |                                                                                 | $ | 1,665.87 |                                                                                                           |  |  |   |  |  |   |

| * | Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on 10 days’ notice to the General Partner. Under certain circumstances, the General Partner |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  | can compel redemption but, to date, the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for Limited Partners. |
|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** | Redemptions of Redeemable Units are effected as of the last day of each month at the Net Asset Value per Redeemable Unit as of that day. |
|----|------------------------------------------------------------------------------------------------------------------------------------------|

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.    Exhibits

The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference to the exhibit index of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2006.

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

Exhibit - 31.2 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director).

Exhibit - 32.1 — Section 1350 Certification (Certification of President and Director).

Exhibit - 32.2 — Section 1350 Certification (Certification of Chief Financial Officer and Director).

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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 behalf by the undersigned thereunto duly authorized.

|                                            |  |  |                                                    |  |  |        |
|--------------------------------------------|--|--|----------------------------------------------------|--|--|--------|
| SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. |  |  |                                               |
| By:                                        |  |  | Citigroup Managed Futures LLC                      |  |  |   |
|                                       |  |  | (General Partner)                                  |  |  |   |
| By:                                        |  |  | /s/ Jerry Pascucci                                 |  |  |   |
|                                       |  |  | Jerry PascucciPresident and Director               |  |  |   |
| Date:                                      |  |  | August 14, 2007                                    |  |  |   |
| By:                                        |  |  | /s/ Jennifer Magro                                 |  |  |   |
|                                       |  |  | Jennifer MagroChief Financial Officer and Director |  |  |   |
| Date:                                      |  |  | August 14, 2007                                    |  |  |   |

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