UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.20549

FORM 10-K

Annual Report Pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934

For theyear ended December 31, 2004

Commission File Number0-22491

SMITH BARNEY DIVERSIFIED FUTURES FUNDL.P. II

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(Exact name ofregistrant as specified in its charter)

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| NewYork                                                       |  | 13-3769020                          |
| (State or otherjurisdiction of incorporation or organization) |  | (I.R.S.Employer Identification No.) |
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c/oCitigroup Managed Futures LLC 399 Park Ave - 7th Fl. New York,New York10022

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(Addressand Zip Code of principal executive offices)

(212)559-2011

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(Registrant'stelephone number, including area code)

Securitiesregistered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:Redeemable Units of Limited Partnership Interest

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Indicate by checkmark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subjectto such filing requirements for the past 90 days.

YesX        No     

Indicate bycheck mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this form 10-K 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act).

Yes            No X

LimitedPartnership Redeemable Units with an aggregate value of $61,240,596were outstanding and held by non-affiliates as of the last business dayof the registrant's most recently completed second fiscalquarter.

As of February 28, 2005, 41,815.8501 LimitedPartnership Redeemable Units were outstanding.

DOCUMENTSINCORPORATED BY REFERENCE

None

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PART I

Item1.    Business.

(a)    General development ofbusiness. Smith Barney Diversified Futures Fund L.P. II (the"Partnership") is a limited partnershiporganized on May 10, 1994 under the partnership laws of the State ofNew York. The Partnership commenced trading operations on January 17,1996. The Partnership engages in speculative trading of commodityinterests, including forward contracts on foreign currencies, commodityoptions and commodity futures contracts and other financialinstruments, foreign currencies and stock indices.

ARegistration Statement on Form S-1 (File No. 033-79244) relating to thepublic offering became effective on August 21, 1995. Beginning August21, 1995, 100,000 redeemable units of Limited Partnership Interest("Redeemable Units") were publicly offered at$1,000 per Redeemable Unit for a period of ninety days, subject toincrease for up to an additional sixty days at the sole discretion ofthe general partner. Between August 21, 1995 (commencement of theoffering period) and January 16, 1996, 8,529 Redeemable Units were soldat $1,000 per Redeemable Unit. Proceeds of the offering were held in anescrow account and were transferred, along with the generalpartner's contribution of $87,000, to the Partnership'strading account on January 17, 1996 when the Partnership commencedtrading. An additional 100,000 Redeemable Units were registered on aRegistration Statement on Form S-1 (File No. 333-03538) effective May29, 1996 and an additional 150,000 Redeemable Units were registered ona Registration Statement on Form S-1 (File No. 333-25239) effectiveApril 15, 1997.

Citigroup Managed Futures LLC, formerly SmithBarney Futures Management LLC, acts as the general partner (the"General Partner") of the Partnership. Salesof additional Redeemable Units and additional General Partnercontributions and redemptions of Redeemable Units for the year endedDecember 31, 2004 are reported in the Statement of Changes inPartners' Capital on page F-8 under "Item 8.Financial Statements and Supplementary Data."

The General Partner has agreed to make capital contributions, ifnecessary, so that its General Partnership interest will be equal tothe greater of (i) an amount to entitle it to 1% of eachmaterial item of Partnership income, loss, deduction or credit and (ii)the greater of (a) 1% of the partners' contributions tothe Partnership or (b) $25,000. The Partnership will be liquidated uponthe first of the following to occur: December 31, 2014; the Net AssetValue per Redeemable Unit falls below $400 as of the close of anybusiness day; or under certain circumstances as defined in the limitedpartnership agreement of the Partnership (the "LimitedPartnership Agreement").

The Partnership'scommodity broker is Citigroup Global Markets Inc.("CGM"), formerly Salomon Smith Barney Inc.CGM is an affiliate of the General partner. The General Partner iswholly owned by Citigroup Global Markets Holdings Inc.("CGMHI") formerly Salomon Smith BarneyHoldings Inc., which is the sole owner of CGM. CGMHI is a wholly ownedsubsidiary of Citigroup Inc.("Citigroup").

The Partnership'strading of futures, forwards and options contracts, if applicable, oncommodities is done primarily on United States of America and foreigncommodity exchanges. It engages in such trading through a commoditybrokerage account maintained with CGM.

As of December 31, 2004,all commodity trading decisions are made for the Partnership by GrahamCapital Management L.P. ("Graham"), Campbelland Company Inc., Willowbridge Associates Inc., and Capital FundManagement (collectively, the "Advisors").None of the Advisors is affiliated with the General Partner or CGM. TheAdvisors are not responsible for the organization or operation of thePartnership.

Pursuant to the terms of the management agreements(the "Management Agreements"), thePartnership pays each Advisor a monthly management fee equal to 1/6 of1% (2% per year) of month-end Net Assets allocated to theAdvisor. Month-end Net Assets for the purpose of calculating managementfees are Net Assets, as defined in the Limited Partnership Agreement,prior to the reduction of redemptions and incentive fees. In addition,the Partnership is obligated to pay each Advisor an incentive fee,payable quarterly, equal to 20% of the New Trading Profits, asdefined in the Management 

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Agreements, earned by each Advisor for thePartnership, except Graham, which will receive an incentive fee of10% of New Trading Profits on the first $5,000,000 and20% of New Trading Profits for all such profits in excess of$5,000,000.

The Partnership has entered into a customeragreement with CGM (the "CustomerAgreement"), which provides that the Partnership pays CGMa monthly brokerage fee equal to 1/2 of 1% of month-end NetAssets allocated to the Advisors (6% per year) in lieu ofbrokerage commissions on a per trade basis. Month-end Net Assets forthe purpose of calculating brokerage commissions are Net Assets, asdefined in the Limited Partnership Agreement prior to the reduction ofexpenses and redemptions payable. CGM also pays a portion of itsbrokerage fees to its financial consultants who have sold RedeemableUnits and who are registered as associated persons with the CommodityFutures Trading Commission (the "CFTC"). ThePartnership pays for National Futures Association("NFA") fees, exchange and clearing fees,give-up and user fees and floor brokerage fees. Brokerage fees will bepaid for the life of the Partnership, although the rate at which suchfees are paid may be changed. The Customer Agreement between thePartnership and CGM gives the Partnership the legal right to netunrealized gains and losses.

In addition, CGM pays thePartnership interest on 80% of the average daily equitymaintained in cash in its account during each month at a 30-day U.S.Treasury bill rate determined weekly by CGM based on the averagenon-competitive yield on 3-month U.S. Treasury bills maturing in 30days from the date on which such weekly rate is determined.

(b)    Financial information about industry segments. ThePartnership's business consists of only one segment, speculativetrading of commodity interests (including, but not limited to, futurescontracts, options and forward contracts on U.S. Treasury Bills, otherfinancial instruments, foreign currencies, stock indices and physicalcommodities). The Partnership does not engage in sales of goods orservices. The Partnership's net income (loss) from operations forthe years ended December 31, 2004, 2003, 2002 2001, and 2000 is setforth under "Item 6. Selected FinancialData." The Partnership's capital as of December31, 2004, was $64,553,264.

(c)    Narrative description ofbusiness.

See Paragraphs (a) and (b) above.

(i) through (xii) - Not applicable.

(xiii) - The Partnership has no employees.

(d)    Financial information about geographic areas. ThePartnership does not engage in sales of goods or services or own anylong lived assets, and therefore this item is notapplicable.

(e)    Available information. ThePartnership does not have an Internet address. The Partnership willprovide paper copies of its annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and any amendments tothese reports free of charge upon request.

Item2.    Properties.

The Partnership does not own orlease any properties. The General Partner operates out of facilitiesprovided by its affiliate, CGM.

Item 3.    LegalProceedings.

This section describes the major pendinglegal proceedings, other than ordinary routine litigation incidental tothe business, to which Citigroup Global Markets Holdings Inc.("CGMHI") or its subsidiaries is a party orto which any of their property is subject. There are no material legalproceedings pending against the Partnership or the General Partner.

CGM is a New York corporation with its principal place of businessat 388 Greenwich Street, New York, New York 10013. CGM is registered asa broker-dealer and futures commission merchant("FCM"), and provides futures brokerage andclearing services for institutional and retail participants in thefutures markets. CGM and its affiliates also provide investment bankingand other financial services for clients worldwide.

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There have been no administrative, civil orcriminal actions pending, on appeal or concluded against CGM or any ofits individual principals within the past five years that managementbelieves may have a material impact on CGM's ability to act as anFCM. In the ordinary course of its business, CGM is a party to variousclaims and regulatory inquiries.

Regulatory Matters

Both the Department of Labor and the Internal Revenue Service("IRS") have advised CGM that they were orare reviewing transactions in which Ameritech Pension Trust purchasedfrom CGM and certain affiliates approximately $20.9 million inparticipations in a portfolio of motels owned by Motels of America,Inc. and Best Inns, Inc. With respect to the IRS review, CGM andcertain affiliated entities have consented to extensions of time forthe assessment of excise taxes that may be claimed to be due withrespect to the transactions for the years 1987, 1988 and1989.

In April 2000, CGM and several other broker-dealersentered into a settlement with the IRS and the SEC, concluding anindustry-wide investigation into the pricing of Treasury securities inadvanced refunding transactions.

IPO Regulatory Inquiries

Since April 2002, CGM and several other broker dealers have receivedsubpoenas and/or requests for information from various governmental andself-regulatory agencies and Congressional committees as part of theirresearch on IPO allocation inquiries. With respect to issues raised bythe NASD, the NYSE and the SEC about CGM's and other firms'e-mail retention practices, CGM and several other broker/dealers andthe NASD, the NYSE and the SEC entered into a settlement agreement inDecember 2002. CGM agreed to pay a penalty in the amount of $1.65million and did not admit any wrongdoing.

IPO CivilLitigation

In April 2002, consolidated amended complaints werefiled against CGM and other investment banks named in numerous allegedclass actions filed in the United States District Court for theSouthern District of New York, alleging violations of certain federalsecurities laws (including Section 11 of the Securities Act of 1933, asamended, and Section 10(b) of the Securities Exchange Act of 1934, asamended) with respect to the allocation of shares for certain initialpublic offerings and related aftermarket transactions and damage toinvestors caused by allegedly biased research analyst reports. OnFebruary 19, 2003, the Court issued an opinion denyingdefendants' motion to dismiss.

On October 13, 2004, thecourt granted in part the motion to certify class actions for six focuscases in the securities litigation. CGM is not a defendant in any ofthe six focus cases. The underwriter defendants in the focus cases havefiled a petition to the United States Court of Appeals for the SecondCircuit seeking review of this decision.

Also filed in theSouthern District of New York against CGM and other investment bankswere several alleged class actions that were consolidated into a singleclass action alleging violations of certain federal and state antitrustlaws in connection with the allocation of shares in initial publicofferings when acting as underwriters. On November 3, 2003, the courtgranted CGM's motion to dismiss the consolidated amendedcomplaint in the antitrust case. An appeal to the Second Circuit of thedismissal granted to CGM in November 2003 with respect to the antitrustcase relating to the allocation of shares for certain initial publicofferings is pending.

Research Settlement

On April 28,2003, CGM announced final agreements with the SEC, the NASD, the NYSEand the New York Attorney General (as lead state among the 50 states,the District Columbia and Puerto Rico) to resolve on a civil basis allof their outstanding investigations into its research and IPOallocation and distribution practices (the "ResearchSettlement"). As part of the Research Settlement, CGM hasconsented to the entry of (1) an injunction under the federalsecurities laws to be entered in the United 

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States District Court for the SouthernDistrict of New York, barring CGM from violating provisions of thefederal securities laws and related NASD and NYSE rules relating toresearch, certain IPO allocation practices, the safeguarding ofmaterial nonpublic information, and the maintenance of required booksand records and requiring CGM to adopt and enforce new restrictions onthe operation of research; (2) an NASD Acceptance Waiver and Consentrequiring CGM to cease and desist from violations of corresponding NASDrules and requiring CGM to adopt and enforce the same new restrictions;(3) an NYSE Stipulation and Consent requiring CGM to cease and desistfrom violations of corresponding NYSE rules and requiring CGM to adoptand enforce the same new restrictions; and (4) an Assurance ofDiscontinuance with the New York Attorney General containingsubstantially the same or similar restrictions. The Research Settlementrequires CGM to pay $300 million for retrospective relief, plus $25million for investor education, and commit to spend $75 million toprovide independent third-party research to its clients at no charge.CGM reached these final settlement agreements without admitting ordenying any wrongdoing or liability. The Research Settlement does notestablish wrongdoing or liability for purposes of any other proceeding.The $300 million was accrued during the 2002 fourth quarter.

Toeffectuate the Research Settlement, the SEC filed a Complaint and FinalJudgment in the United States District Court for the Southern Districtof New York. On October 31, 2003, final judgment was entered againstCGM and nine other investment banks. The NASD has accepted the Letterof Acceptance, Waiver and Consent entered into with CGM in connectionwith the Research Settlement. In May 2003, the NYSE advised CGM thatthe Hearing Panel's Decision, in which it accepted the ResearchSettlement, had become final. As required by the Research Settlement,CGM also has entered into separate settlement agreements with numerousstates and certain U.S. territories.

Several individual actionshave been filed against Citigroup and CGM relating to, among otherthings, research on Qwest Communications International, Inc. allegingviolations of state and federal securities laws.

EnronRegulatory Settlement

On July 28, 2003, Citigroup(CGM's ultimate parent) entered into a final settlement agreementwith the SEC to resolve the SEC's outstanding investigations intoCitigroup transactions with Enron Corp. and Dynegy Inc. Pursuant to thesettlement, Citigroup has, among other terms, (1) consented to theentry of an administrative cease and desist order, which bars Citigroupfrom committing or causing violations of provisions of the federalsecurities laws, and (2) agreed to pay $120 million ($101.25 millionallocable to Enron and $18.75 million allocable to Dynegy). Citigroupentered into this settlement without admitting or denying anywrongdoing or liability, and the settlement does not establishwrongdoing or liability for purposes of any other proceeding. On July28, 2003, Citibank, N.A. entered into an agreement with the Office ofthe Comptroller of the Currency ("OCC") andCitigroup entered into an agreement with the Federal Reserve Bank ofNew York ("FED") to resolve their inquiriesinto certain of Citigroup's transactions with Enron. Pursuant tothe agreements, Citibank and Citigroup have agreed to submit plans tothe OCC and FED, respectively, regarding the handling of complexstructured finance transactions. Also on July 28, 2003, Citigroupentered into a settlement agreement with the Manhattan DistrictAttorney's Office to resolve its investigation into certain ofCitigroup's transactions with Enron. Pursuant to that settlement,Citigroup has agreed to pay $25.5 million and to abide by itsagreements with the SEC, OCC and FED.

Enron-Related CivilActions

CGM, Citigroup and various other Citigroup-relatedentities have been named as defendants in over 20 civil lawsuitspending in state and federal courts throughout the United States,alleging claims against Citigroup and CGM based on their dealings withEnron. The majority of these cases have been brought by purchasers andsellers of Enron equity and debt securities and Enron-linkedsecurities. Many of the plaintiffs in these actions are large,institutional investors that had substantial Enron and Enron-linkedholdings. The lawsuits collectively allege as against Citigroup and/orits affiliates and subsidiaries, among other things, federal securitiesfraud, state law claims of negligent misrepresentation, fraud, breachof fiduciary duty, aiding and abetting a breach of fiduciary duty andrelated claims. In most of these lawsuits, 

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Citigroup is named as a co-defendant alongwith other investment banks alleged to have had dealings with Enron.The majority of cases pending in the federal courts have been, or arein the process of being, consolidated before a single judge in theUnited States District Court for the Southern District of Texas. Inaddition, in five adversary proceedings in the Enron Chapter 11bankruptcy, Enron and, in one case, its co-debtor affiliates andsubsidiaries, and the Official Committee of Unsecured Creditors ofEnron Corp., et al., have named Citigroup and/or its affiliates orsubsidiaries as defendants.

A Citigroup affiliate, along withother defendants, settled all claims against it in In Re: NewpowerHoldings Securities Litigation, a class action brought on behalf ofcertain investors in NewPower securities. Citigroup reached thissettlement agreement without admitting any wrongdoing. On September 13,2004, the United States District Court for the Southern District of NewYork preliminarily approved the settlement.

Dynegy Inc.

 On June  6, 2003, the complaint in a pre-existingputative class action pending in the United States District Court forthe Southern District of Texas (IN RE: DYNEGY  INC. SECURITIESLITIGATION) brought by purchasers of publicly traded debt and equitysecurities of Dynegy  Inc. was amended to add Citigroup, Citibankand CGMI as defendants. The plaintiffs allege violations of Sections10(b) and 20(a) of the Securities Exchange Act of 1934, as amended,against the Citigroup defendants. The Citigroup defendants filed amotion to dismiss in March  2004, which motion was granted by theDistrict Court in October  2004. The court denied leadplaintiff's request for leave to appeal.

Worldcom-RelatedLitigation

Citigroup, CGM and certain executive officers andcurrent and former employees have been named as defendants —along with twenty-two other investment banks, certain current andformer WorldCom officers and directors, and WorldCom's formerauditors — in a consolidated class action brought on behalf ofindividuals and entities who purchased or acquired publicly tradedsecurities of WorldCom between April 29, 1999 and June 25, 2002 InRe: Worldcom, Inc. Securities Litigation. The class actioncomplaint asserts claims against CGM under (i) Sections 11 and 12(a)(2)of the Securities Act of 1933, as amended, in connection with certainbond offerings in which it served as underwriter, and (ii) Sections10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, andRule 10b-5 promulgated under Section 10(b), alleging that itparticipated in the preparation and/or issuance of misleading WorldComregistration statements and disseminated misleading research reportsconcerning WorldCom stock. In 2003, the district court deniedCGM's motion to dismiss the consolidated class action complaintand granted the plaintiffs' motion for class certification.

Pursuant to an order entered May 28, 2003, the District Courtconsolidated approximately seventy-eight individual actions with theclass action for pretrial proceedings. The claims asserted in theseindividual actions are substantially similar to the claims alleged inthe class action and assert state and federal securities law claimsbased on CGM's research reports concerning WorldCom and/orCGM's role as an underwriter in WorldCom offerings. Plaintiffs incertain of these actions filed motions to remand their cases to statecourt. The District Court denied these motions and its rulings wereupheld on appeal.

Numerous other actions asserting claimsagainst CGM in connection with its research reports about WorldComand/or its role as an investment banker for WorldCom are pending inother federal and state courts around the country. These actions havebeen remanded to various state courts, are pending in other federalcourts, or have been conditionally transferred to the United StatesDistrict Court for the Southern District of New York to be consolidatedwith the class action. In addition to the court suits, actionsasserting claims against Citigroup and certain of its affiliatesrelating to its WorldCom research reports are pending in numerousarbitrations around the country. These actions assert claims that aresubstantially similar to the claims asserted in the classaction.

On May 10, 2004, Citigroup announced that it had agreedto pay $2.58 billion to settle the WorldCom class action suits. TheUnited States District Court for the Southern District of New Yorkgranted approval to the proposed settlement on November 10,2004.

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On September 17, 2004, Weinstein, et al.v. Ebbers, et al., an alleged class action against CGM and othersbrought on behalf of holders of WorldCom securities asserting claimsbased on, among other things, CGM' research reports concerningWorldCom, was dismissed with prejudice in its entirety by the UnitedStates District Court for the Southern District of New York. Theplaintiffs noticed an appeal of the dismissal to the United StatesCourt of Appeals for the Second Circuit on October 15, 2004. Theparties have reached an agreement in principle on the terms of asettlement of this action.

Citigroup and CGM, along with a numberof other defendants, have settled Retirement Systems of Alabama, etal. v. J.P. Morgan Chase & Co., et al., a WorldCom individualaction that had been remanded to the Circuit Court of MontgomeryCounty, Alabama. The settlement became final on September 30,2004.

On June 28, 2004, the United States District Court for theSouthern District of New York dismissed all claims under the SecuritiesAct of 1933, as amended, and certain claims under the SecuritiesExchange Act of 1934 in In Re: Targets Securities Litigation, analleged class action against Citigroup and CGM and certain formeremployees, leaving only claims under the 1934 Act for purchases ofTargeted Growth Enhanced Terms Securities With Respect to the CommonStock of MCI WorldCom, Inc. ("TARGETS") afterJuly 30, 1999. On October 20, 2004, the parties signed a Memorandum ofUnderstanding setting forth the terms of a settlement of all remainingclaims in this action. The settlement was preliminarily approved by theCourt on January 11, 2005.

A fairness hearing was held onNovember 5, 2004 in connection with the proposed class settlementbetween plaintiffs and the Citigroup-related defendants in In Re:Worldcom, Inc. Securities Litigation.

Global Crossing

On or about January 28, 2003, lead plaintiff in a consolidatedalleged class action in the United States District Court for theSouthern District of New York (In Re: Global Crossing, Ltd.Securities Litigation) filed a consolidated complaint on behalf ofpurchasers of the securities of Global Crossing and Asia GlobalCrossing, which names as defendants, among others, Citigroup, CGM, CGMHand certain executive officers and current and former employees. Thepurported class action complaint asserts claims under the federalsecurities laws alleging that the defendants issued research reportswithout a reasonable basis in fact and failed to disclose conflicts ofinterest with Global Crossing in connection with published investmentresearch. On March 22, 2004, the lead plaintiff amended itsconsolidated complaint to add claims on behalf of purchasers of thesecurities of Asia Global Crossing. The added claims assert causes ofaction under the federal securities laws and common law in connectionwith CGM's research reports about Global Crossing and Asia GlobalCrossing and for CGM's roles as an investment banker for GlobalCrossing and as an underwriter in the Global Crossing and Asia GlobalCrossing offerings. The Citigroup related defendants moved to dismissall of the claims against them on July 2, 2004. The plaintiffs and theCitigroup related defendants have reached an agreement in principle onthe terms of a settlement of this action.

In addition, on orabout January 27, 2004, the Global Crossing Estate Representative filedin the United States Bankruptcy Court for the Southern District of NewYork (i) an adversary proceeding asserting claims against, amongothers, Citigroup, CGM and certain executive officers and current andformer employees, asserting claims under federal bankruptcy law andcommon law in connection with CGM's research reports about GlobalCrossing and for its role as an underwriter in Global Crossingofferings, and (ii) an adversary proceeding against Citigroup andseveral other financial institutions seeking to rescind the payment ofa $1 billion loan made to a subsidiary of Global Crossing. TheCitigroup related defendants moved to dismiss the former action on June26, 2004, and the latter on May 28, 2004.

In addition, actionsasserting claims against Citigroup and certain of its affiliatesrelating to its Global Crossing research reports are pending innumerous arbitrations around the country. These arbitration proceedingsassert claims that are substantially similar to the claims asserted inthe alleged class action.

Adelphia CommunicationsCorporation

On July 6, 2003, an adversary proceeding was filedby the Official Committee of Unsecured Creditors on behalf of AdelphiaCommunications Corporation against certain lenders and investmentbanks, 

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including CGM, Citibank, N.A., Citicorp USA,Inc., and Citigroup Financial Products, Inc. (together, the CitigroupParties). The complaint alleges that the Citigroup Parties and numerousother defendants committed acts in violation of the Bank HoldingCompany Act and the common law. The complaint seeks equitable reliefand an unspecified amount of compensatory and punitive damages. InNovember 2003, a similar adversary proceeding was filed by the EquityHolders Committee of Adelphia. In June 2004, motions to dismiss werefiled with respect to the complaints of the Official Committee ofUnsecured Creditors and the Equity Holders Committee. The motions arecurrently pending.

In addition, CGM is among the underwritersnamed in numerous civil actions brought to date by investors inAdelphia debt securities in connection with Adelphia securitiesofferings between September 1997 and October 2001. Three of thecomplaints also assert claims against Citigroup Inc. and Citibank, N.A.All of the complaints allege violations of federal securities laws, andcertain of the complaints also allege violations of state securitieslaws and the common law. The complaint seeks unspecified damages. InDecember 2003, a second amended complaint was filed and consolidatedbefore the same judge of the United States District Court for theSouthern District of New York. In February 2004, motions to dismiss theclass and individual actions pending in the United States DistrictCourt for the Southern District were filed. The motions are currentlypending.

Mutual Funds

Citigroup and certain of itsaffiliates have been named in several class action litigations pendingin various federal district courts arising out of alleged violations ofthe federal securities laws, the Investment Company Act and common law(including breach of fiduciary duty and unjust enrichment). The claimsconcern practices in connection with the sale of mutual funds,including allegations involving market timing, revenue sharing,incentive payments for the sale of proprietary funds, undisclosedbreakpoint discounts for the sale of certain classes of funds,inappropriate share class recommendations and inappropriate fundinvestments. The litigations involving market timing have beenconsolidated under the MDL rules in the United States District Courtfor the District of Maryland, and the litigations involving revenuesharing, incentive payment and other issues have been consolidated inthe United States District Court for the Southern District of New York.The plaintiffs in these litigations generally seek unspecifiedcompensatory damages, rescissionary damages, injunctive relief, costsand fees. In the principal market timing cases that name Citigroup, alead plaintiff has been appointed but that plaintiff has not yet filedan amended complaint. In the cases concerning revenue sharing,incentive payment and other issues, the lead plaintiff filed aconsolidated and amended complaint on December 15, 2004.

Severalissues in the mutual fund industry have come under scrutiny of federaland state regulators. Citigroup has received subpoenas and otherrequests for information from various government regulators regardingmarket timing, financing, fees, sales practices and other mutual fundissues in connection with various investigations. Citigroup iscooperating with all such reviews.

Research AnalystLitigation

Since May 2002, CGM and certain executive officersand current and former employees have been named as defendants innumerous alleged class action complaints, individual actions, andarbitration demands by purchasers of various securities alleging thatthey violated federal securities law, including Sections 10 and 20 ofthe Securities Exchange Act of 1934, as amended, and certain state lawsfor allegedly issuing research reports without a reasonable basis infact and for allegedly failing to disclose conflicts of interest withcompanies in connection with published investment research, includingGlobal Crossing, Ltd., AT&T Corp., Level 3 Communications, Inc.,Metromedia Fiber Network, Inc., XO Communications, Inc., WilliamsCommunications Group Inc., and Focal Communications, Inc. The allegedclass actions relating to research of these companies are pendingbefore a single judge in the United States District Court for theSouthern District of New York for coordinated proceedings. The Courthas consolidated these actions into separate proceedings correspondingto the companies named above. On December 2, 2004, the Court granted inpart and denied in part the Citigroup related defendants' motionsto dismiss the claims against it in the AT&T, Level 3, XO andWilliams actions. On January 6, 2005, the Court granted in part anddenied in part Citigroup's motion to dismiss the claims againstit in the Metromedia action.

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In addition to the alleged research classactions, several individual actions have been filed against Citigroupand CGM relating to, among other things, research on QwestCommunications International, Inc. These actions allege violations ofstate and federal securities laws in connection with CGM'spublication of research about Qwest and its underwriting of Qwestsecurities.

Two alleged class actions against CGM assertingcommon law claims in connection with published investment research onbehalf of CGM customers have been dismissed by United States DistrictCourts, one of which was affirmed by the United States Court of Appealsfor the Ninth Circuit, and one of which is pending on appeal to theUnited States Courts of Appeals for the Third Circuit. Two moreputative class actions raising similar claims are pending against CGM,one in the United States District Court for the Southern District ofNew York (Norman v. Salomon Smith Barney, et al.) and the otherin Illinois state court (Disher v. CGM Inc.). On June 9, 2004,the District Court denied CGMI's motion to dismiss Norman v.Salomon Smith Barney, et al., a case which asserts violations ofthe Investment Advisers Act of 1940 and various common law claims inconnection with certain investors who maintained guided portfoliomanagement accounts at Smith Barney.

SupervisoryInvestigation

In May 2003, the SEC, NYSE and NASD issued asubpoena and letters to CGM requesting documents and information withrespect to their continuing investigation of individuals in connectionwith the supervision of the research and investment banking departmentsof CGM. Other parties to the Research Settlement have received similarsubpoenas and letters.

West Virginia Attorney General Suit

On June 23, 2003, the West Virginia Attorney General filed an actionagainst CGM and nine other firms that were parties to the ResearchSettlement. The West Virginia Attorney General alleges that the firmsviolated the West Virginia Consumer Credit and Protection Act inconnection with their research activities and seeks monetarypenalties.

Citigroup Shareholder Litigation

In July2002, Citigroup, CGM and certain officers were named as defendants inan alleged class action filed in the United States District Court forthe Southern District of New York, brought on behalf of purchasers ofCitigroup common stock between July 24, 1999 and July 23, 2002. Thecomplaint seeks unspecified compensatory and punitive damages foralleged violations of Sections 10(b) and 20(a) of the SecuritiesExchange Act of 1934, and for common law fraud. Fourteen virtuallyidentical complaints have been filed and consolidated. The complaintsallege that Citigroup misstated the extent of its Enron-relatedexposure, and that Citigroup's stock price fell once the trueextent of Citigroup's Enron involvements became known. Plaintiffsfiled an amended complaint on March 10, 2003, which incorporated theallegations in the 15 separate actions and added new material as well.The amended complaint focuses on certain transactions between Citigroupand Enron and alleged analyst conflicts of interest. The class periodfor the consolidated amended complaint is July 24, 1999 to December 11,2002. On June 2, 2003, Citigroup filed a motion to dismiss theconsolidated amended complaint. Plaintiffs' response was filed onJuly 30, and Citigroup's reply was filed on October 3, 2003. OnAugust 10, 2004, Judge Swain granted Citigroup's motion todismiss the consolidated amended complaint. The plaintiffs filed anotice of appeal in October 2004.

NASD Settlement

InNovember 2004, CGM entered into a final agreement with the NASD toresolve the NASD's investigation into certain of its sellingpractices. Without admitting or denying any allegations or findings,CGM accepted certain factual findings by the NASD that it (i) soldunits in two managed futures funds to 45 customers for whom theinvestment was not suitable, (ii) failed to maintain records disclosingthe basis upon which its investor suitability determinations were madeand (iii) failed to adequately disclose the risks of investing inmanaged futures products on its website. CGM consented to a censure anda fine of $275,000 and offered to redeem the investment of thecustomers for whom investment in the two managed futures funds wasfound not suitable.

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In the course of its business, CGM, as amajor futures commission merchant and broker-dealer is a party tovarious claims and routine regulatory investigations and proceedingsthat the general partner believes do not have a material adverse effecton the business of CGM.

Item 4.    Submission of Mattersto a Vote of Security Holders.

There were no matterssubmitted to the security holders for a vote during the last fiscalyear covered by this report.

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PART II

Item5.    Market for Registrant's Common Equity and RelatedSecurity Holder Matters.

Market Information. ThePartnership has issued no stock. There is no public market for theRedeemable Units of Limited Partnership Interest.

Holders. The number of holders of Redeemable Units ofLimited Partnership Interest as of December 31, 2004 was 2,547.

Distribution. The Partnership did not declare adistribution in 2004 or 2003.

Use of Proceeds. Duringthe twelve months ended December 31, 2004 there were General Partnercontributions representing 21.6705 Unit equivalents totaling $31,432.There were no additional sales during the twelve months ended December31, 2003.

Proceeds from the sale of additional Redeemable Unitsare used in the trading of commodity interests including futurescontracts, options and forward contracts.

Item6.    Selected Financial Data.

Realized andunrealized trading gains (losses), interest income, net income (loss)and increase (decrease) in Net Asset Value per Redeemable Unit for theyears ended December 31, 2004, 2003, 2002, 2001 and 2000 and totalassets at December 31, 2004, 2003, 2002, 2001 and 2000 were asfollows:

|                                                                                                                                                                                  |  |        |            |        |  |        |            |        |  |        |            |        |  |        |            |         |  |        |            |        |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|------------|--------|--|--------|------------|--------|--|--------|------------|--------|--|--------|------------|---------|--|--------|------------|--------|--|--|
|                                                                                                                                                                             |  | 2004   |            | 2003   |  | 2002   |            | 2001   |  | 2000   |
| Realizedand unrealized trading gains (losses) net of brokerage commissions(including clearing fees) of $4,322,086, $4,867,218, $4,514,105,$5,109,439 and $5,846,384,respectively |  | $      | 3,868,542  |   |  | $      | 14,129,201 |   |  | $      | 14,296,353 |   |  | $      | (5,744,771 | )  |  | $      | 6,540,869  |   |
|                                                                                                                                                                             |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |    |  |   |       |   |
| Interestincome                                                                                                                                                                   |  |   | 635,140    |   |  |   | 569,919    |   |  |   | 799,484    |   |  |   | 2,121,645  |    |  |   | 3,884,319  |   |
|                                                                                                                                                                             |  | $      | 4,503,682  |   |  | $      | 14,699,120 |   |  | $      | 15,095,837 |   |  | $      | (3,623,126 | )  |  | $      | 10,425,188 |   |
| Netincome(loss)                                                                                                                                                                  |  | $      | 1,598,257  |   |  | $      | 10,452,183 |   |  | $      | 10,902,122 |   |  | $      | (6,137,603 | )  |  | $      | 7,572,583  |   |
|                                                                                                                                                                             |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |    |  |   |       |   |
| Increase(decrease) in Net Asset Value per RedeemableUnit                                                                                                                         |  | $      | 40.44      |   |  | $      | 199.53     |   |  | $      | 205.86     |   |  | $      | (87.64     | )  |  | $      | 107.10     |   |
|                                                                                                                                                                             |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |    |  |   |       |   |
| **Totalassets**                                                                                                                                                                  |  | $      | 67,161,630 |   |  | $      | 71,276,280 |   |  | $      | 68,703,203 |   |  | $      | 68,118,842 |    |  | $      | 87,318,686 |   |
|                                                                                                                                                                                  |

Item7.     Management's Discussion and Analysis of FinancialCondition and Results of Operations.

Overview

ThePartnership aims to achieve substantial capital appreciation throughspeculative trading, directly and indirectly, in U.S. and internationalmarkets for currencies, interest rates, stock indices, agricultural andenergy products and precious and base metals. The Partnership mayemploy futures, options on futures, and forward contracts in thosemarkets.

The General Partner manages all business of thePartnership. The General Partner has delegated its responsibility forthe investment of the Partnership's assets to Campbell &Company, Inc. ("Campbell"), 

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Capital Fund Management SA("CFM"), Graham Capital Management, L.P.("Graham") and Willowbridge Associates, Inc.("Willowbridge"), (collectively, the"Advisors"). The General Partner employs ateam of approximately 15 professionals whose primary emphasis is onattempting to maintain quality control among the advisors to thepartnerships operated or managed by the General Partner. A full-timestaff of due diligence professionals use state-of-the-art technologyand on-site evaluations to monitor new and existing futures moneymanagers. The accounting and operations staff provide processing oftrading activity and reporting to limited partners and regulatoryauthorities. In selecting the Advisors for the Partnership, the GeneralPartner considered past performance, trading style, volatility ofmarkets traded and fee requirements.

Responsibilities of theGeneral Partner include:

|              |                                           |
|--------------|-------------------------------------------|
| •  | duediligence examinations of theAdvisors; |

|              |                                                       |
|--------------|-------------------------------------------------------|
| •  | selection, appointment andtermination of theAdvisors; |

|              |                                              |
|--------------|----------------------------------------------|
| •  | negotiation of themanagement agreements; and |

|              |                                         |
|--------------|-----------------------------------------|
| •  | monitoringthe activity of the Advisors. |

In addition, the General Partnerprepares the books and records and provides the administrative andcompliance services that are required by law or regulation from time totime in connection with operation of the Partnership. These servicesinclude the preparation of required books and records and reports tolimited partners, government agencies and regulators; computation ofnet asset value; calculation of fees; effecting subscriptions,redemptions and limited partner communications; and preparation ofoffering documents and sales literature.

The General Partnerseeks the best prices and services available in its commodity futuresbrokerage transactions. The General Partner reviews at least annually,the brokerage rates charged to commodity pools similar to those of thePartnership to determine whether the brokerage fee the Partnership paysis competitive with other rates.

The programs traded by eachAdvisor on behalf of the Partnership are: Campbell – Financial,Metal & Energy Large Portfolio ("FMELarge"), CFM – Discus Program("Discus"), Graham – Global DiversifiedProgram ("GDP") and Graham Selective TradingProgram ("GST"), and Willowbridge –Argo and Vulcan Trading Systems. As of December 31, 2004, thePartnership's assets were allocated among the Advisors in thefollowing approximate percentages: Campbell, 29%, CFM,19%, Graham, 31%, and Willowbridge, 21%.

Campbell & Company, Inc.

Campbell trades its FMELarge Portfolio for the Partnership. Campbell's trading modelsare designed to detect and exploit medium-term to long-term pricechanges, while also applying risk management and portfolio managementprinciples.

Campbell believes that utilizing multiple tradingmodels provides an important level of diversification, and is mostbeneficial when multiple contracts of each market are traded. Everytrading model may not trade every market. It is possible that onetrading model may signal a long position while another trading modelsignals a short position in the same market. It is Campbell'sintention to offset those signals to reduce unnecessary trading, but ifthe signals are not simultaneous, both trades will be taken and sinceit is unlikely that both positions would prove profitable, inretrospect, one or both trades will appear to have been unnecessary. Itis Campbell's policy to follow trades signaled by each tradingmodel independently of the other models.

Capital FundManagement SA

CFM will trade the Partnership's assetsallocated to it in accordance with its Discus Program. All of thetrading decisions result from proprietary trading and risk managementprograms developed by CFM. Discus is 100% statistical andsystematic in nature. The only information fed into the system arehistorical price statistics. The system does not use any form ofqualitative information and, most importantly, the system is neveroverridden by human opinion. The program continuously appliesproprietary filters to 

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review price data in an attempt to select themost efficient trading strategy with respect to a particular time frame(short, medium or long term), contracts traded, contract and marketsector concentration and risk exposure. Discus trades more than 50futures contracts on exchanges around the world.

GrahamCapital Management, L.P.

Graham currently trades both GDPand GST on behalf of the Partnership. Of the Partnership's assetsallocated to Graham, 46% is currently traded using GDP and54% is currently traded using GST, each of which is describedbelow.

Graham trades actively in both U.S. and foreign markets,primarily in futures contracts, forward contracts, spot contracts andassociated derivative instruments such as options and swaps. Grahamengages in exchange for physical transactions, which involve theexchange of a futures position for the underlying physical commoditywithout making an open competitive trade on an exchange. Graham attimes will trade certain instruments, such as forward foreign currencycontracts, as a substitute for futures or options traded on futuresexchanges.

Graham's trading systems rely primarily ontechnical rather than fundamental information as the basis for theirtrading decisions. Graham's systems are based on the expectationthat over time they can successfully anticipate market events usingquantitative mathematical models to determine their trading activities,as opposed to attempting properly to forecast price trends usingsubjective analysis of supply and demand.

GDP utilizes multiplecomputerized trading models designed to participate in potential profitopportunities during sustained price trends. This program featuresbroad diversification in both financial and non-financial markets. Thestrategies that are utilized are primarily long-term in nature and areintended to generate significant returns over time with an acceptabledegree of risk and volatility. The computer models on a daily basisanalyze the recent price action, the relative strength and the riskcharacteristics of each market and compare statistically thequantitative results of this data to years of historical data on eachmarket. GDP trades in approximately 80 markets.

GST uses amathematical model to identify certain price patterns that have veryspecific characteristics indicating that there is a high probabilitythat a significant directional move will occur. Although the programdoes not trade against the market trend, it is not a truetrend-following system inasmuch as it will only participate in specifictypes of market moves that meet the restrictive criteria of the model.In general, this program will participate only in significant marketmoves that are characterized by a substantial increase in volatility.As a result, it frequently will not participate in a market trend inwhich virtually all trend-following systems would have a position. GSTtrades in approximately 70 markets.

Willowbridge Associates,Inc.

Willowbridge trades the Partnership's assetsallocated to it in accordance with its Select Investment Program,whereby the General Partner determined the initial allocation of thePartnership's assets among one or more of Willowbridge'sstrategies and may determine subsequent reallocations (if any). Of thePartnership's assets allocated to Willowbridge, 0% iscurrently traded using the Vulcan Trading System and 100% iscurrently traded using the Argo Trading System, each of which isdescribed below.

For each of these systems, risk is managed on amarket by market level as well as on an overall portfolio level. On themarket level, risk is managed primarily by utilizing proprietaryvolatility filters. When these filters detect a certain excessive levelof volatility in the markets traded, they will signal that the systemsshould no longer be trading in the markets in which the filters havedetected excessive volatility. In this way, the systems do notparticipate in markets in which there are extremes in market action. Onthe portfolio level, risk is managed by utilizing a proprietaryportfolio cutback rule. When cumulative profits have reached a certainlevel, this rule determines that positions should be halved across theentire portfolio. In this way, risk is reduced while allowing thesystems to continue to participate in the markets, albeit at a reducedlevel. After the portfolio has been traded at half, the portfoliocutback rule will then determine when to increase positions to againtrade at the full level.

The Vulcan Trading System, whichcommenced trading in 1988, is a computerized technical trading system.It is not a trend-following system, but does ride a trend when theopportunity arises. Vulcan uses 

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the concepts of pattern recognition,support/resistance levels, and counter-trend liquidations in makingtrading decisions. In effect, Vulcan is more akin to a systematictechnical charting system, as opposed to most computer systems whichare based on pure trend-following calculations.

The VulcanSystem is based on general technical trading principles. It appliesthese principles to a diversified portfolio of commodities andcurrencies. Given that the system is based on general principles, thesystem parameters used are the same for all items in the portfolio andare not optimized. In this manner, the Vulcan System minimizes theproblem of data-fitting.

The Argo Trading System commencedtrading in 1988. Argo essentially incorporates Vulcan's conceptsof pattern recognition, support/resistance levels and counter-trendliquidations to trade a portfolio similar to Vulcan. However, Argo hasa relatively slower time horizon than Vulcan and attempts to capturelonger-term price moves.

Pattern recognition, support/resistancelevels and counter-trend liquidations are defined as follows:

Pattern recognition is the ability to identify patterns that appearto have acted as precursors of price advances or declines in thepast.

A support level is a previous low — a price levelunder the current market price at which point buying interest isexpected to be sufficiently strong to overcome selling pressure.

A resistance level is a previous high — a price level over thecurrent market price at which point selling pressure is expected toovercome buying pressure and a price advance is expected to be turnedback.

A counter-trend liquidation is the closing out of aposition after a significant price move on the assumption that themarket is due for a correction.

No assurance is given that anAdvisor's trading program will be profitable or that it will notexperience losses.

(a)    Liquidity.

ThePartnership does not engage in sales of goods or services. Its onlyassets are its equity in its commodity futures trading account,consisting of cash and cash equivalents, net unrealized appreciation(depreciation) on open futures positions, unrealized appreciation onopen forward contracts and interest receivable. Because of the lowmargin deposits normally required in commodity futures trading,relatively small price movements may result in substantial losses tothe Partnership. Such substantial losses could lead to a material lossin liquidity.

To minimize this risk relating to low margindeposits, the Partnership follows certain trading policies,including:

|           |                                                                                                                                                                                                                                                                                                                                                   |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (i)  | The Partnership invests itsassets only in commodity interests that an Advisor believes are tradedin sufficient volume to permit ease of taking and liquidatingpositions. Sufficient volume, in this context, refers to a level ofliquidity that the Advisor believes will permit it to enter and exittrades without noticeably moving the market. |

|            |                                                                                                                                                                                                                               |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  | No Advisor will initiate additional positionsin any commodity interest if these positions would result in aggregatepositions requiring a margin of more than66 2/3% of the Partnership's net assetsallocated to that Advisor. |

|             |                                                                                                                                                                                                                                                             |
|-------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (iii)  | ThePartnership may occasionally accept delivery of a commodity. Unlesssuch delivery is disposed of promptly by retendering the warehousereceipt representing the delivery to the appropriate clearinghouse, thephysical commodity position is fully hedged. |

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|            |                                                                                                                                                                                                                                                         |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (iv)  | The Partnershipwill not employ the trading technique commonly known as"pyramiding", in which the speculator usesunrealized profits on existing positions as margin for the purchases orsale of additional positions in the same or related commodities. |

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|-----------|-------------------------------------------------------------------------------------------------------------------------------------|
| (v)  | The Partnership will not utilize borrowings,except short-term borrowings, if the Partnership takes delivery of anycash commodities. |

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|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (vi)  | The Advisors may, fromtime to time, employ trading strategies such as spreads or straddles onbehalf of the Partnership. The term "spread"or "straddle" describes a commodity futurestrading strategy involving the simultaneous buying and selling offutures contracts on the same commodity but involving differentdelivery dates or markets and in which the trader expects to earn aprofit from a widening or narrowing of the difference between theprices of the two contracts. |

|             |                                                                                                                                                                                                                                                                                       |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (vii)  | ThePartnership will not permit the churning of its commodity tradingaccount. The term "churning" refers to thepractice of entering and exiting trades with a frequency unwarranted bylegitimate efforts to profit from the trades, driven by the desire togenerate commission income. |

In the normal course of business,the Partnership is party to financial instruments with off-balancesheet risk, including derivative financial instruments and derivativecommodity instruments. These financial instruments include forwards,futures, options and swaps, whose values are based upon an underlyingasset, index or reference rate, and generally represent futurecommitments to exchange currencies or cash flows, or to purchase orsell other financial instruments at specified terms at specified futuredates, or, in the case of derivative commodity instruments, to have areasonable possibility to be settled in cash, through physical deliveryor with another financial instrument. These instruments may be tradedon an exchange or over-the-counter ("OTC").Exchange traded instruments are standardized and include futures andcertain option contracts. OTC contracts are negotiated betweencontracting parties and include forwards, swaps and certain options.Each of these instruments is subject to various risks similar to thoserelating to the underlying financial instruments including market andcredit risk. In general, the risks associated with OTC contracts aregreater than those associated with exchange traded instruments becauseof the greater risk of default by the counterparty to an OTCcontract.

Market risk is the potential for changes in the valueof the financial instruments traded by the Partnership due to marketchanges, including interest and foreign exchange rate movements andfluctuations in commodity or security prices. Market risk is directlyimpacted by the volatility and liquidity in the markets in which therelated underlying assets are traded.

Credit risk is thepossibility that a loss may occur due to the failure of a counterpartyto perform according to the terms of a contract. Credit risk withrespect to exchange traded instruments is reduced to the extent that anexchange or clearing organization acts as counterparty to thetransactions. The Partnership's risk of loss in the event ofcounterparty default is typically limited to the amounts recognized inthe statements of financial condition and not represented by thecontract or notional amounts of the instruments. The Partnership hascredit risk and concentration risk because the sole counterparty orbroker with respect to the Partnership's assets is CGM.

The General Partner monitors and controls the Partnership'srisk exposure on a daily basis through financial, credit and riskmanagement monitoring systems, and accordingly believes that it haseffective procedures for evaluating and limiting the credit and marketrisks to which the Partnership is subject. These monitoring systemsallow the General Partner to statistically analyze actual tradingresults with risk adjusted performance indicators and correlationstatistics. In addition, on-line monitoring systems provide accountanalysis of futures, forwards and options positions by sector, marginrequirements, gain and loss transactions and collateral positions. (Seealso "Item 8. Financial Statements and SupplementaryData" for further information on financial instrumentrisk included in the Notes to Financial Statements.)

Other thanthe risks inherent in commodity trading, the Partnership knows of notrends, demands, commitments, events or uncertainties which will resultin or which are reasonably likely to result in the Partnership'sliquidity increasing or decreasing in any material way. The LimitedPartnership Agreement provides that the Partnership will cease tradingoperations and liquidate all open positions upon the first

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to occur of the following: (i) December 31,2014; (ii) the vote to dissolve the Partnership by limited partnersowning more than 50% of the Redeemable Units; (iii) assignmentby the General Partner of all of its interest in the Partnership orwithdrawal, removal, bankruptcy or any other event that causes theGeneral Partner to cease to be a General Partner under the New YorkRevised Limited Partnership Act unless the Partnership is continued asdescribed in the Limited Partnership Agreement; (iv) Net Asset Valueper Redeemable Unit falls to less than $400 as of the end of anytrading day; or (v) the occurrence of any event which shall make itunlawful for the existence of the Partnership to be continued.

(b)    Capital Resources.

|           |                                                                           |
|-----------|---------------------------------------------------------------------------|
| (i)  | The Partnership has made no materialcommitments for capital expenditures. |

(ii)      The Partnership's capital consistsof the capital contributions of the partners as increased or decreasedby gains or losses on trading and by expenses, interest income,redemptions of Redeemable Units and distributions of profits, if any.Gains or losses on trading cannot be predicted. Market moves incommodities are dependent upon fundamental and technical factors whichthe Advisors may or may not be able to identify, such as changingsupply and demand relationships, weather, government agricultural,commercial and trade programs and policies, national and internationalpolitical and economic events and changes in interest rates.Partnership expenses consist of, among other things, brokerage,advisory and administrative fees. The level of these expenses isdependent upon the level of trading and the ability of the Advisors toidentify and take advantage of price movements in the commoditymarkets, in addition to the level of Net Assets maintained. Inaddition, the amount of interest income payable by CGM is dependentupon interest rates over which the Partnership has no control.

No forecast can be made as to the level of redemptions in any givenperiod. A limited partner may cause all of their Redeemable Units to beredeemed by the Partnership at the Net Asset Value thereof as of thelast day of each month on ten days' written notice to the GeneralPartner. No fee will be charged for redemptions. For the year endedDecember 31, 2004, 3,795.4046 Redeemable Units were redeemed totaling$5,352,153. For the year ended December 31, 2003, 5,671.3005 RedeemableUnits were redeemed totaling $8,154,406. For the year ended December31, 2002, 11,001.6830 Redeemable Units were redeemed totaling$11,541,708.

(c)    Results of Operations.

Forthe year ended December 31, 2004, the Net Asset Value per RedeemableUnit increased 2.8% from $1,450.45 to $1,490.89. For the yearended December 31, 2003 the Net Asset Value per Redeemable Unitincreased 16.0% from $1,250.92 to $1,450.45. For the year endedDecember 31, 2002 the Net Asset Value per Redeemable Unit increased19.7% from $1,045.06 to $1,250.92.

The Partnershipexperienced a net trading gain of $8,190,628 before commissions andexpenses for the year ended December 31, 2004. Gains were primarilyattributable to the trading of currencies, grains, livestock, metalsand indices and were partially offset by the losses incurred in thetrading of energy, U.S. and non-U.S. interest rates andsofts.

Trading results for the year 2004 can be described inthree distinct periods: the first two months of the year producedpositive results of 10% with trends carrying over from late2003, the next seven months which saw trend disruptions and producedlosses of approximately 18%, and the last quarter whichwitnessed a recovery period with net asset value per unit increasing13%. The Partnership ended the year up 2.8%. The resultsfor the year were heavily influenced by two historic trends: thedecline and subsequent volatility in the value of the U.S. dollarversus major currencies and the run-up in the price of crude oil toover $50 a barrel.

The year started strongly with many of thetrends from late 2003 continuing into early 2004. Notably lowerinterest rates in the U.S. and other major countries fostered strongglobal economic growth and pressured commodity prices. These forcesresulted in upward trends in many sectors, especially energy, metalsand grains and provided profitable trading opportunities for thePartnership's advisors. These trends persisted until early Marchwhen economic indicators in the U.S. and China suggested risinginflation and markets reversed precipitously with higher interestrates, collapsing commodity prices and the dollar reversal.

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This began a protracted period oftentative and conflicting trends across many sectors. As expected inthe nature of trend-following, the strength of profitable trends isoften followed by temporary but often severe periods of losses. Marchthrough September was such a period for nearly all of thePartnership's advisors as they adjusted positions from what hadbeen profitable, long-term trends to choppy, directionless and volatilemarkets. Trading was treacherous and thus unprofitable in U.S. andAsian interest rates and global stock indices while energy, metals andgrains provided some offsetting profits. The fundamental economicconcerns hanging over these markets were further exacerbated by theuncertainty surrounding the tightly contested U.S. presidentialelection.

With the year looking dismal going into the fall, theprice of crude oil resumed its climb to $50 a barrel brought on by adeteriorating security situation in Iraq, Saudi Arabia politicalturmoil, and renewed threats of terrorism. Long positions in the energysector contributed to profits towards the end of the third quarter andinto the fourth quarter. Later in the fourth quarter the U.S. dollarbegan a precipitous slide toward $1.40 to the euro. These renewedtrends in currency prices combined with declining interest rates andstronger global stock markets were favorable to the Partnership'sadvisors and provided a solidly profitable last three months of theyear.

The Partnership experienced a net trading gain of$18,996,419 before commissions and expenses for the year ended December31, 2003. Gains were primarily attributable to the trading ofcurrencies, grains, livestock, metals and indices and were partiallyoffset by the losses incurred in the trading of energy, U.S. andnon-U.S. interest rates and softs.

On a very broad basis, theyear 2003 can be divided into three periods: the time leading up to andshortly after the Iraq War (January through May), the transition togreater world economic growth (June through October), and the reneweddollar decline (November and December).

The Iraq war was thefocus for much of the first half of the year. With uncertaintyconcerning when hostilities would begin and the possible impact ofthese events, investors showed a desire to move to a defensive andconservative stance. Equity markets moved lower, as did, the dollaragainst other major currencies, gold prices rose, bond markets rallied,and the energy markets exhibited a risk premium concerning potentialsupply disruptions. This was a continuation of many of the trendscarried over from 2002. During the first two months of the year, theAdvisors had strong performance, up nearly 19%.

Justprior to the inception of the hostilities, several of the Advisorsreduced leverage in expectation of higher volatility in the markets.Markets were more volatile with a reduction of liquidity in response toevents in March 2003. During this period, bond prices declined, thedollar stabilized, crude oil prices declined significantly, and thestock market started to rally. Even with this reduced leverage themarkets were volatile and prior trends were disrupted leading to lossesfor the month of March. Positions returned to normal leverage in lateApril and May saw a substantial recovery in the Partnership'sperformance with profits coming from short dollar, long interest rateand long commodity positions.

In a transition to economicrecovery and growth, the major markets began to reflect changingexpectations in the middle of June. Consistently positive macroeconomicnews led to the unexpected pronouncement of no further easing actionsby the European Central Bank and the U.S. Federal Reserve Bank.Consequently, there was a trend change, as interest rates moved up off40 year lows and the dollar rallied reversing the decline from earlierin the year.

While there were gains in stock index futurestrading, the Advisors' exposure in these markets has beenrelatively low; hence they were not able to make a substantial impacton performance. In addition to the negative market action in interestrates and currencies, there were further increases in volatility in theenergy sector and growing volatility within a relatively tight rangefor many agricultural markets. The second quarter ended unprofitablyand this carried through the summer and into the early fall as thePartnership alternated between profits and losses on a monthlybasis.

The final period of 2003 was marked by another decline inthe dollar beginning in late November. The dollar began a newsignificant decline against both the euro and yen. This led tosignificant fourth quarter profits, which boosted performance for manyof the Advisors and the Partnership ended the year up16.0%.

In the General Partner's opinion, theAdvisors continue to employ trading methods and produce resultsconsistent with the objectives of the Partnership and expectations forthe Advisors' programs. The 

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General Partner continues to monitor theAdvisors' performance on a daily, weekly, monthly and annualbasis to assure these objectives are met.

The Partnershipexperienced net trading gains of $18,810,458 before commissions andexpenses in 2002. Gains were primarily attributable to the trading inindices, U.S. and non-U.S. interest rates, energy, grains, livestockand currencies and were partially offset by losses incurred in thetrading of metals and softs.

It should be noted that commoditymarkets are highly volatile. Broad price fluctuations and rapidinflation increase the risks involved in commodity trading, but alsoincrease the possibility of profit. The profitability of thePartnership depends on the existence of major price trends and theability of the Advisors to identify those price trends correctly. Pricetrends are influenced by, among other things, changing supply anddemand relationships, weather, governmental, agricultural, commercialand trade programs and policies, national and international politicaland economic events and changes in interest rates. To the extent thatmarket trends exist and the Advisors are able to identify them, thePartnership expects to increase capital through operations.

(d)    Operational Risk.

The Partnership isdirectly exposed to market risk and credit risk, which arise in thenormal course of its business activities. Slightly less direct, but ofcritical importance, are risks pertaining to operational and backoffice support. This is particularly the case in a rapidly changing andincreasingly global environment with increasing transaction volumes andan expansion in the number and complexity of products in themarketplace.

Such risks include:

Operational/Settlement Risk — the risk of financial andopportunity loss and legal liability attributable to operationalproblems, such as inaccurate pricing of transactions, untimely tradeexecution, clearance and/or settlement, or the inability to processlarge volumes of transactions. The Partnership is subject to increasedrisks with respect to its trading activities in emerging marketsecurities, where clearance, settlement, and custodial risks are oftengreater than in more established markets.

TechnologicalRisk — the risk of loss attributable to technologicallimitations or hardware failure that constrain the Partnership'sability to gather, process, and communicate information efficiently andsecurely, without interruption, to customers, among Redeemable Unitswithin the Partnership, and in the markets where the Partnershipparticipates.

Legal/Documentation Risk — the riskof loss attributable to deficiencies in the documentation oftransactions (such as trade confirmations) and customer relationships(such as master netting agreements) or errors that result innoncompliance with applicable legal and regulatory requirements.

Financial Control Risk — the risk of loss attributableto limitations in financial systems and controls. Strong financialsystems and controls ensure that assets are safeguarded, thattransactions are executed in accordance with management'sauthorization, and that financial information utilized by managementand communicated to external parties, including the Partnership'sRedeemable Unit holders, creditors, and regulators, is free of materialerrors.

(e)    Critical Accounting Policies.

The preparation of financial statements in conformity withaccounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, revenues andexpenses, and related disclosures of contingent assets and liabilitiesin the financial statements and accompanying notes.

Allcommodity interests (including derivative financial instruments andderivative commodity instruments) are used for trading purposes. Thecommodity interests are recorded on trade date and open contracts arerecorded in the statements of financial condition at fair value on thelast business day of the period, which represents market value forthose commodity interests for which market quotations are readilyavailable or other measures of fair value deemed appropriate bymanagement of the General Partner for those commodity interests andforeign currencies for which market quotations are not readily

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available, including dealer quotes for swapsand certain option contracts. Investments in commodity interestsdenominated in foreign currencies are translated into U.S. dollars atthe exchange rates prevailing on the last business day of the period.Realized gains (losses) and changes in unrealized values on commodityinterests and foreign currencies are recognized in the period in whichthe contract is closed or the changes occur and are included in netgains (losses) on trading of commodity interests.

Foreigncurrency contracts are those contracts where the Partnership agrees toreceive or deliver a fixed quantity of foreign currency for anagreed-upon price on an agreed future date. Foreign currency contractsare valued daily, and the Partnership's net equity therein,representing unrealized gain or loss on the contracts as measured bythe difference between the forward foreign exchange rates at the datesof entry into the contracts and the forward rates at the reportingdates, is included in the statements of financial condition. Realizedgains (losses) and changes in unrealized values on foreign currencycontracts are recognized in the period in which the contract is closedor the changes occur and are included in the statements of income andexpenses and partners' capital.

The General Partnerbelieves that the accounting policies that will be most critical to thePartnership's financial condition and results of operationsrelate to the valuation of the Partnership's positions. Themajority of the Partnership's positions will be exchange-tradedfutures contracts, which will be valued daily at settlement pricespublished by the exchanges. Swap contracts generally will be valued byreference to published settlement prices or dealers' quotes inrelated markets or other measures of fair value deemed appropriate bythe General Partner. The General Partner expects that under normalcircumstances substantially all of the Partnership's assets willbe valued by objective measures and without difficulty.

Item7A.    Quantitative and Qualitative Disclosures About MarketRisk.

Introduction

The Partnership is aspeculative commodity pool. The market sensitive instruments held by itare acquired for speculative trading purposes, and all or substantiallyall of the Partnership's assets are subject to the risk oftrading loss. Unlike an operating company, the risk of market sensitiveinstruments is integral, not incidental, to the Partnership'smain line of business.

The risk to the limited partners thathave purchased interests in the Partnership is limited to the amount oftheir capital contributions to the Partnership and their share of thePartnership assets and undistributed profits. This limited liability isa consequence of the organization of the Partnership as a limitedpartnership under applicable law.

Market movements result infrequent changes in the fair market value of the Partnership'sopen positions and, consequently, in its earnings and cash flow. ThePartnership's market risk is influenced by a wide variety offactors, including the level and volatility of interest rates, exchangerates, equity price levels, the market value of financial instrumentsand contracts, the diversification effects among thePartnership's open positions and the liquidity of the markets inwhich it trades.

The Partnership rapidly acquires and liquidatesboth long and short positions in a wide range of different markets.Consequently, it is not possible to predict how a particular futuremarket scenario will affect performance, and the Partnership'spast performance is not necessarily indicative of its futureresults.

Value at Risk is a measure of the maximum amount whichthe Partnership could reasonably be expected to lose in a given marketsector. However, the inherent uncertainty of the Partnership'sspeculative trading and the recurrence in the markets traded by thePartnership of market movements far exceeding expectations could resultin actual trading or non-trading losses far beyond the indicated Valueat Risk or the Partnership's experience to date (i.e.,"risk of ruin"). In light of the foregoing aswell as the risks and uncertainties intrinsic to all futureprojections, the inclusion of the quantification in this section shouldnot be considered to constitute any assurance or representation thatthe Partnership's losses in any market sector will be limited toValue at Risk or by the Partnership's attempts to manage itsmarket risk.

18

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Quantifying the Partnership'sTrading Value at Risk

The following quantitative disclosuresregarding the Partnership's market risk exposures contain"forward-looking statements" within themeaning of the safe harbor from civil liability provided for suchstatements by the Private Securities Litigation Reform Act of 1995 (setforth in Section 27A of the Securities Act of 1933 and Section 21E ofthe Securities Exchange Act of 1934). All quantitative disclosures inthis section are deemed to be forward-looking statements for purposesof the safe harbor except for statements of historical fact (such asthe terms of particular contracts and the number of market risksensitive instruments held during or at the end of the reportingperiod).

The Partnership's risk exposure in the variousmarket sectors traded by the Advisors is quantified below in terms ofValue at Risk. Due to the Partnership's mark-to-marketaccounting, any loss in the fair value of the Partnership's openpositions is directly reflected in the Partnership's earnings(realized and unrealized) and cash flow. Exchange maintenance marginrequirements have been used by the Partnership as the measure of itsValue at Risk. Maintenance margin requirements are set by exchanges toequal or exceed the maximum losses reasonably expected to be incurredin the fair value of any given contract in 95%–99%of any one-day interval. The maintenance margin levels are establishedby dealers and exchanges using historical price studies as well as anassessment of current market volatility (including the impliedvolatility of the options on a given futures contract) and economicfundamentals to provide a probabilistic estimate of the maximumexpected near-term one-day price fluctuation. Maintenance margin hasbeen used rather than the more generally available initial margin,because initial margin includes a credit risk component which is notrelevant to Value at Risk.

In the case of market sensitiveinstruments which are not exchange traded (almost exclusivelycurrencies in the case of the Partnership), the margin requirements forthe equivalent futures positions have been used as Value at Risk. Inthose rare cases in which a futures-equivalent margin is not available,dealers' margins have been used.

The fair value of thePartnership's futures and forward positions does not have anyoptionality component. However, certain of the Advisors trade commodityoptions. The Value at Risk associated with options is reflected in thefollowing table as the margin requirement attributable to theinstrument underlying each option. Where this instrument is a futurescontract, the futures margin, and where this instrument is a physicalcommodity, the futures-equivalent maintenance margin has been used.This calculation is conservative in that it assumes that the fair valueof an option will decline by the same amount as the fair value of theunderlying instrument, whereas, in fact, the fair values of the optionstraded by the Partnership in almost all cases fluctuate to a lesserextent than those of the underlying instruments.

In quantifyingthe Partnership's Value at Risk, 100% positive correlationin the different positions held in each market risk category has beenassumed. Consequently, the margin requirements applicable to the opencontracts have simply been added to determine each tradingcategory's aggregate Value at Risk. The diversification effectsresulting from the fact that the Partnership's positions arerarely, if ever, 100% positively correlated have not beenreflected.

19

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The Partnership's Trading Value atRisk in Different Market Sectors

The following table indicatesthe trading Value at Risk associated with the Partnership's openpositions by market category as of December 31, 2004, and the highest,lowest and average value at any point during the year. All openposition trading risk exposures of the Partnership have been includedin calculating the figures set forth below. As of December 31, 2004,the Partnership's total capitalization was $64,553,264.

December 31,2004

|                                 |  |               |           |                         |  |                  |        |                 |  |          |           |        |  |        |         |        |  |        |           |        |  |  |
|---------------------------------|--|---------------|-----------|-------------------------|--|------------------|--------|-----------------|--|----------|-----------|--------|--|--------|---------|--------|--|--------|-----------|--------|--|--|
|                            |  |          |           |                    |  | Yearto Date      |
| MarketSector                    |  | Value at Risk |           | % ofTotalCapitalization |  | HighValue atRisk |        | LowValue atRisk |  | Average* |
| Currencies                      |  |          |      |                    |  |             |   |            |  |     |      |   |  |   |    |   |  |   |      |   |
| —Exchange TradedContracts |  | $             | 691,200   |                    |  |             | 1.07   | %          |  | $        | 1,301,984 |   |  | $      | 359,759 |   |  | $      | 697,350   |   |
| —OTCContracts             |  |          | 1,761,706 |                    |  |             | 2.73   | %          |  |     | 1,761,706 |   |  |   | 470,744 |   |  |   | 881,520   |   |
| Energy                          |  |          | 597,540   |                    |  |             | 0.93   | %          |  |     | 1,859,700 |   |  |   | 41,821  |   |  |   | 917,049   |   |
| Grains                          |  |          | 21,900    |                    |  |             | 0.04   | %          |  |     | 534,950   |   |  |   | 8,800   |   |  |   | 189,601   |   |
| InterestratesU.S.               |  |          | 502,650   |                    |  |             | 0.78   | %          |  |     | 1,163,900 |   |  |   | 210,700 |   |  |   | 639,675   |   |
| InterestratesNon-U.S.           |  |          | 1,034,608 |                    |  |             | 1.60   | %          |  |     | 3,163,467 |   |  |   | 673,367 |   |  |   | 1,725,098 |   |
| Livestock                       |  |          | 15,200    |                    |  |             | 0.02   | %          |  |     | 104,400   |   |  |   | 800     |   |  |   | 53,333    |   |
| Metals                          |  |          |      |                    |  |             |   |            |  |     |      |   |  |   |    |   |  |   |      |   |
| —Exchange TradedContracts |  |          | 181,500   |                    |  |             | 0.28   | %          |  |     | 480,000   |   |  |   | 70,500  |   |  |   | 176,292   |   |
| —OTCContracts             |  |          | 354,465   |                    |  |             | 0.55   | %          |  |     | 500,209   |   |  |   | 12,800  |   |  |   | 146,566   |   |
| Softs                           |  |          | 163,700   |                    |  |             | 0.25   | %          |  |     | 257,987   |   |  |   | 3,400   |   |  |   | 132,787   |   |
| Indices                         |  |          | 3,203,747 |                    |  |             | 4.96   | %          |  |     | 4,059,152 |   |  |   | 573,245 |   |  |   | 1,746,903 |   |
| **Total**                       |  | $             | 8,528,216 |                    |  |             | 13.21  | %          |  |     |      |   |  |   |    |   |  |   |      |   |
|                                 |

|  |
|--|
|  |  |
|  |

|  |                                                   |
|--|---------------------------------------------------|
|  | *Annual average based on month-end value at risk. |

As ofDecember 31, 2003, the Partnership's total capitalization was$68,275,728.

December 31,2003

|                                 |  |               |           |                         |  |                  |        |                 |  |          |           |        |  |        |         |        |  |        |           |        |  |  |
|---------------------------------|--|---------------|-----------|-------------------------|--|------------------|--------|-----------------|--|----------|-----------|--------|--|--------|---------|--------|--|--------|-----------|--------|--|--|
|                            |  |          |           |                    |  | Yearto Date      |
| MarketSector                    |  | Value at Risk |           | % ofTotalCapitalization |  | HighValue atRisk |        | LowValue atRisk |  | Average* |
| Currencies                      |  |          |      |                    |  |             |   |            |  |     |      |   |  |   |    |   |  |
| —Exchange TradedContracts |  | $             | 1,455,853 |                    |  |             | 2.13   | %          |  | $        | 1,896,311 |   |  | $      | 195,698 |   |  | $      | 1,129,827 |   |
| —OTCContracts             |  |          | 1,088,448 |                    |  |             | 1.59   | %          |  |     | 1,939,876 |   |  |   | 799,040 |   |  |   | 1,162,301 |   |
| Energy                          |  |          | 1,785,450 |                    |  |             | 2.62   | %          |  |     | 2,285,200 |   |  |   | 116,500 |   |  |   | 1,087,954 |   |
| Grains                          |  |          | 305,750   |                    |  |             | 0.45   | %          |  |     | 443,050   |   |  |   | 132,100 |   |  |   | 311,429   |   |
| InterestratesU.S.               |  |          | 668,100   |                    |  |             | 0.98   | %          |  |     | 1,380,050 |   |  |   | 52,825  |   |  |   | 607,219   |   |
| InterestratesNon-U.S.           |  |          | 843,405   |                    |  |             | 1.24   | %          |  |     | 2,711,474 |   |  |   | 371,657 |   |  |   | 1,214,876 |   |
| Livestock                       |  |          | 36,800    |                    |  |             | 0.05   | %          |  |     | 168,800   |   |  |   | 25,200  |   |  |   | 59,760    |   |
| Metals                          |  |          |      |                    |  |             |   |            |  |     |      |   |  |   |    |   |  |   |      |   |
| —Exchange TradedContracts |  |          | 174,000   |                    |  |             | 0.25   | %          |  |     | 309,500   |   |  |   | 40,500  |   |  |   | 197,750   |   |
| —OTCContracts             |  |          | 225,534   |                    |  |             | 0.33   | %          |  |     | 485,830   |   |  |   | 4,600   |   |  |   | 287,273   |   |
| Softs                           |  |          | 111,132   |                    |  |             | 0.16   | %          |  |     | 415,533   |   |  |   | 40,886  |   |  |   | 192,922   |   |
| Indices                         |  |          | 2,734,855 |                    |  |             | 4.01   | %          |  |     | 5,010,346 |   |  |   | 42,662  |   |  |   | 2,117,267 |   |
| **Total**                       |  | $             | 9,429,327 |                    |  |             | 13.81  | %          |  |     |      |   |  |   |    |   |  |   |      |   |
|                                 |

|  |
|--|
|  |  |
|  |

|  |                                                  |
|--|--------------------------------------------------|
|  | *Annual average based on month-end value atrisk. |

20

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Material Limitations on Value at Risk asan Assessment of Market Risk

The face value of the marketsector instruments held by the Partnership is typically many times theapplicable maintenance margin requirement (margin requirementsgenerally range between 2% and 15% of contract facevalue) as well as many times the capitalization of the Partnership. Themagnitude of the Partnership's open positions creates a"risk of ruin" not typically found in mostother investment vehicles. Because of the size of its positions,certain market conditions — unusual, but historically recurringfrom time to time — could cause the Partnership to incur severelosses over a short period of time. The foregoing Value at Risk table— as well as the past performance of the Partnership — giveno indication of this "risk of ruin."

Non-Trading Risk

The Partnership has non-trading marketrisk on its foreign cash balances not needed for margin. However, thesebalances (as well as any market risk they represent) areimmaterial.

Materiality as used in this section,"Qualitative and Quantitative Disclosures About MarketRisk," is based on an assessment of reasonably possiblemarket movements and the potential losses caused by such movements,taking into account the leverage, optionality and multiplier featuresof the Partnership's market sensitive instruments.

Qualitative Disclosures Regarding Primary Trading RiskExposures

The following qualitative disclosures regarding thePartnership's market risk exposures – except for (i) thosedisclosures that are statements of historical fact and (ii) thedescriptions of how the Partnership manages its primary market riskexposures — constitute forward-looking statements within themeaning of Section 27A of the Securities Act and Section 21E of theSecurities Exchange Act. The Partnership's primary market riskexposures as well as the strategies used and to be used by the GeneralPartner and the Advisors for managing such exposures are subject tonumerous uncertainties, contingencies and risks, any one of which couldcause the actual results of the Partnership's risk controls todiffer materially from the objectives of such strategies. Governmentinterventions, defaults and expropriations, illiquid markets, theemergence of dominant fundamental factors, political upheavals, changesin historical price relationships, an influx of new marketparticipants, increased regulation and many other factors could resultin material losses as well as in material changes to the risk exposuresand the management strategies of the Partnership. There can be noassurance that the Partnership's current market exposure and/orrisk management strategies will not change materially or that any suchstrategies will be effective in either the short- or long- term.Investors must be prepared to lose all or substantially all of theirinvestment in the Partnership.

The following were the primarytrading risk exposures of the Partnership as of December 31, 2004, bymarket sector.

Interest Rates.   Interest ratemovements directly affect the price of the futures positions held bythe Partnership and indirectly the value of its stock index andcurrency positions. Interest rate movements in one country as well asrelative interest rate movements between countries materially impactthe Partnership's profitability. The Partnership's primaryinterest rate exposure is to interest rate fluctuations in the UnitedStates and the other G-8 countries. However, the Partnership also takesfutures positions on the government debt of smaller nations —e.g., Australia.

Currencies.   ThePartnership's currency exposure is to exchange rate fluctuations,primarily fluctuations which disrupt the historical pricingrelationships between different currencies and currency pairs. Thesefluctuations are influenced by interest rate changes as well aspolitical and general economic conditions. The General Partner does notanticipate that the risk profile of the Partnership's currencysector will change significantly in the future. The currency tradingValue at Risk figure includes foreign margin amounts converted intoU.S. dollars with an incremental adjustment to reflect the exchangerate risk inherent to the U.S. dollar-based Partnership in expressingValue at Risk in a functional currency other than U.S. dollars.

Stock Indices.   The Partnership's primary equityexposure is to equity price risk in the G-8 countries. The stock indexfutures traded by the Partnership are limited to futures on broadlybased indices. As of 

21

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December 31, 2004, the Partnership'sprimary exposures were in stock indices on the Chicago MercantileExchange (U.S.) and the EUREX (Germany). The Partnership is primarilyexposed to the risk of adverse price trends or static markets in themajor U.S., European and Japanese indices. (Static markets would notcause major market changes but would make it difficult for thePartnership to avoid being "whipsawed" intonumerous small losses.)

Metals.   ThePartnership's primary metal market exposure is to fluctuations inthe price of copper, aluminum and gold.

Softs.   ThePartnership's primary commodities exposure is to agriculturalprice movements which are often directly affected by severe orunexpected weather conditions. Coffee, cotton and sugar accounted forthe substantial bulk of the Partnership's commodity exposure asof December 31, 2004.

Energy.   ThePartnership's primary energy market exposure is to gas and oilprice movements, often resulting from political developments in theMiddle East. Oil prices can be volatile and substantial profits andlosses have been and are expected to continue to be experienced in thismarket.

Qualitative Disclosures Regarding Non-Trading RiskExposure

The following were the only non-trading risk exposuresof the Partnership as of December 31, 2004.

Foreign CurrencyBalances.   The Partnership's primary foreign currencybalances are in Japanese yen, Euro dollar, British pounds and Swissfrancs. The Advisor regularly converts foreign currency balances todollars in an attempt to control the Partnership's non-tradingrisk.

Qualitative Disclosures Regarding Means of Managing RiskExposure.

The General Partner monitors and controls thePartnership's risk exposure on a daily basis through financial,credit and risk management monitoring systems and accordingly believesthat it has effective procedures for evaluating and limiting the creditand market risks to which the Partnership is subject.

TheGeneral Partner monitors the Partnership's performance and theconcentration of its open positions, and consults with the Advisorsconcerning the Partnership's overall risk profile. If the GeneralPartner felt it necessary to do so, the General Partner could requirecertain of the Advisors to close out individual positions as well asenter into programs on behalf of the Partnership. However, any suchintervention would be a highly unusual event. The General Partnerprimarily relies on the Advisors' own risk control policies whilemaintaining a general supervisory overview of the Partnership'smarket risk exposures.

Each Advisor applies its own riskmanagement policies to its trading. The Advisors often followdiversification guidelines, margin limits and stop loss points to exita position. The Advisors' research of risk management oftensuggests ongoing modifications to their trading programs.

Aspart of the General Partner's risk management, the GeneralPartner periodically meets with the Advisors to discuss their riskmanagement and to look for any material changes to the Advisors'portfolio balance and trading techniques. The Advisors are required tonotify the General Partner of any material changes to theirprograms.

22

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Item8.    Financial Statements and Supplementary Data.

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II

INDEX TOFINANCIALSTATEMENTS

|                                                                                               |  |                   |  |  |  |  |
|-----------------------------------------------------------------------------------------------|--|-------------------|--|--|--|--|
|                                                                                          |  | PageNumber        |
| Oath orAffirmation                                                                            |  | F-2               |
| Report of Independent Registered Public AccountingFirm                                        |  | F-3               |
| FinancialStatements:                                                                          |  |
| Statements of Financial Condition atDecember 31, 2004 and 2003                                |  | F-4               |
| CondensedSchedules of Investments at December 31, 2004 and 2003                               |  | F-5– F-6    |
| Statements of Income and Expenses forthe years ended December 31, 2004, 2003 and2002          |  | F-7               |
| Statements of Changes inPartners' Capital for the years ended December 31, 2004, 2003and 2002 |  | F-8               |
| Statements of Cash Flows forthe years ended December 31, 2004, 2003 and2002                   |  | F-9               |
| Notes to FinancialStatements                                                                  |  | F-10 – F-13 |
| SelectedUnaudited Quarterly FinancialData                                                     |  | F-14              |
|                                                                                               |

F-1

----

To theLimited Partners ofSmith Barney Diversified Futures Fund L.P.II

To the best of the knowledge and belief of theundersigned, the information contained herein is accurate andcomplete.

|  | /s/ Daniel R. McAuliffe,Jr. |
|--|----------------------------------|

|  |
|--|
|  |  |  |
|  |

|  | By:   DanielR. McAuliffe, Jr.           Chief Financial Officer andDirector          Citigroup Managed FuturesLLC          General Partner, Smith BarneyDiversified          Futures Fund L.P. II |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | **Citigroup Managed Futures LLC**399 ParkAvenue7th FloorNew York, N.Y.10022212-559-2011 |
|--|-----------------------------------------------------------------------------------------|

F-2

----

Report ofIndependent Registered Public Accounting Firm

To the PartnersofSmith Barney Diversified Futures Fund L.P. II

We haveaudited the accompanying statements of financial condition of SmithBarney Diversified Futures Fund L.P. II (the Partnership), includingthe condensed schedules of investments, as of December 31, 2004 and2003, and the related statements of income and expenses, changes inpartners' capital, and cash flows for each of the years in thethree-year period ended December 31, 2004. These financial statementsare the responsibility of the Partnership's management. Ourresponsibility is to express an opinion on these financial statementsbased on our audits.

We conducted our audits in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

Inour opinion, the financial statements referred to above present fairly,in all material respects, the financial position of Smith BarneyDiversified Futures Fund L.P. II as of December 31, 2004 and 2003, andthe results of its operations, changes in its partners' capital,and its cash flows for each of the years in the three-year period endedDecember 31, 2004, in conformity with U.S. generally acceptedaccounting principles.

/s/ KPMG LLP

New York, NewYorkMarch 14, 2005

F-3

----

Smith Barney DiversifiedFutures FundL.P. IIStatements of Financial ConditionDecember 31, 2004 and2003

|                                                                                                                                        |  |        |            |        |  |        |            |        |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------|--|--------|------------|--------|--|--------|------------|--------|--|--|
|                                                                                                                                   |  | 2004   |            | 2003   |
| **Assets:**                                                                                                                            |  |
| Equityin commodity futures trading account:                                                                                            |  |
| Cash(restricted $10,268,476 and $12,384,177 in 2004 and 2003, respectively)(Note3c)                                                    |  | $      | 63,248,424 |   |  | $      | 65,423,348 |   |
| Netunrealized appreciation on open futurespositions                                                                                    |  |   | 1,695,113  |   |  |   | 2,834,001  |   |
| Unrealizedappreciation on open forwardcontracts                                                                                        |  |   | 2,134,245  |   |  |   | 2,980,419  |   |
|                                                                                                                                   |  |   | 67,077,782 |   |  |   | 71,237,768 |   |
| Interestreceivable (Note3c)                                                                                                            |  |   | 83,848     |   |  |   | 38,512     |   |
|                                                                                                                                   |  | $      | 67,161,630 |   |  | $      | 71,276,280 |   |
| **Liabilitiesand Partners'Capital:**                                                                                                   |  |
| Liabilities:                                                                                                                           |  |
| Unrealizeddepreciation on open forwardcontracts                                                                                        |  | $      | 1,815,840  |   |  | $      | 1,766,851  |   |
| Accruedexpenses:                                                                                                                       |  |
| Commissions (Note3c)                                                                                                                   |  |   | 332,085    |   |  |   | 354,212    |   |
| Managementfees (Note3b)                                                                                                                |  |   | 110,036    |   |  |   | 117,366    |   |
| Incentivefees (Note3b)                                                                                                                 |  |   | —    |   |  |   | 347,867    |   |
| Professionalfees                                                                                                                       |  |   | 37,522     |   |  |   | 47,907     |   |
| Other                                                                                                                                  |  |   | 19,748     |   |  |   | 13,037     |   |
| Redemptionspayable (Note5)                                                                                                             |  |   | 293,135    |   |  |   | 353,312    |   |
|                                                                                                                                   |  |   | 2,608,366  |   |  |   | 3,000,552  |   |
| Partners'Capital (Notes 1 and 5)                                                                                                       |  |
| General Partner,884.3120 and 862.6415 Unit equivalents outstanding in 2004 and 2003,respectively                                       |  |   | 1,318,412  |   |  |   | 1,251,218  |   |
| LimitedPartners, 42,414.1216 and 46,209.5262 Redeemable Units of LimitedPartnership Interest outstanding in 2004 and 2003,respectively |  |   | 63,234,852 |   |  |   | 67,024,510 |   |
|                                                                                                                                   |  |   | 64,553,264 |   |  |   | 68,275,728 |   |
|                                                                                                                                   |  | $      | 67,161,630 |   |  | $      | 71,276,280 |   |
|                                                                                                                                        |

Seeaccompanying notes to financialstatements.

F-4

----

SmithBarney DiversifiedFutures Fund L.P. IICondensed Schedule ofInvestmentsDecember 31,2004

|                                           |  |                                                    |  |           |            |         |  |  |  |  |
|-------------------------------------------|--|----------------------------------------------------|--|-----------|------------|---------|--|--|--|--|
| Sector                                    |  | Contract                                           |  | FairValue |
| Currencies                                |  |
|                                      |  | Unrealizeddepreciation on forward contracts(2.38%) |  | $         | (1,536,667 | )  |
|                                      |  | Unrealizedappreciation on forward contracts2.89%   |  |      | 1,866,625  |    |
|                                      |  | Totalforward contracts0.51%                        |  |      | 329,958    |    |
|                                      |  | Futurescontracts sold0.04%                         |  |      | 24,888     |    |
|                                      |  | Futurescontracts purchased0.67%                    |  |      | 432,672    |    |
|                                      |  | Totalfutures contracts0.71%                        |  |      | 457,560    |    |
| TotalCurrencies –1.22%              |  |                                               |  |      | 787,518    |    |
| Energy                                    |  | Futures contracts sold0.45%                        |  |      | 293,608    |    |
|                                      |  | Futurescontracts purchased(0.05)%                  |  |      | (33,698    | )  |
| TotalEnergy –0.40%                  |  |                                               |  |      | 259,910    |    |
| Grains– (0.03)%                     |  | Futures contracts sold(0.03)%                      |  |      | (22,252    | )  |
| InterestRates –U.S.                 |  |
|                                      |  | Futurescontracts sold0.13%                         |  |      | 81,640     |    |
|                                      |  | Futurescontracts purchased0.11%                    |  |      | 74,707     |    |
| TotalInterest Rates – U.S.0.24%     |  |                                               |  |      | 156,347    |    |
| InterestRates Non-U.S.                    |  |
|                                      |  | Futures contracts sold0.00%*                       |  |      | 4,653      |    |
|                                      |  | Futurescontracts purchased0.44%                    |  |      | 282,007    |    |
| TotalInterest Rates Non-U.S. –0.44% |  |                                               |  |      | 286,660    |    |
| Livestock– 0.03%                    |  | Futures contracts sold0.03%                        |  |      | 17,132     |    |
| Metals                                    |  |
|                                      |  | Futurescontracts purchased(0.03)%                  |  |      | (21,440    | )  |
|                                      |  | Unrealizeddepreciation on forward contracts(0.43)% |  |      | (279,173   | )  |
|                                      |  | Unrealizedappreciation on forward contracts0.41%   |  |      | 267,620    |    |
|                                      |  | Totalforward contracts(0.02)%                      |  |      | (11,553    | )  |
| TotalMetals –(0.05)%                |  |                                               |  |      | (32,993    | )  |
| Softs                                     |  |
|                                      |  | Futurescontracts sold(0.02)%                       |  |      | (11,385    | )  |
|                                      |  | Futurescontracts purchased0.15%                    |  |      | 96,047     |    |
| TotalSofts –0.13%                   |  |                                               |  |      | 84,662     |    |
| Indices                                   |  |
|                                      |  | Futurescontracts sold0.00%*                        |  |      | 1,230      |    |
|                                      |  | Futurescontracts purchased0.74%                    |  |      | 475,304    |    |
| TotalIndices –0.74%                 |  |                                               |  |      | 476,534    |    |
| TotalFair Value –3.12%              |  |                                               |  | $         | 2,013,518  |    |
|                                           |

|                    |  |                          |           |                               |  |        |        |          |  |  |
|--------------------|--|--------------------------|-----------|-------------------------------|--|--------|--------|----------|--|--|
| CountryComposition |  | Investments at FairValue |           | % of Investments at FairValue |
| Australia          |  | $                        | (2,347    | )                        |  |   | (0.12  | )%  |
| Canada             |  |                     | (850      | )                        |  |   | (0.04  | )   |
| France             |  |                     | (2,223    | )                        |  |   | (0.11  | )   |
| Germany            |  |                     | 161,331   |                          |  |   | 8.01   |     |
| HongKong           |  |                     | 244       |                          |  |   | 0.01   |     |
| Italy              |  |                     | 621       |                          |  |   | 0.03   |     |
| Japan              |  |                     | 84,473    |                          |  |   | 4.20   |     |
| Netherlands        |  |                     | 396       |                          |  |   | 0.02   |     |
| Spain              |  |                     | 51,314    |                          |  |   | 2.55   |     |
| UnitedKingdom      |  |                     | 152,415   |                          |  |   | 7.57   |     |
| UnitedStates       |  |                     | 1,568,144 |                          |  |   | 77.88  |     |
|               |  | $                        | 2,013,518 |                          |  |   | 100.00 | %   |
|                    |

|  |                                                                                       |
|--|---------------------------------------------------------------------------------------|
|  | Percentagesare based on Partners' capital unless otherwise indicated*Due to rounding. |

See accompanying notes tofinancial statements.

F-5

----

Smith Barney DiversifiedFutures FundL.P. IICondensed Schedule of InvestmentsDecember 31,2003

|                                             |  |                                                    |  |           |            |         |  |  |  |  |
|---------------------------------------------|--|----------------------------------------------------|--|-----------|------------|---------|--|--|--|--|
| Sector                                      |  | Contract                                           |  | FairValue |
| Currencies                                  |  |
|                                        |  | Unrealizedappreciation on forward contracts2.54%   |  | $         | 1,738,596  |    |
|                                        |  | Unrealizeddepreciation on forward contracts(1.48)% |  |      | (1,010,885 | )  |
|                                        |  | Totalforward contracts1.06%                        |  |      | 727,711    |    |
|                                        |  | Futurescontracts sold(0.12)%                       |  |      | (82,710    | )  |
|                                        |  | Futurescontracts purchased2.23%                    |  |      | 1,520,460  |    |
|                                        |  | Totalfutures contracts2.11%                        |  |      | 1,437,750  |    |
| TotalCurrencies –3.17%                |  |                                               |  |      | 2,165,461  |    |
| Energy– (0.15)%                       |  | Futures contracts purchased(0.15)%                 |  |      | (99,330    | )  |
| Grains                                      |  |
|                                        |  | Futurescontracts sold0.98%                         |  |      | 667,231    |    |
|                                        |  | Futurescontracts purchased(0.09)%                  |  |      | (60,625    | )  |
| TotalGrains –0.89%                    |  |                                               |  |      | 606,606    |    |
| InterestRates U.S. – (0.22)%          |  | Futures contracts purchased(0.22)%                 |  |      | (147,378   | )  |
| InterestRates Non-U.S.                      |  |
|                                        |  | Futures contracts sold(0.04)%                      |  |      | (29,333    | )  |
|                                        |  | Futurescontracts purchased(0.04)%                  |  |      | (28,952    | )  |
| TotalInterest Rates Non-U.S. –(0.08)% |  |                                               |  |      | (58,285    | )  |
| Livestock– 0.02%                      |  | Futures contracts sold0.02%                        |  |      | 10,951     |    |
| Metals                                      |  |
|                                        |  | Futurescontracts purchased0.37%                    |  |      | 250,200    |    |
|                                        |  | Unrealizedappreciation on forward contracts1.82%   |  |      | 1,241,823  |    |
|                                        |  | Unrealizeddepreciation on forward contracts(1.11)% |  |      | (755,966   | )  |
|                                        |  | Totalforward contracts0.71%                        |  |      | 485,857    |    |
| TotalMetals –1.08%                    |  |                                               |  |      | 736,057    |    |
| Softs                                       |  |
|                                        |  | Futurescontracts sold0.01%                         |  |      | 7,338      |    |
|                                        |  | Futurescontracts purchased(0.14)%                  |  |      | (96,920    | )  |
| TotalSofts –(0.13)%                   |  |                                               |  |      | (89,582    | )  |
| Indices                                     |  |
|                                        |  | Futurescontracts sold0.05%                         |  |      | 36,230     |    |
|                                        |  | Futurescontracts purchased1.30%                    |  |      | 886,839    |    |
| TotalIndices –1.35%                   |  |                                               |  |      | 923,069    |    |
| TotalFair Value –5.93%                |  |                                               |  | $         | 4,047,569  |    |
|                                             |

|                    |  |                          |           |                               |  |        |        |          |  |  |
|--------------------|--|--------------------------|-----------|-------------------------------|--|--------|--------|----------|--|--|
| CountryComposition |  | Investments at FairValue |           | % of Investments at FairValue |
| Australia          |  | $                        | (6,239    | )                        |  |   | (0.15  | )%  |
| Canada             |  |                     | 3,093     |                          |  |   | 0.08   |     |
| France             |  |                     | 16,957    |                          |  |   | 0.42   |     |
| Germany            |  |                     | 194,296   |                          |  |   | 4.80   |     |
| HongKong           |  |                     | 2,228     |                          |  |   | 0.05   |     |
| Italy              |  |                     | (2,956    | )                        |  |   | (0.07  | )   |
| Japan              |  |                     | 8,023     |                          |  |   | 0.20   |     |
| Spain              |  |                     | 84,091    |                          |  |   | 2.07   |     |
| UnitedKingdom      |  |                     | 541,601   |                          |  |   | 13.38  |     |
| UnitedStates       |  |                     | 3,206,475 |                          |  |   | 79.22  |     |
|               |  | $                        | 4,047,569 |                          |  |   | 100.00 | %   |
|                    |

|  |                                                                     |
|--|---------------------------------------------------------------------|
|  | Percentagesare based on Partners' capital unless otherwiseindicated |

See accompanying notes to financialstatements.

F-6

----

Smith Barney DiversifiedFutures FundL.P. IIStatements of Income and Expenses for the yearsended December 31, 2004, 2003, and2002

|                                                                                                                 |  |        |            |         |  |        |            |        |  |        |            |        |  |  |
|-----------------------------------------------------------------------------------------------------------------|--|--------|------------|---------|--|--------|------------|--------|--|--------|------------|--------|--|--|
|                                                                                                            |  | 2004   |            | 2003    |  | 2002   |
| Income:                                                                                                         |  |
| Netgains (losses) on trading of commodityinterests:                                                             |  |
| Realized gains on closed positionsand foreigncurrencies                                                         |  | $      | 10,224,679 |    |  | $      | 18,893,985 |   |  | $      | 17,271,983 |   |
| Changein unrealized gains (losses) on open positions                                                            |  |   | (2,034,051 | )  |  |   | 102,434    |   |  |   | 1,538,475  |   |
|                                                                                                            |  |   | 8,190,628  |    |  |   | 18,996,419 |   |  |   | 18,810,458 |   |
| Interestincome (Note3c)                                                                                         |  |   | 635,140    |    |  |   | 569,919    |   |  |   | 799,484    |   |
|                                                                                                            |  |   | 8,825,768  |    |  |   | 19,566,338 |   |  |   | 19,609,942 |   |
| Expenses:                                                                                                       |  |
| Brokeragecommissions including clearing fees of $195,363, $276,506 and $197,990,respectively (Note3c)           |  |   | 4,322,086  |    |  |   | 4,867,218  |   |  |   | 4,514,105  |   |
| Managementfees (Note3b)                                                                                         |  |   | 1,311,722  |    |  |   | 1,492,670  |   |  |   | 1,732,210  |   |
| Incentivefees (Note3b)                                                                                          |  |   | 1,522,062  |    |  |   | 2,663,950  |   |  |   | 2,374,309  |   |
| Professionalfees                                                                                                |  |   | 45,348     |    |  |   | 67,078     |   |  |   | 67,763     |   |
| Otherexpenses                                                                                                   |  |   | 26,293     |    |  |   | 23,239     |   |  |   | 19,433     |   |
|                                                                                                            |  |   | 7,227,511  |    |  |   | 9,114,155  |   |  |   | 8,707,820  |   |
| Netincome                                                                                                       |  | $      | 1,598,257  |    |  | $      | 10,452,183 |   |  | $      | 10,902,122 |   |
| Netincome per Redeemable Unit of Limited Partnership Interest and GeneralPartner Unit equivalent (Notes 1 and6) |  | $      | 40.44      |    |  | $      | 199.53     |   |  | $      | 205.86     |   |
|                                                                                                                 |

Seeaccompanying notes to financial statements.

F-7

----

Smith Barney DiversifiedFutures FundL.P. IIStatements of Changes in Partners' Capitalforthe years ended December 31, 2004, 2003 and2002

|                                                                                                                            |  |                 |             |                |  |        |           |         |  |        |             |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------|--|-----------------|-------------|----------------|--|--------|-----------|---------|--|--------|-------------|---------|--|--|
|                                                                                                                       |  | LimitedPartners |             | GeneralPartner |  | Total  |
| Partners' capital atDecember 31,2001                                                                                       |  | $               | 65,272,135  |           |  | $      | 1,345,402 |    |  | $      | 66,617,537  |    |
| Netincome                                                                                                                  |  |            | 10,665,826  |           |  |   | 236,296   |    |  |   | 10,902,122  |    |
| Redemptionof 10,576.9330 Redeemable Units of Limited Partnership Interest and424.7500 Units of General PartnershipInterest |  |            | (11,039,106 | )         |  |   | (502,602  | )  |  |   | (11,541,708 | )  |
| Partners'capital at December 31,2002                                                                                       |  |            | 64,898,855  |           |  |   | 1,079,096 |    |  |   | 65,977,951  |    |
| Netincome                                                                                                                  |  |            | 10,280,061  |           |  |   | 172,122   |    |  |   | 10,452,183  |    |
| Redemptionof 5,671.3005 Redeemable Units of Limited Partnership Interest                                                   |  |            | (8,154,406  | )         |  |   | —   |    |  |   | (8,154,406  | )  |
| Partners'capital at December 31,2003                                                                                       |  |            | 67,024,510  |           |  |   | 1,251,218 |    |  |   | 68,275,728  |    |
| Netincome                                                                                                                  |  |            | 1,562,495   |           |  |   | 35,762    |    |  |   | 1,598,257   |    |
| Saleof 21.6705 units of General PartnershipInterest                                                                        |  |            | —     |           |  |   | 31,432    |    |  |   | 31,432      |    |
| Redemptionof 3,795.4046 Redeemable Units of Limited PartnershipInterest                                                    |  |            | (5,352,153  | )         |  |   | —   |    |  |   | (5,352,153  | )  |
| Partners'capital at December 31,2004                                                                                       |  | $               | 63,234,852  |           |  | $      | 1,318,412 |    |  | $      | 64,553,264  |    |
|                                                                                                                            |

Netasset value per RedeemableUnit:

|      |  |   |          |        |  |  |
|------|--|---|----------|--------|--|--|
| 2002 |  | $ | 1,250.92 |   |
| 2003 |  | $ | 1,450.45 |   |
| 2004 |  | $ | 1,490.89 |   |
|      |

Seeaccompanying notes to financial statements.

F-8

----

Smith Barney Diversified Futures FundL.P. IIStatements of Cash Flowsfor the yearsendedDecember 31, 2004, 2003 and2002

|                                                                                           |  |        |            |         |  |        |            |         |  |        |             |         |  |  |
|-------------------------------------------------------------------------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--|
|                                                                                      |  | 2004   |            | 2003    |  | 2002   |
| Cashflows from operatingactivities:                                                       |  |   |       |    |  |   |       |    |  |
| Netincome                                                                                 |  | $      | 1,598,257  |    |  | $      | 10,452,183 |    |  | $      | 10,902,122  |    |
| Adjustmentsto reconcile net income to net cash provided by (used in) operatingactivities: |  |   |       |    |  |   |       |    |  |
| Changesin operating assets andliabilities:                                                |  |   |       |    |  |   |       |    |  |
| (Increase)decrease in restrictedcash                                                      |  |   | 2,115,701  |    |  |   | (5,522,303 | )  |  |   | 3,503,134   |    |
| (Increase)decrease in net unrealized appreciation on open futurespositions                |  |   | 1,138,888  |    |  |   | 1,195,611  |    |  |   | (1,645,496  | )  |
| (Increase)decrease in unrealized appreciation on open forwardcontracts                    |  |   | 846,174    |    |  |   | (1,157,327 | )  |  |   | (573,648    | )  |
| (Increase)decrease in commodity options owned, at fairvalue                               |  |   | —    |    |  |   | —    |    |  |   | 1,141,550   |    |
| (Increase)decrease in interestreceivable                                                  |  |   | (45,336    | )  |  |   | 13,386     |    |  |   | 25,331      |    |
| Increase(decrease) in unrealized depreciation on open forwardcontracts                    |  |   | 48,989     |    |  |   | (140,718   | )  |  |   | 1,907,569   |    |
| Accruedexpenses:                                                                          |  |   |       |    |  |   |       |    |  |
| Increase (decrease) incommissions                                                         |  |   | (22,127    | )  |  |   | (5,560     | )  |  |   | (1,681      | )  |
| Increase(decrease) in managementfees                                                      |  |   | (7,330     | )  |  |   | (33,835    | )  |  |   | (2,775      | )  |
| Increase(decrease) in incentivefees                                                       |  |   | (347,867   | )  |  |   | 347,867    |    |  |   | (52,446     | )  |
| Increase(decrease) in professionalfees                                                    |  |   | (10,385    | )  |  |   | (7,119     | )  |  |   | (3,518      | )  |
| Increase(decrease) inother                                                                |  |   | 6,711      |    |  |   | (992       | )  |  |   | (796        | )  |
| Increase(decrease) in redemptionspayable                                                  |  |   | (60,177    | )  |  |   | 115,657    |    |  |   | (622,406    | )  |
| Netcash provided by (used in) operatingactivities                                         |  |   | 5,261,498  |    |  |   | 5,256,850  |    |  |   | 14,576,940  |    |
| Cashflows from financingactivities:                                                       |  |   |       |    |  |   |       |    |  |
| Proceeds fromadditions – GeneralPartner                                             |  |   | 31,432     |    |  |   | —    |    |  |   | —     |    |
| Paymentsfor redemptions – GeneralPartner                                            |  |   | —    |    |  |   | —    |    |  |   | (502,602    | )  |
| Paymentsfor redemptions – LimitedPartners                                           |  |   | (5,352,153 | )  |  |   | (8,154,406 | )  |  |   | (11,039,106 | )  |
| Netcash provided by (used in) financingactivities                                         |  |   | (5,320,721 | )  |  |   | (8,154,406 | )  |  |   | (11,541,708 | )  |
| Netchange incash                                                                          |  |   | (59,223    | )  |  |   | (2,897,556 | )  |  |   | 3,035,232   |    |
| Unrestrictedcash, at beginning ofyear                                                     |  |   | 53,039,171 |    |  |   | 55,936,727 |    |  |   | 52,901,495  |    |
| Unrestrictedcash, at end ofyear                                                           |  | $      | 52,979,948 |    |  | $      | 53,039,171 |    |  | $      | 55,936,727  |    |
|                                                                                           |

Seeaccompanying notes to financial statements.

F-9

----

SmithBarney DiversifiedFutures Fund L.P. II Notes to FinancialStatements

1.    PartnershipOrganization:

Smith Barney Diversified Futures Fund L.P. II(the "Partnership") is a limited partnershipwhich was organized on May  10, 1994 under the partnership lawsof the State of New York to engage in the speculative trading of adiversified portfolio of commodity interests including futurescontracts, options and forward contracts. The commodity interests thatare traded by the Partnership are volatile and involve a high degree ofmarket risk. The Partnership was authorized to sell 100,000 redeemableunits of Limited Partnership Interest ("RedeemableUnits") during its initial offering period.

Citigroup Managed Futures LLC, formerly Smith Barney FuturesManagement LLC, acts as the general partner (the "GeneralPartner") of the Partnership. The Partnership'scommodity broker is Citigroup Global Markets Inc.("CGM"), formerly Salomon Smith Barney Inc.CGM is an affiliate of the General Partner. The General Partner iswholly owned by Citigroup Global Markets Holdings Inc.("CGMHI"), formerly Smith Barney HoldingsInc., which is the sole owner of CGM. CGMHI is a wholly ownedsubsidiary of Citigroup Inc.("Citigroup").

The General Partner andeach limited partner share in the profits and losses of the Partnershipin proportion to the amount of partnership interest owned by eachexcept that no limited partner shall be liable for obligations of thePartnership in excess of their initial capital contribution andprofits, if any, net of distributions.

The Partnership will beliquidated upon the first to occur of the following: December31, 2014; the Net Asset Value of a Redeemable Unit decreases to lessthan $400 per Redeemable Unit as of a close of any business day; orunder certain other circumstances as defined in the Limited PartnershipAgreement.

2.    AccountingPolicies:

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| a.  | All commodity interests(including derivative financial instruments and derivative commodityinstruments) are used for trading purposes. The commodity interests arerecorded on trade date and open contracts are recorded in thestatements of financial condition at fair value on the last businessday of the year, which represents market value for those commodityinterests for which market quotations are readily available.Investments in commodity interests denominated in foreign currenciesare translated into U.S. dollars at the exchange rates prevailing onthe last business day of the year. Realized gains (losses) and changesin unrealized gains (losses) on open positions are recognized in theperiod in which the contract is closed or the changes occur and areincluded in net gains (losses) on trading of commodityinterests. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| b.  | The Partnership maypurchase and write (sell) options. An option is a contract allowing,but not requiring, its holder to buy (call) or sell (put) a specific orstandard commodity or financial instrument at a specified price duringa specified time period. The option premium is the total price paid orreceived for the option contract. When the Partnership writes anoption, the premium received is recorded as a liability in thestatements of financial condition and marked to market daily. When thePartnership purchases an option, the premium paid is recorded as anasset in the statements of financial condition and marked to marketdaily. |

|          |                                                                                                                                                          |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
| c.  | Income taxes have not beenprovided as each partner is individually liable for the taxes, if any,on their share of the Partnership's income and expenses. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| d.  | The preparation of financial statementsin conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from theseestimates. |

F-10

----

SmithBarney DiversifiedFutures Fund L.P. II Notes to FinancialStatements

3.    Agreements:

|          |                                |
|----------|--------------------------------|
| a.  | Limited Partnership Agreement: |

|        |                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The General Partner administers the business andaffairs of the Partnership including selecting one or more advisors tomake trading decisions for the Partnership. |

|          |                        |
|----------|------------------------|
| b.  | Management Agreements: |

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The General Partner, on behalf of thePartnership, has entered into Management Agreements with Graham CapitalManagement L.P. ("Graham"), Capital FundManagement SA ("CFM"), Campbell & Co.,Inc. ("Campbell") and Willowbridge AssociatesInc. ("Willowbridge") (collectively, the"Advisors"), registered commodity tradingadvisors. The Advisors are not affiliated with one another, are notaffiliated with the General Partner or CGM and are not responsible forthe organization or operation of the Partnership. The Partnership willpay each Advisor a monthly management fee equal to  1/6of 1% (2% per year) of month-end Net Assets allocated tothe Advisor. Month-end Net Assets, for the purpose of calculatingmanagement fees are Net Assets, as defined in the Limited PartnershipAgreement, prior to the reduction of redemptions and incentivefees. |

|        |                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | In addition, the Partnership isobligated to pay each Advisor an incentive fee, payable quarterly,equal to 20% of the New Trading Profits, as defined in theManagement Agreements, earned by each Advisor for the Partnership,except Graham, which will receive an incentive fee of 10% of NewTrading Profits on the first $5,000,000 and 20% of New TradingProfits for all such profits in excess of $5,000,000. |

|          |                     |
|----------|---------------------|
| c.  | Customer Agreement: |

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The Partnership has entered into a CustomerAgreement which provides that the Partnership will pay CGM a monthlybrokerage fee equal to 1⁄2 of 1% (6% peryear) of month-end Net Assets, in lieu of brokerage commissions on aper trade basis. CGM will pay a portion of brokerage fees to itsfinancial consultants who have sold Redeemable Units in thisPartnership. Month-end Net Assets, for the purpose of calculatingcommissions are Net Assets, as defined in the Limited PartnershipAgreement, prior to the reduction of accrued expenses and redemptionspayable. Brokerage fees will be paid for the life of the Partnership,although the rate at which such fees are paid may be changed. ThePartnership will pay for National Futures Association fees as well asexchange, clearing, user, give-up and floor brokerage fees. All of thePartnership's assets are deposited in the Partnership'saccount at CGM. The Partnership's cash is deposited by CGM insegregated bank accounts to the extent required by Commodity FuturesTrading Commission regulations. At December 31, 2004 and 2003, theamount of cash held for margin requirements was $10,268,476 and$12,384,177, respectively. CGM has agreed to pay the Partnershipinterest on 80% of the average daily equity maintained in cashin its account during each month at a 30-day U.S. Treasury bill ratedetermined weekly by CGM based on the average noncompetitive yield on3-month U.S. Treasury bills maturing in 30 days from the date on whichsuch weekly rate is determined. The Customer Agreement between thePartnership and CGM gives the Partnership the legal right to netunrealized gains and losses. The Customer Agreement may be terminatedupon notice by either party. |

F-11

----

SmithBarney DiversifiedFutures Fund L.P. II Notes to FinancialStatements

|          |                    |
|----------|--------------------|
| 4.  | TradingActivities: |

The Partnership was formed for the purpose oftrading contracts in a variety of commodity interests, includingderivative financial instruments and derivative commodity interests.The results of the Partnership's trading activities are shown inthe statements of income and expenses.

All of the commodityinterests owned by the Partnership are held for trading purposes. Theaverage fair value during the years ended December 31, 2004 and 2003,based on a monthly calculation, was $2,626,672 and $4,134,488,respectively.

|          |                               |
|----------|-------------------------------|
| 5.  | Distributions andRedemptions: |

Distributions of profits, if any, will be made atthe sole discretion of the General Partner; however, beginning with thequarter ended June 30, 1996, a limited partner may require thePartnership to redeem their Redeemable Units at their Net Asset Valueas of the last day of any month on 10 days notice to the GeneralPartner provided that no redemption may result in the limited partnerholding fewer than 3 Redeemable Units after the redemption is effected.There is no fee charged to limited partners in connection withredemptions.

|          |                       |
|----------|-----------------------|
| 6.  | Financial Highlights: |

Changes in the Net Asset Value per Redeemable Unit of LimitedPartnership Interest for the years ended December  31, 2004, 2003and 2002 are asfollows:

|                                                      |  |        |          |         |  |        |          |         |  |        |          |         |  |  |
|------------------------------------------------------|--|--------|----------|---------|--|--------|----------|---------|--|--------|----------|---------|--|--|
|                                                 |  | 2004   |          | 2003    |  | 2002   |
| Netrealized and unrealized gains*                    |  | $      | 89.34    |    |  | $      | 271.30   |    |  | $      | 266.34   |    |
| Interestincome                                       |  |   | 14.06    |    |  |   | 11.32    |    |  |   | 13.87    |    |
| Expenses**                                           |  |   | (62.96   | )  |  |   | (83.09   | )  |  |   | (74.35   | )  |
| Increasefor theyear                                  |  |   | 40.44    |    |  |   | 199.53   |    |  |   | 205.86   |    |
| Netasset value per Redeemable Unit, beginning ofyear |  |   | 1,450.45 |    |  |   | 1,250.92 |    |  |   | 1,045.06 |    |
| Netasset value per Redeemable Unit, end ofyear       |  | $      | 1,490.89 |    |  | $      | 1,450.45 |    |  | $      | 1,250.92 |    |
|                                                      |

|  |
|--|
|  |  |
|  |

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

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

|                                            |  |        |      |          |  |        |      |          |  |        |      |          |  |  |
|--------------------------------------------|--|--------|------|----------|--|--------|------|----------|--|--------|------|----------|--|--|
|                                       |  | 2004   |      | 2003     |  | 2002   |
| Ratiosto average net assets:               |  |
| Net investment lossbefore incentivefees*** |  |   | (7.8 | )%  |  |   | (8.3 | )%  |  |   | (8.8 | )%  |
| Operatingexpenses                          |  |   | 8.8  | %   |  |   | 9.1  | %   |  |   | 10.1 | %   |
| Incentivefees                              |  |   | 2.3  | %   |  |   | 3.8  | %   |  |   | 3.8  | %   |
| Totalexpenses                              |  |   | 11.1 | %   |  |   | 12.9 | %   |  |   | 13.9 | %   |
| Totalreturn:                               |  |
| Total return before incentivefees          |  |   | 5.2  | %   |  |   | 20.5 | %   |  |   | 24.0 | %   |
| Incentivefees                              |  |   | (2.4 | )%  |  |   | (4.5 | )%  |  |   | (4.3 | )%  |
| Totalreturn after incentivefees            |  |   | 2.8  | %   |  |   | 16.0 | %   |  |   | 19.7 | %   |
|                                            |

|  |
|--|
|  |  |
|  |

|           |                                                                  |
|-----------|------------------------------------------------------------------|
| ***  | Interestincome less total expenses (exclusive of incentive fees) |

Theabove ratios may vary for individual investors based on the timing ofcapital transactions during the year. Additionally, these ratios arecalculated for the Limited Partner class using the LimitedPartners' share of income, expenses and average netassets.

F-12

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SmithBarney DiversifiedFutures Fund L.P. II Notes to FinancialStatements

7.    Financial Instrument Risks:

In the normal course of its business, the Partnership is party tofinancial instruments with off-balance sheet risk, including derivativefinancial instruments and derivative commodity instruments. Thesefinancial instruments may include forwards, futures and options, whosevalues are based upon an underlying asset, index, or reference rate,and generally represent future commitments to exchange currencies orcash flows, or to purchase or sell other financial instruments atspecific terms at specified future dates, or, in the case of derivativecommodity instruments, to have a reasonable possibility to be settledin cash, through physical delivery or with another financialinstrument. These instruments may be traded on an exchange orover-the-counter ("OTC"). Exchange tradedinstruments are standardized and include futures and certain optioncontracts. OTC contracts are negotiated between contracting parties andinclude forwards and certain options. Each of these instruments issubject to various risks similar to those related to the underlyingfinancial instruments including market and credit risk. In general, therisks associated with OTC contracts are greater than those associatedwith exchange traded instruments because of the greater risk of defaultby the counterparty to an OTC contract.

Market risk is thepotential for changes in the value of the financial instruments tradedby the Partnership due to market changes, including interest andforeign exchange rate movements and fluctuations in commodity orsecurity prices. Market risk is directly impacted by the volatility andliquidity in the markets in which the related underlying assets aretraded.

Credit risk is the possibility that a loss may occur dueto the failure of a counterparty to perform according to the terms of acontract. Credit risk with respect to exchange traded instruments isreduced to the extent that an exchange or clearing organization acts asa counterparty to the transactions. The Partnership's risk ofloss in the event of counterparty default is typically limited to theamounts recognized in the statements of financial condition and notrepresented by the contract or notional amounts of the instruments. ThePartnership has credit risk and concentration risk because the solecounterparty or broker with respect to the Partnership's assetsis CGM.

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

The majority of these instruments mature within oneyear of December 31, 2004. However, due to the nature of thePartnership's business, these instruments may not be held tomaturity.

F-13

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Selectedunaudited quarterly financial data for the years ended December 31,2004 and December 31, 2003 is summarized below:

|                                                                                                                      |  |                                                      |           |                                                     |  |                                                 |            |                                                   |  |        |            |         |  |        |           |        |  |        |        |        |  |  |
|----------------------------------------------------------------------------------------------------------------------|--|------------------------------------------------------|-----------|-----------------------------------------------------|--|-------------------------------------------------|------------|---------------------------------------------------|--|--------|------------|---------|--|--------|-----------|--------|--|--------|--------|--------|--|--|
|                                                                                                                 |  | Forthe period fromOctober 1, 2004 toDecember 31,2004 |           | For the period fromJuly 1, 2004toSeptember 30, 2004 |  | For the periodfromApril 1, 2004 toJune 30, 2004 |            | For theperiod fromJanuary 1, 2004 toMarch 31,2004 |  |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                              |  |   |       |    |  |   |      |   |  |   |   |   |
| Netrealized and unrealized trading gains (losses) net of brokeragecommissions and clearing fees plus interest income |  | $                                                    | 7,882,826 |                                                |  | $                                               | (2,152,606 | )                                            |  | $      | (9,626,155 | )  |  | $      | 8,399,617 |   |  |   |   |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                              |  |   |       |    |  |   |      |   |  |   |   |   |
| Netincome (loss)                                                                                                     |  | $                                                    | 7,555,082 |                                                |  | $                                               | (2,468,247 | )                                            |  | $      | (9,975,010 | )  |  | $      | 6,486,432 |   |  |   |   |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                              |  |   |       |    |  |   |      |   |  |   |   |   |
| Increase(decrease) in Net Asset Value per Redeemable Unit                                                            |  | $                                                    | 171.94    |                                                |  | $                                               | (54.41     | )                                            |  | $      | (215.87    | )  |  | $      | 138.78    |   |  |
|                                                                                                                      |

|                                                                                                                      |  |                                                      |           |                                                     |  |                                                 |            |                                                    |  |        |           |        |  |        |           |        |  |        |        |        |  |  |
|----------------------------------------------------------------------------------------------------------------------|--|------------------------------------------------------|-----------|-----------------------------------------------------|--|-------------------------------------------------|------------|----------------------------------------------------|--|--------|-----------|--------|--|--------|-----------|--------|--|--------|--------|--------|--|--|
|                                                                                                                 |  | Forthe period fromOctober 1, 2003 toDecember 31,2003 |           | For the period fromJuly 1, 2003toSeptember 30, 2003 |  | For the periodfromApril 1, 2003 toJune 30, 2003 |            | For theperiod fromJanuary 1, 2003 to March 31,2003 |  |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                               |  |   |      |   |  |   |      |   |  |   |   |   |
| Netrealized and unrealized trading gains (losses) net of brokeragecommissions and clearing fees plus interest income |  | $                                                    | 4,218,043 |                                                |  | $                                               | (4,261,243 | )                                             |  | $      | 4,836,316 |   |  | $      | 9,906,004 |   |  |   |   |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                               |  |   |      |   |  |   |      |   |  |   |   |   |
| Netincome (loss)                                                                                                     |  | $                                                    | 3,508,014 |                                                |  | $                                               | (4,631,123 | )                                             |  | $      | 3,522,448 |   |  | $      | 8,052,844 |   |  |   |   |   |
|                                                                                                                 |  |                                                 |      |                                                |  |                                            |       |                                               |  |   |      |   |  |   |      |   |  |   |   |   |
| Increase(decrease) in Net Asset Value per Redeemable Unit                                                            |  | $                                                    | 73.80     |                                                |  | $                                               | (94.77     | )                                             |  | $      | 67.95     |   |  | $      | 152.55    |   |  |   |   |   |
|                                                                                                                      |

F-14

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Item 9.    Changesin and Disagreements with Accountants on Accounting and FinancialDisclosure.

None

Item 9A.    Controls andProcedures.

Based on their evaluation of thePartnership's disclosure controls and procedures as of year endthe Chief Executive Officer and Chief Financial Officer of the GeneralPartner have concluded that such controls and procedures areeffective.

There were no significant changes in thePartnership's internal controls or in other factors that couldsignificantly affect such controls subsequent to the date of theirevaluation as of year end.

PART III

Item10.    Directors and Executive Officers of theRegistrant.

The Partnership has no officers or directorsand its affairs are managed by its General Partner, Citigroup ManagedFutures LLC. As of December 31, 2004, investment decisions were beingmade by Graham Capital Management L.P., Campbell and Company Inc.,Willowbridge Associates Inc., and Capital Fund Management.

ThePartnership has not adopted a code of ethics that applies to officersbecause it has no officers.

Item 11.    ExecutiveCompensation.

The Partnership has no directors orofficers. Its affairs are managed by the General Partner. CGM, anaffiliate of the General Partner, is the commodity broker for thePartnership and receives brokerage commissions for such services, asdescribed under "Item1.    Business." Brokerage commissions andclearing fees of $4,322,086 were earned by CGM for the year endedDecember 31, 2004. Management fees and incentive fees of $1,311,722 and$1,522,062, respectively, were earned by the Advisors for the yearended December 31, 2004.

Item 12.    Security Ownershipof Certain Beneficial Owners and Management.

(a)    Security ownership of certain beneficial owners.As of March 1, 2005, the Partnership knows of no person whobeneficially owns more than 5% of the Redeemable Unitsoutstanding.

(b)    Security ownership of management.Under the terms of the Limited Partnership Agreement, thePartnership's affairs are managed by the General Partner. TheGeneral Partner owns Units of general partnership interest equivalentto 884.3120 (2.0%) Unit equivalents as of December 31, 2004.

(c)    Changes in control. None.

Item13.    Certain Relationships and Related Transactions.

Citigroup Global Markets Inc. and Citigroup Managed Futures LLCwould be considered promoters for purposes of item 404 (d) ofRegulation S-K. The nature and the amounts of compensation eachpromoter will receive from the Partnership are set forth under"Item 1.    Business","Item 8.    Financial Statements and SupplementaryData" and "Item 11.    ExecutiveCompensation."

23

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Item 14.    Principal AccountantFees and Services

(1)    Audit Fees. Theaggregate fees billed for each of the last two fiscal years forprofessional services rendered by KPMG LLP for the audit of thePartnership's annual financial statements, review of financialstatements included in the Partnership's Forms 10-Q and otherservices normally provided in connection with regulatory filings orengagements are as follows:

2004  $31,670

2003  $32,236

(2)    Audit-RelatedFees. None

(3)    Tax Fees. The aggregate feesbilled for each of the last two fiscal years for professional servicesrendered by KPMG LLP for tax compliance and tax advice given in thepreparation of the Partnership's Schedule K1s, the preparation ofthe Partnership's Form 1065 and preparation of all State TaxReturns are as follows:

2004  $5,136

2003  $4,809

(4)    All Other Fees.None.

(5)    Not Applicable.

(6)    NotApplicable.

24

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PART IV

Item15.    Exhibits, Financial Statement Schedules, and Reports onForm 8-K.

|               |                      |
|---------------|----------------------|
| (a) (1)  | FinancialStatements: |

Statements of Financial Condition atDecember 31, 2004 and 2003.

Condensed Schedulesof Investments at December 31, 2004 and 2003.

Statements of Income and Expenses for the yearsended December 31, 2004, 2003 and 2002.

Statements of Changes in Partners' Capital forthe years ended December 31, 2004, 2003 and 2002.

Statements of Cash Flows for the years endedDecember 31, 2004, 2003 and 2002.

Notes toFinancial Statements

|           |           |
|-----------|-----------|
| (2)  | Exhibits: |

3.1 – Limited Partnership Agreement (filed asExhibit 3.1 to the Registration Statement on Form S-1 (File No.33-79244 and incorporated herein by reference).

3.2 – Certificate of Limited Partnership ofthe Partnership as filed in the office of the County Clerk of New YorkCounty (filed as Exhibit 3.2 to the Registration Statement on Form S-1(File No. 33-79244) and incorporated herein byreference).

10.1 – Customer Agreementbetween the Partnership and Smith Barney (filed as Exhibit 10.1 to theRegistration Statement on Form S-1 (File No. 33-79244) and incorporatedherein by reference).

10.2 – SubscriptionAgreement (filed as Exhibit 10.2 to the Registration Statement on FormS-1 (File No. 33-29144) and incorporated herein byreference).

10.3 – Escrow Instructionsrelating to escrow of subscription funds (filed as Exhibit 10.3 to theRegistration Statement on Form S-1 (File No. 33-79244) and incorporatedherein by reference).

10.4 – ManagementAgreement among the Partnership, the General Partner and ChesapeakeCapital Corporation (filed as Exhibit 10.5 to the RegistrationStatement on Form S-1 (File No. 33-79244) and incorporated herein byreference).

10.5 – Management Agreementamong the Partnership, the General Partner and John W. Henry & Co.Inc. (filed as Exhibit 10.6 to the Registration Statement on Form S-1(File No. 33-79244) and incorporated herein byreference).

10.6 – Management Agreementamong the Partnership, the General Partner and Millburn RidgefieldCorporation (filed as Exhibit 10.7 to the Registration Statement onForm S-1 (File No. 33-79244) and incorporated herein byreference).

10.7 – Management Agreementamong the Partnership, the General Partner and Willowbridge AssociatesInc. (filed as Exhibit 10.7 to the Form 10-K for the year endedDecember 31, 1997).

10.8 – ManagementAgreement among the Partnership, the General Partner and ARA PortfolioManagement Company, L.L.C. (filed as Exhibit 10.8 to the Form 10-K forthe year ended December 31, 1997).

10.9 –Letter from General Partner terminating Management Agreement withChesapeake Capital Corporation (filed as Exhibit 10.9 to the Form 10-Kfor the year ended December 31, 1997).

10.10– Management Agreement among the Partnership, the General Partnerand Campbell & Co., Inc. (filed as Exhibit 10.10 to the Form 10-Kfor the year ended December 31, 1997).

25

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10.11 – Lettersextending Management Agreements with John W. Henry & Company Inc.,Chesapeake Capital Corporation and Millburn Ridgefield Corporation for1996 and 1997 (filed as Exhibit 10.11 to the Form 10-K for the yearended December 31, 1997).

10.12 – Lettersfrom the General Partner terminating Management Agreement with MillburnRidgefield Corporation (previously filed).

10.13– Letter from the General Partner terminating ManagementAgreement with ARA Portfolio Management (previouslyfiled).

10.14 – Management Agreement amongthe Partnership, the General Partner and Beacon Management Corporation(previously filed).

10.15 – ManagementAgreement among the Partnership, the General Partner and Roy G.Neiderhoffer Co., Inc. (previously filed).

10.16– Letters extending Management Agreements with John W. Henry& Company Inc., Campbell & and Company, Inc. and WillowbridgeAssociates Inc. for 1998 (previouslyfiled).

10.17 – Letters extending theManagement Agreements with John W. Henry & Company Inc., Campbell& Company, Inc., Willowbridge Associates Inc. and Beacon ManagementCorporation for 1999 (previously filed).

10.18– Letter from the General Partner terminating ManagementAgreement with Roy G. Neiderhoffer Co., Inc. (previouslyfiled).

10.19 – Letter from the GeneralPartner terminating Management Agreement with John W. Henry &Company Inc. (previously filed).

10.20 –Management Agreement among the Partnership, the General Partner andStonebrook Structured Products, LLC (previouslyfiled).

10.21 – Management Agreement amongthe Partnership, the General Partner and Graham Capital Management L.P.(previously filed).

10.22 – Lettersextending the Management Agreements with Campbell & Company, Inc.,Willowbridge Associates Inc. and Beacon Management Corporation for 2000(previously filed).

10.23 – Lettersextending the Management Agreements with Campbell & Company, Inc.,Willowbridge Associates Inc., Beacon Management Corporation, StonebrookStructured Products and Graham Capital Management L.P. for 2001(previously filed).

10.24 – ManagementAgreement among the Partnership, the General Partner and Capital FundManagement (previously filed).

10.25 –Letters extending the Management Agreements with Campbell & CompanyInc., Willowbridge Associates Inc., Beacon Management Corporation,Stonebrook Structured Products and Graham Capital Management L.P. for2002 (previously filed).

10.26 – Letterfrom the General Partner Terminating Management Agreement with BeaconCapital Management (previously filed).

10.27– Letters extending the management Agreements with Campbell &Company Inc., Willowbridge Associates Inc., Capital Fund Management andGraham Capital Management L.P. for 2003 (previouslyfiled).

10.28 – Letter from the GeneralPartner Terminating Management Agreement with Stonebrook StructuredProducts LLC (previously filed).

10.29 –Letters extending the management agreements with Campbell & CompanyInc., Willowbridge Associates Inc., Capital Fund Management andGraham Capital Management L.P. for 2004 (filed herein).

16.1 – Letter from PricewaterhouseCoopers LLP(previously filed).

26

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The exhibits required tobe filed by Item 601 of Regulation S-K are incorporated herein byreference.

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

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

32.1 – Section 1350 Certification(Certification of President and Director).

32.2– Section 1350 Certification (Certification of Chief FinancialOfficer and Director)

|           |                                 |
|-----------|---------------------------------|
| (b)  | Reports onForm 8-K: None Filed. |

27

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Supplemental Information To Be FurnishedWith Reports Filed Pursuant To Section 15(d) Of The Act by RegistrantsWhich Have Not Registered Securities Pursuant To Section 12 Of theAct.

Annual Report to Limited Partners

No proxymaterial has been sent to LimitedPartners.

28

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the Registrant has duly caused thisannual report on Form 10-K to be signed on its behalf by theundersigned, thereunto duly authorized, in the City of New York andState of New York on the 31st day of March 2005.

SmithBarney Diversified Futures Fund L.P. II

By:    /s/Citigroup Managed Futures LLC            (GeneralPartner)

By    /s/ David J. Vogel           David J. Vogel, President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934,this annual report on Form 10-K has been signed below by the followingpersons in the capacities and on the date indicated.

|                             |  |                        |  |  |  |  |
|-----------------------------|--|------------------------|--|--|--|--|
| /s/ David J. Vogel          |  | /s/ ShelleyUllman      |
| David J. Vogel              |  | ShelleyUllman          |
| President andDirector       |  | Director               |
| /s/ MaureenO'Toole          |  | /s/ Steven J. Keltz    |
| Maureen O'Toole             |  | Steven J. Keltz        |
| Director                    |  | Secretary and Director |
| /s/ Daniel R. McAuliffe,Jr. |  |                   |
| Daniel R. McAuliffe,Jr.     |  |                   |
| Chief Financial Officerand  |  |                   |
| Director                    |  |                   |
|                             |

29

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