UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                  Annual Report Pursuant to Section 13 or 15(d)

                     of the Securities Exchange Act of 1934

                      For the year ended December 31, 1998

Commission File Number 0-26132

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:  None
                                                             ----
Securities registered pursuant to Section 12(g) of the Act:         Units
                                                                    of Limited
                                                                    Partnership
                                                                    Interest
                                (Title of Class)

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

                                                        Yes   X    No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [X]

As of February  28, 1999  Limited  Partnership  Units with an  aggregate  value 
of  $1,373.83  were  outstanding  and held by non-affiliates.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None




<PAGE>




                                     PART I

Item 1. Business.

         (a) General  development of business.  Smith Barney Diversified Futures
Fund L.P.  ("Partnership") is a limited partnership  organized under the laws of
the State of New York, on August 13, 1993 to engage in speculative  trading of a
diversified  portfolio  of commodity  interests,  including  futures  contracts,
options and forwards. The commodity interests that are traded by the Partnership
are volatile and involve a high degree of market risk. The Partnership commenced
trading  operations  on January 12,  1994.  A total of 150,000  Units of Limited
Partnership Interest in the Partnership  ("Units") were offered to the public. A
Registration  Statement  on Form S-1  relating  to the  public  offering  became
effective  on October 29, 1993.  Between  October 29, 1993 and January 11, 1994,
75,615  Units  were  sold to the  public at $1,000  per  Unit.  Proceeds  of the
offering  were held in an escrow  account and were  transferred,  along with the
General Partner's  contribution of $781,000 to the Partnership's trading account
on January  12,  1994 when the  Partnership  commenced  trading.  An  additional
150,000 Units were registered on a Registration  Statement on Form S-1 effective
February 17, 1994.  Sales of additional Units and additional  General  Partner's
contributions  and redemptions of Units for the year ended December 31, 1998 are
reported  in the  Statement  of  Partners'  Capital  on page F-6 under  "Item 8.
Financial Statements and Supplementary Data."

                                       1
<PAGE>


         The  General  Partner  has  agreed to make  capital  contributions,  if
necessary, so that its general partnership interest will be equal to the greater
of (i) an  amount  to  entitle  it to 1% of each  material  item of  Partnership
income,  loss,  deduction  or  credit  and  (ii)  the  greater  of (a) 1% of the
partners'  contributions to the Partnership or (b) $25,000. The Partnership will
be liquidated  upon the first of the following to occur:  December 31, 2013; the
net  asset  value of a Unit  decreases  to less than $400 as of the close of any
business  day;  or  under  certain  circumstances  as  defined  in  the  Limited
Partnership Agreement of the Partnership (the ALimited Partnership Agreement@).
     Smith  Barney  Futures  Management  Inc.  acts as the general  partner (the
"General  Partner") of the Partnership.  On September 1, 1998, the Partnership's
commodity  broker,  Smith  Barney  Inc.,  merged with  Salomon  Brothers Inc and
changed its name to Salomon  Smith Barney Inc.  ("SSB").  SSB is an affiliate of
the General Partner. The General Partner is wholly owned by Salomon Smith Barney
Holdings,  Inc.  ("SSBH"),  which is the sole owner of SSB.  On October 8, 1998,
Travelers Group Inc. merged with Citicorp Inc. and changed its name to Citigroup
Inc. SSBH is a wholly owned subsidiary of Citigroup Inc.
         The  Partnership's  trading of futures contracts on commodities is done
on United  States and foreign  commodity  exchanges.  It engages in such trading
through a commodity brokerage account maintained with SSB.

                                       2
<PAGE>


     As of December 31, 1998, all commodity  trading  decisions are made for the
Partnership by Campbell & Company,  Inc., John W. Henry & Company,  Inc. ("JWH),
Rabar Market  Research  Inc.("Rabar"),  Telesis  Management  Inc. and  Trendview
Management,  Inc.  (collectively,  the  "Advisors").  None  of the  Advisors  is
affiliated  with one another,  the General  Partner or SSB. The Advisors are not
responsible  for the  organization  or operation of the  Partnership.  Trendview
Management  Inc. was added as an Advisor to the  Partnership  effective April 1,
1998.  Chesapeake Capital Corporation and Abraham Trading Co. were terminated as
Advisors on January 31, 1998. AIS Futures Management,  Inc. was terminated as an
Advisor on September 30, 1998.
     Pursuant  to  the  terms of the  Management  Agreements  (the  "Management
Agreements"),  the  Partnership is obligated to pay each Advisor:  (i) a monthly
management  fee equal to 1/6 of 1% (2% per year) of month-end Net Assets (except
that JWH will receive a monthly management fee equal to 1/3 of 1% (4% per year))
of the  Partnership  allocated  to each  Advisor as of the end of each month and
(ii) an  incentive  fee  payable  quarterly  (except  for Rabar who will be paid
annually), equal to 20% of the New Trading Profits (as defined in the Management
Agreements)(except  JWH,  which  will  receive  an  incentive  fee of 15% of New
Trading Profits) earned by each Advisor for the Partnership.
         The  Partnership  has entered into a Customer  Agreement  with SSB (the
"Customer Agreement") which provides that the Partnership will pay SSB a monthly
brokerage  fee equal to 11/24 of 1% of  month-end  Net Assets  allocated  to the

                                       3
<PAGE>

Advisors (5.5% per year) in lieu of brokerage  commissions on a per trade basis.
Persons investing $1,000,000 or more will pay a reduced brokerage fee of 7/24 of
1% of month-end Net Assets (3.5% per year),  receiving the differential  between
this reduced fee and 5.5% per year in the form of additional  Units.  SSB pays a
portion of its brokerage fees to its financial  consultants  who have sold Units
and who are registered as associated  persons with the Commodity Futures Trading
Commission (the "CFTC").  The Partnership pays for National Futures  Association
("NFA")  fees,  exchange  and  clearing  fees,  give-up  and user fees and floor
brokerage fees. The Customer Agreement between the Partnership and SSB gives the
Partnership the legal right to net unrealized  gains and losses.  Brokerage fees
will be paid for the life of the  Partnership,  although  the rate at which such
fees are paid may be changed.
         In addition,  SSB pays the  Partnership  interest on 80% of the average
daily  equity  maintained  in cash in its account  during each month at a 30-day
U.S.  Treasury  bill  rate  determined  weekly  by  SSB  based  on  the  average
non-competitive  yield on 3-month U.S.  Treasury  bills maturing in 30 days from
the date on which such weekly rate is determined.
         (b) Financial  information about industry  segments.  The Partnership's
business  consists  of  only  one  segment,  speculative  trading  of  commodity
interests.  The Partnership  does not engage in sales of goods or services.  The
Partnership's net income (loss) from operations for the years ended December 31,
1998, 1997, 1996 and 1995 and for the period from January 12, 1994 (commencement

                                       4
<PAGE>

of trading operations) to December 31, 1994 is set forth under "Item 6. Selected
Financial  Data".   The  Partnership   capital  as  of  December  31,  1998  was
$143,904,261.
         (c)  Narrative  description  of business.  See  Paragraphs  (a) and (b)
              above.
              (i) through (x) - Not applicable.
              (xi) through (xii) - Not applicable.
              (xiii) - The Partnership has no employees.
         (d) Financial  Information  About Foreign and Domestic  Operations  and
Export Sales. The Partnership does not engage in sales of goods or services, and
therefore this item is not applicable.
Item 2.  Properties.
         The  Partnership  does not own or lease  any  properties.  The  General
Partner operates out of facilities provided by its affiliate, SSB.
Item 3.  Legal Proceedings.
       Thereare no material legal proceedings pending against the Partnership or
the General Partner.  
       This section describes the major legal  proceedings,  other than ordinary
routine litigation incidental to the business, to which SSBH, the parent company
of this General Partner or its  subsidiaries is a party or to which any of their
property is subject.
              In September  1992,  Harris Trust and Savings Bank (as trustee for
Ameritech  Pension  Trust  ("APT"),  Ameritech  Corporation,  and an  officer of

                                       5
<PAGE>

Ameritech filed suit against Salomon  Brothers Inc. ("SBI") and Salomon Brothers
Realty Corporation ("SBRC") in the U.S. District Court for the Northern District
of Illinois  (Harris Trust Savings Bank, not  individually but solely as trustee
for the Ameritech Pension Trust,  Ameritech Corporation and John A. Edwardson v.
Salomon  Brothers Inc and Salomon  Brothers  Realty  Corp.).  The second amended
complaint  alleges that three purchases by APT from defendants of  participation
interests  in net cash flow or resale  proceeds  of three  portfolios  of motels
owned by Motels of America, Inc. ("MOA"), as well as a fourth purchase by APT of
a similar participation  interest with respect to a portfolio of motels owned by
Best Inns, Inc. ("Best"),  violated the Employee  Retirement Income Security Act
("ERISA"),  and that the purchase of the  participation  interests for the third
MOA portfolio and for the Best portfolio  violated the Racketeer  Influenced and
Corrupt   Organization  Act  ("RICO")  and  state  law.  SBI  had  acquired  the
participation  interests  in  transactions  in which it  purchased  as principal
mortgage notes issued by MOA and Best to finance  purchases of motel portfolios;
95% of three such  interests  and 100% of one such interest were sold to APT for
purchase prices  aggregating  approximately  $20.9 million.  Plaintiffs'  second
amended complaint seeks (a) judgment on the ERISA claims for the purchase prices
of  the  four  participation   interests   (approximately  $20.9  million),  for
rescission and for  disgorgement  of profits,  as well as other relief,  and (b)
judgment on the claims  brought  under RICO and state law in the amount of $12.3
million,  with  damages  trebled to $37 million on the RICO claims and  punitive

                                       6
<PAGE>

damages  in excess of $37  million on certain of the state law claims as well as
other  relief.  The court  dismissed  the RICO,  breach of contract,  and unjust
enrichment  claims.  The court also found that  defendants did not qualify as an
ERISA  fiduciary and dismissed the claims based on that  allegation.  Defendants
moved for summary  judgment on the sole remaining  claim. The motion was denied,
and defendants  appealed to the U.S.  Court of Appeals for the Seventh  Circuit.
Defendants are awaiting a decision.
              Both the Department of Labor and the Internal Revenue Service have
advised  SBI that  they  were or are  reviewing  the  transactions  in which APT
acquired  such  participation  interests.  With respect to the Internal  Revenue
Service review,  SSBH, SBI and SBRC have consented to extensions of time for the
assessment  of excise  taxes that may be  claimed to be due with  respect to the
transactions  for the years 1987,  1988 and 1989.  In August 1996,  the IRS sent
SSBH,  SBI and SBRC what appeared to be draft  "30-day  letters" with respect to
the  transactions and SSBH, SBI and SBRC were given an opportunity to comment on
whether the IRS should issue 30-day letters,  which would actually  commence the
assessment  process.  In October 1996, SSBH, SBI and SBRC submitted a memorandum
setting forth  reasons why the IRS should not issue 30-day  letters with respect
to the transactions.
              In December 1996, a complaint seeking unspecified monetary damages
was  filed by  Orange  County,  California  against  numerous  brokerage  firms,

                                       7
<PAGE>

including Smith Barney, in the U.S. Bankruptcy Court for the Central District of
California  (County  of  Orange  et al. v.  Bear  Stearns  & Co.  Inc.  et al.).
Plaintiff alleges,  among other things, that defendants  recommended and sold to
plaintiff  unsuitable  securities  and that such  transactions  were outside the
scope of  plaintiff's  statutory and  constitutional  authority  (ultra  vires).
Defendants'  motion for summary  judgment  was granted with respect to the ultra
vires  claims in  February  1999.  The court  allowed  the  filing of an amended
complaint asserting claims based on alleged breaches of fiduciary duty.
             In June  1998, complaints were filed in the U.S. District Court for
the Eastern District of Louisiana in two actions (Board  of  Liquidations, City 
Debt of the City of New Orleans v. Smith Barney Inc. et ano. and The City of New
Orleans v. Smith Barney Inc. et ano.),  in which the City of New Orleans seeks a
declaratory  judgment  that  Smith  Barney  Inc.  and  another  underwriter  are
responsible  for any damages  that the City may incur in the event the  Internal
Revenue  Service  denies tax  exempt  status to the  City's  General  Obligation
Refunding  Bonds  Series  1991.  The  Company  filed a  motion  to  dismiss  the
complaints in September 1998, and the complaints were subsequently  amended. The
Company has filed a motion to dismiss the amended complaints.
              In November 1998, a purported class action  complaint was filed in
the United  States  District  Court for the Middle  District of Florida  (Dwight
Brock as Clerk for Collier  County v.  Merrill  Lynch,  et al.).  The  complaint
alleges that, pursuant to a nationwide conspiracy,  17 broker-dealer defendants,

                                       8
<PAGE>

including SSB, charged excessive  mark-ups in connection with advanced refunding
transactions.   The  Company  intends  to  contest  this  complaint  vigorously.
Environmental Matters
         In July  1996,  the City and  County of Denver  ("Denver")  enacted  an
ordinance   imposing   a   substantial   fee  on  any   radioactive   waste   or
radium-contaminated  material  disposed  of in the City of  Denver.  Under  this
ordinance,  Denver assessed a subsidiary of Salomon,  the S.W. Shattuck Chemical
Company, Inc.  ("Shattuck"),  $9.35 million for certain disposal already carried
out. Shattuck sued to enjoin  imposition of the fee on  constitutional  grounds.
The  United  States  also  sued,  seeking  to  enjoin  imposition  of the fee on
constitutional  grounds.  Denver  counterclaimed  and  moved  to add  SSBH  as a
defendant  for past costs.  These cases have been  consolidated  before the U.S.
District Court in Colorado,  which granted  Shattuck's  motion for a preliminary
injunction  enjoining Denver from enforcing the ordinance during the pendency of
the litigation. The parties have reached a settlement.
         The Company and various subsidiaries have also been named as defendants
in various  matters  incident to and typical of the businesses in which they are
engaged. These include numerous civil actions, arbitration proceedings and other
matters  in which the  Company's  broker-dealer  subsidiaries  have been  named,
arising in the  normal  course of  business  out of  activities  as a broker and
dealer in securities,  as an underwriter of securities,  as an investment banker
or otherwise. In the opinion of the Company's management,  none of these actions

                                       9
<PAGE>

is  expected to have a material  adverse  effect on the  consolidated  financial
condition of the Company and its subsidiaries.  
Item 4. Submission of Matters to a Vote of Security Holders.
         There were no matters  submitted  to the  security  holders  for a vote
during the last fiscal year covered by this report.
                                     PART II
Item 5.  Market  for  Registrant's  Common  Equity  and  Related Security Holder
         Matters.
         (a)  Market Information.  The Partnership has issued no stock. There is
              no   established   public   market   for  the  Units  of   Limited
              Partnership Interest.
         (b)  Holders.  The number of holders of Units of Limited  Partnership 
              Interest as of December 31, 1998  was 6,072.
         (c)  Distribution.  The Partnership did not declare a distribution in  
              1998 or 1997.

                                       10
<PAGE>


Item 6. Selected Financial Data. The Partnership commenced trading operations on
January 12, 1994.  Realized and  unrealized  trading  gains  (losses),  interest
income,  net income  (loss) and increase  (decrease) in net asset value per Unit
for the years ended  December 31, 1998,  1997,  1996 and 1995 and for the period
from January 12, 1994 (commencement of trading  operations) to December 31, 1994
and  total  assets at  December  31,  1998,  1997,  1996,  1995 and 1994 were as
follows:

<TABLE>
<CAPTION>
                                                1998            1997            1996           1995            1994
                                        -------------   -------------   -------------   ------------   ------------
<S>                                        <C>              <C>               <C>             <C>         <C>

Realized and unrealized trading
 gains net of brokerage commissions
 and clearing fees of $8,540,127,
 $9,893,999, $10,754,060, $11,751,508
 and $9,866,501, respectively           $  11,635,004   $   5,083,043   $  23,283,977   $ 23,528,907   $   1,167,729

Interest income                             5,203,988       6,331,875       6,631,110   8 ,077,695         5,227,466
                                        -------------   -------------   -------------   ------------   -------------

                                        $  16,838,992   $  11,414,918   $  29,915,087   $ 31,606,602   $   6,395,195
                                        =============   =============   =============   ============   =============

Net income (loss)                       $   9,913,148   $   5,525,809   $  21,056,614   $ 22,177,218   $  (2,229,371)
                                        =============   =============   =============   ============   =============

Increase (decrease) in net
 asset value per unit                   $       99.32   $       48.07   $      158.70   $     124.60   $      (32.94)
                                        =============   =============   =============   ============   =============


Total assets                            $ 146,464,780   $ 154,556,541   $ 178,462,215   $201,319,665   $ 186,365,419
                                        =============   =============   =============   ============   =============
</TABLE>

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<PAGE>



Item 7.  Management's Discussion and Analysis of Financial Condition and Results
               of Operations.
         (a)  Liquidity.  The  Partnership  does not engage in sales of goods or
services.  Its only  assets  are its  equity in its  commodity  futures  trading
account,  consisting of cash and cash equivalents,  net unrealized  appreciation
(depreciation) on open futures contracts and interest receivable. Because of the
low margin deposits normally  required in commodity futures trading,  relatively
small price movements may result in substantial losses to the Partnership.  Such
substantial  losses could lead to a material decrease in liquidity.  To minimize
this risk, the Partnership will follow certain policies including:
         (1) Partnership  funds are invested only in futures contracts which are
traded in sufficient volume to permit,  in the opinion of the Advisors,  ease of
taking and liquidating positions.
         (2)  The   Partnership   diversifies   its   positions   among  various
commodities.
         (3) No Advisor initiates  additional positions in any commodity if such
additional  positions  would result in aggregate  positions for all  commodities
requiring as margin more than 66-2/3% of the  Partnership's  assets allocated to
the Advisor.
         (4) The  Partnership may  occasionally  accept delivery of a commodity.
Unless such  delivery is disposed  of  promptly  by  retendering  the  warehouse
receipt  representing  the  delivery  to the  appropriate  clearing  house,  the
physical commodity position will be fully hedged.

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<PAGE>


       (5) The Partnership does not employ the trading technique  commonly known
as  "pyramiding",  in which the speculator uses  unrealized  profits on existing
positions as margin for the purchase or sale of additional positions in the same
or related commodities.
       (6)  The  Partnership  does  not  utilize  borrowings  except  short-term
borrowings if the Partnership takes delivery of any cash commodities.
       (7) The Advisor may, from time to time, employ trading strategies such as
spreads  or  straddles  on  behalf  of the  Partnership.  The term  "spread"  or
straddle"   describes  a  commodity  futures  trading  strategy   involving  the
simultaneous  buying and selling of futures  contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference  between the prices
of the two contracts.
         The  Partnership  is party to financial  instruments  with  off-balance
sheet risk, including derivative financial  instruments and derivative commodity
instruments,  in the normal course of its business.  These financial instruments
include forwards,  futures and options,  whose value is based upon an underlying
asset,  index, or reference rate, and generally  represent future commitments to
exchange  currencies  or cash  flows,  or to  purchase  or sell other  financial
instruments  at  specified  terms  at  specified  future  dates.  Each of  these
instruments  is subject  to  various  risks  similar  to those  relating  to the
underlying financial  instruments  including market and credit risk. The General

                                       13
<PAGE>

Partner monitors and controls the  Partnership's  risk exposure on a daily basis
through   financial,   credit  and  risk  management   monitoring  systems  and,
accordingly  believes  that  it has  effective  procedures  for  evaluating  and
limiting the credit and market risks to which the  Partnership is subject.  (See
also  Item  8.  Financial   Statements  and  Supplementary  Data.,  for  further
information  on  financial  instrument  risk  included in the notes to financial
statements.)
         Other  than the  risks  inherent  in  commodity  futures  trading,  the
Partnership knows of no trends,  demands,  commitments,  events or uncertainties
which  will  result  in  or  which  are  reasonably  likely  to  result  in  the
Partnership's  liquidity  increasing  or  decreasing  in any  material  way. The
Limited  Partnership  Agreement  provides  that the General  Partner may, at its
discretion,  cause the Partnership to cease trading operations and liquidate all
open positions upon the first to occur of the following:  (i) December 31, 2013;
(ii) the vote to dissolve the  Partnership by limited  partners owning more than
50% of the Units; (iii) assignment by the General Partner of all of its interest
in the  Partnership or withdrawal,  removal,  bankruptcy or any other event that
causes the General  Partner to cease to be a general  partner under the New York
Revised Limited Partnership Act unless the Partnership is continued as described
in the  Limited  Partnership  Agreement;  (iv) Net Asset Value per Unit falls to
less than $400 as of the end of any trading  day; or (v) the  occurrence  of any
event which shall make it unlawful for the  existence of the  Partnership  to be
continued.

                                       14
<PAGE>


         (b)  Capital  resources.  (i) The  Partnership  has  made  no  material
commitments for capital expenditures.
             (ii)   The   Partnership's   capital   consists   of  the   capital
contributions  of the  partners as  increased or decreased by gains or losses on
commodity trading,  and by expenses,  interest income,  redemptions of Units and
distributions of profits,  if any. Gains or losses on commodity  futures trading
cannot be predicted.  Market moves in commodities are dependent upon fundamental
and technical  factors which the Partnership may or may not be able to identify.
Partnership   expenses  will  consist  of,  among  other  things,   commissions,
management  fees and incentive  fees.  The level of these  expenses is dependent
upon the level of trading and the ability of the  Advisors to identify  and take
advantage of price movements in the commodity markets,  in addition to the level
of net assets maintained.  In addition, the amount of interest income payable by
SSB is dependent upon interest rates over which the Partnership has no control.
         No  forecast  can be made as to the level of  redemptions  in any given
period. Beginning on April 1, 1994, a Limited Partner may cause all of his Units
to be redeemed by the  Partnership at the net Asset Value thereof as of the last
day of each month on ten days'  written  notice to the General  Partner.  No fee
will be  charged  for  redemptions.  For  the  year  ended  December  31,  1998,
13,724.6661  Units  were  redeemed  totaling  $17,507,358.  For the  year  ended
December 31, 1997, 20,899.0206 Units were redeemed totaling $26,060,110. For the
year  ended  December  31,  1996,   42,559.6065  Units  were  redeemed  totaling
$45,695,264.

                                       15
<PAGE>

         The  Partnership  ceased  to  offer  Units  effective  April  1,  1996.
Additional sales of 90.7211 Units totaling $117,210 for the year ending December
31, 1998 and 256.5390 Units totaling  $328,301 for the year ending  December 31,
1997,  represent additional Units offered as a reduced brokerage fee to existing
limited partners  investing  $1,000,000 or more. For the year ended December 31,
1996, there were additional sales of 1,905.2800 Units totaling $2,035,483.
         (c) Results of Operations.
             For  the  year  ended   December 31, 1998, the net asset value per
Unit increased 7.6% from $1,298.43 to $1,397.75. For the year ended December 31,
1997,  the net asset value per Unit  increased 3.8% from $1,250.36 to $1,298.43.
For the year ended  December  31, 1996,  the net asset value per Unit  increased
14.5% from $1,091.66 to $1,250.36.
             The Partnership experienced net trading gains of $20,175,131 before
commissions  and  expenses in 1998.  Gains were  primarily  attributable  to the
trading of  commodity  futures in U.S.  and non- U.S.  interest  rates,  energy,
livestock,  grains and currencies were partially offset by losses  recognized in
the trading of indices, softs and metals.
         The  Partnership  experienced  net trading gains of  $14,977,042 before
commissions  and  expenses  for  the  year ended  December 31, 1997.  Gains were
primarily  attributable  to  the  trading  of  commodity  futures in currencies,

                                       16
<PAGE>

indices, metals, softs and U. S. and non-U.S.  interest rates and were partially
offset by losses recognized in the trading of energy, grains and livestock.
             The Partnership experienced net trading gains of $34,038,037 before
commissions and expenses in 1996. These gains were primarily attributable to the
trading of U.S. and  non-U.S.  interest  rates,  metals,  currencies  and energy
commodity futures. These gains were partially offset by losses recognized in the
trading of indices and agricultural products.
             Commodity   futures  markets  are  highly  volatile.   Broad  price
fluctuations  and rapid  inflation  increase  the risks  involved  in  commodity
trading,  but also increase the possibility of profit.  The profitability of the
Partnership  depends on the  existence  of major price trends and the ability of
the  Advisors  to  identify  those  price  trends  correctly.  Price  trends are
influenced  by, among other things,  changing  supply and demand  relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates.  To the extent  that market  trends  exist and the  Advisors  are able to
identify them, the Partnership expects to increase capital through operations.
         (d)      Operational Risk
                  The  Company is  directly  exposed  to market  risk and credit
risk, which arise in the normal course of its business activities. Slightly less
direct, but of critical importance, are risks pertaining to operational and back
office  support.  This is  particularly  the  case  in a  rapidly  changing  and
increasingly  global  environment  with  increasing  transaction  volumes and an

                                       17
<PAGE>

expansion  in  the  number  and  complexity  of  products  in  the  marketplace.
Such risks include:
Operational/Settlement  Risk - the risk of financial  and  opportunity  loss and
legal liability attributable to operational problems, such as inaccurate pricing
of transactions,  untimely trade execution,  clearance and/or settlement, or the
inability to process  large volumes of  transactions.  The Company is subject to
increased  risks with  respect to its  trading  activities  in  emerging  market
securities,  where clearance,  settlement, and custodial risks are often greater
than  in  more  established  markets. 
Technological  Risk  -  the   risk   of   loss  attributable  to  technological
limitations or hardware failure that constrain the Company's  ability to gather,
process,  and  communicate   information   efficiently  and  securely,   without
interruption, with customers, among units within the Company, and in the markets
where the Company participates. 
Legal/Documentation  Risk  -  the  risk of loss attributable to deficiencies in
the  documentation of transactions  (such as trade  confirmations)  and customer
relationships  (such as master  netting  agreements)  or errors  that  result in
noncompliance with applicable legal and regulatory requirements.
Financial   Control  Risk  -  the risk of loss  attributable  to limitations in
financial  systems and controls.  Strong  financial  systems and controls ensure
that assets are safeguarded,  that  transactions are executed in accordance with
management's   authorization,   and  that  financial   information  utilized  by

                                       18
<PAGE>


management  and  communicated  to  external  parties,  including  the  Company's
stockholder,  creditors,  and regulators,  is free of material  errors. 
Risk of Computer System Failure (Year 2000 Issue)
                  The Year 2000 issue is the  result of  existing  computers  in
many  businesses  using  only two digits to  identify a year in the date  field.
These  computers and programs,  often referred to as  "information  technology,"
were  designed  and  developed  without  considering  the impact of the upcoming
change in the century. If not corrected,  many computer  applications could fail
or create  erroneous  results at the Year 2000.  Such systems and  processes are
dependent on correctly identifying dates in the next century.
                  The  General   Partner   administers   the   business  of  the
Partnership through various systems and processes maintained by SSBH and SSB. In
addition, the operation of the Partnership is dependent on the capability of the
Partnership's  Advisors,  the brokers and  exchanges  through which the Advisors
trade, and other third parties to prepare adequately for the Year 2000 impact on
their  systems  and  processes.   The  Partnership  itself  has  no  systems  or
information technology applications relevant to its operations.
                  The General Partner,  SSB, SSBH and their parent  organization
Citigroup Inc. have  undertaken a  comprehensive,  firm-wide  evaluation of both
internal and external  systems  (systems  related to third parties) to determine
the  specific  modifications  needed to prepare for the year 2000.  The combined
Year 2000 program in SSB is expected to cost approximately $140 million over the

                                       19
<PAGE>

four years  from 1996  through  1999,  and  involve  over 450 people at the peak
staffing level. SSB expects to complete all compliance and certification work by
June 1999. At this time,  over 95% of SSBH systems have completed the correction
process  and are Year 2000  compliant.  Over 73% of the systems  have  completed
certification testing. The Year 2000 project at SSBH remains on schedule.
                  The systems and components  supporting  the General  Partner's
business that require  remediation have been identified and  modifications  have
been made to bring them into Year 2000 compliance.  Testing of these systems was
completed in the fourth  quarter of 1998.  Final testing and  certification  are
expected to be completed by the end of the first quarter of 1999.
                  This    expenditure  and  the  General   Partner's   resources
dedicated to the preparation for Year  2000 do not and will  not have a material
impact on the operation or results of the Partnership.
                  The General Partner has requested and received statements from
the Advisors that each has undertaken its own evaluation and  remediation  plans
to identify any of its  computer  systems  that are Year 2000  vulnerable.  Each
Advisor has confirmed it is taking immediate  actions to remedy those systems as
necessary. The General Partner will continue to inquire into and to confirm each
Advisor's readiness for Year 2000.
                  The most likely and most  significant  risk to the Partnership
associated  with the lack of Year  2000  readiness  is the  failure  of  outside
organizations,  including the commodities exchanges, clearing organizations,  or

                                       20
<PAGE>

regulators  with which the  Partnership  interacts  to  resolve  their Year 2000
issues in a timely  manner.  This risk could  involve the inability to determine
the value of the  Partnership  at some  point in time and would  make  effecting
purchases  or  redemptions  of Units in the  Partnership  infeasible  until such
valuation was determinable.
                  SSB has  successfully  participated in  industry-wide  testing
including:  The Streetwide  Beta Testing  organized by the  Securities  Industry
Association  (SIA),  a  government  securities  clearing  test with the  Federal
Reserve Bank of New York,  The  Depository  Trust  Company,  and The Bank of new
York,  and Futures  Industry  Association  participants  test.  The firm is also
participating in the streetwide testing which commenced in March 1999.
                  It is possible that problems may occur that would require some
time to repair.  Moreover,  it is possible that problems will occur outside SSBH
for which  SSBH could  experience  a  secondary  effect.  Consequently,  SSBH is
preparing   comprehensive,   written   contingency  plans  so  that  alternative
procedures  and a  framework  for  critical  decisions  are  defined  before any
potential crisis occurs.
                    The  goal  of Year  2000  contingency  planning  is a set of
alternate  procedures to be used in the event of a critical  system failure or a
failure by a supplier or  counterparty.  Planning work was completed in December
1998, and testing of alternative  procedures will be conducted in the first half
of 1999. 
European  Economic and Monetary Union  
European  Economic and Monetary Union  ("EMU") is an  historic  event in Europe 

                                       21
<PAGE>

involving  the   unification  of currency in eleven  major  countries.  The new
unified currency, called the Euro, is expected to compete on a global scale with
the U.S. Dollar and the Japanese Yen.  Introduction of the Euro began on January
1, 1999,  when the European  Central Bank assumed control of the monetary policy
for participating  nations.Exchange  rates between the  participating  countries
were fixed and the Euro is available for electronic payments. Also on January 1,
1999,  various  issuers  re-denominated  their  securities and  harmonized  bond
payment  conventions.  A three-year  transition period began on January 1, 1999,
after which Euro notes and coins will be issued by the European Central Bank and
national currencies
will be phased out.
                  The Company completed a successful  conversion to the Euro and
has  commenced  trading  and  settlement  in the  new  currency  with  no  major
exceptions.
                  As the preceding  risks are largely  interrelated,  so are the
Company's   actions  to  mitigate  and  manage   them.   The   Company's   Chief
Administrative  Officer is  responsible  for,  among other things,  oversight of
global  operations and technology.  An essential element in mitigating the risks
noted above is the  optimization  of  information  technology and the ability to
manage  and   implement   change.   To  be  an   effective   competitor   in  an
information-driven  business of a global  nature  requires  the  development  of
global  systems and  databases  that ensure  increased and more timely access to
reliable data.

                                       22
<PAGE>

         (e)      New Accounting Pronouncements
         In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative  Instruments and Hedging Activities ("SFAS 133"). SFAS
133  requires  that an entity  recognize  all  derivatives  in the  statement of
financial  condition and measure those  instruments  at fair value.  SFAS 133 is
effective for fiscal year beginning  after June 15, 1999 SFAS 133 is expected to
have no material  impact on the financial  statements of the  Partnership as all
commodity interests are recorded at fair value, with changes therein reported in
the  statement of income and expenses.  

Item 7A.  Quantitative  and  Qualitative  Disclosures  About  Market Risk 
Introduction
         The Partnership is a speculative  commodity pool. The market  sensitive
instruments held by it are acquired for speculative trading purposes, and all or
substantially all of the Partnership's assets are subject to the risk of trading
loss. Unlike an operating company,  the risk of market sensitive  instruments is
integral, not incidental, to the Partnership's main line of business.
         Market movements result in frequent changes in the fair market value of
the  Partnership's  open positions and,  consequently,  in its earnings and cash
flow. The Partnership's  market risk is influenced by a wide variety of factors,
including the level and volatility of interest  rates,  exchange  rates,  equity
price  levels,  the market value of financial  instruments  and  contracts,  the

                                       23
<PAGE>


diversification effects among the Partnership's open positions and the liquidity
of the markets in which it trades.
         The  Partnership  rapidly  acquires and liquidates  both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance,  and
the Partnership's  past performance is not necessarily  indicative of its future
results.
         Value at Risk is a measure of the maximum amount which the  Partnership
could  reasonably  be expected to lose in a given market  sector.  However,  the
inherent uncertainty of the Partnership's speculative trading and the recurrence
in the markets  traded by the  Partnership  of market  movements  far  exceeding
expectations could result in actual trading or non-trading losses far beyond the
indicated Value at Risk or the Partnership's  experience to date (i.e., "risk of
ruin").  In  light  of the  foregoing  as well as the  risks  and  uncertainties
intrinsic  to all  future  projections,  the  inclusion  of  the  quantification
included in this section should not be considered to constitute any assurance or
representation  that the  Partnership's  losses  in any  market  sector  will be
limited to Value at Risk or by the  Partnership's  attempts to manage its market
risk. Quantifying the Partnership's Trading Value at Risk
                  The   following   quantitative   disclosures   regarding   the
Partnership's market risk exposures contain "forward-looking  statements" within
the meaning of the safe harbor from civil liability provided for such statements
by the Private  Securities  Litigation  Reform Act of 1995 (set forth in Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act

                                       24
<PAGE>


of  1934).  All  quantitative  disclosures  in this  section  are  deemed  to be
forward-looking statements for purposes of the safe harbor except for statements
of historical fact (such as the terms of particular  contracts and the number of
market risk  sensitive  instruments  held during or at the end of the  reporting
period).
         The Partnership's risk exposure in the various market sectors traded by
the  Advisors  is  quantified  below in  terms  of  Value  at  Risk.  Due to the
Partnership's  mark-to-market  accounting,  any  loss in the  fair  value of the
Partnership's open positions is directly reflected in the Partnership's earnings
(realized or unrealized).
         Exchange   maintenance  margin  requirements  have  been  used  by  the
Partnership as the measure of its Value at Risk. Maintenance margin requirements
are set by exchanges to equal or exceed the maximum losses  reasonably  expected
to be incurred in the fair value of any given contract in 95%-99% of any one-day
intervals.  The  maintenance  margin  levels  are  established  by  dealers  and
exchanges  using  historical  price  studies as well as an assessment of current
market  volatility  (including the implied  volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic  estimate
of the maximum expected near-term one-day price fluctuation.  Maintenance margin
has been used rather than the more generally  available initial margin,  because
initial margin  includes a credit risk component  which is not relevant to Value
at Risk.
         In the case of market  sensitive  instruments  which  are not  exchange
traded  (almost  exclusively  currencies  in the case of the  Partnership),  the

                                       25
<PAGE>

margin requirements for the equivalent futures positions have been used as Value
at  Risk.  In those  rare  cases in  which a  futures-equivalent  margin  is not
available, dealers' margins have been used.
         The fair value of the Partnership's  futures and forward positions does
not have any  optionality  component.  However,  certain of the  Advisors  trade
commodity options. The Value at Risk associated with options is reflected in the
following  table  as the  margin  requirement  attributable  to  the  instrument
underlying each option. Where this instrument is a futures contract, the futures
margin,   and   where   this   instrument   is   a   physical   commodity,   the
futures-equivalent  maintenance  margin  has  been  used.  This  calculation  is
conservative in that it assumes that the fair value of an option will decline by
the same  amount as the fair value of the  underlying  instrument,  whereas,  in
fact,  the fair values of the options  traded by the  Partnership  in almost all
cases fluctuate to a lesser extent than those of the underlying instruments.
         In  quantifying  the   Partnership's   Value  at  Risk,  100%  positive
correlation  in the  different  positions  held in each market risk category has
been  assumed.  Consequently,  the margin  requirements  applicable  to the open
contracts have simply been added to determine each trading category's  aggregate
Value at Risk.  The  diversification  effects  resulting  from the fact that the
Partnership's positions are rarely, if ever, 100% positively correlated have not
been  reflected.

                                       26
<PAGE>


The  Partnership's  Trading Value at Risk in Different  Market Sectors
         The following table indicates the trading Value at Risk associated with
the Partnership's open positions by market category as of December 31, 1998. All
open position  trading risk exposures of the  Partnership  have been included in
calculating  the  figures  set  forth  below.  As  of  December  31,  1998,  the
Partnership's total capitalization was approximately $143,904,261.

                                 December 31, 1998
                                             % of Total
Market Sector              Value at Risk   Capitalization


Currencies
-OTC Contracts               $ 2,036,442      1.41%
-Exchange Traded Contracts       210,542      0.15%
Energy                         1,400,100      0.97%
Grains                           538,800      0.37%
Interest rate U.S.               961,640      0.67%
Interest rate Non-U.S          5,454,576      3.79%
Livestock                         21,674      0.02%
Metals                         1,393,950      0.97%
Softs                            933,802      0.65%
Indices                        1,220,543      0.85%
                             -----------   ---------

Total                        $14,172,069      9.85%
                             ===========   ========

Material Limitations on Value at Risk as an Assessment of Market Risk
         The face value of the market sector instruments held by the Partnership
is typically many times the applicable margin requirement  (margin  requirements
generally  range  between  2% and 15% of  contract  face  value)  as well as the
capitalization  of the  Partnership.  The  magnitude of the  Partnership's  open
positions  creates a "risk of ruin" not typically found in most other investment

                                       27
<PAGE>

vehicles.  Because of the size of its positions,  certain  market  conditions --
unusual,  but  historically  recurring  from  time to time --  could  cause  the
Partnership  to incur severe  losses over a short period of time.  The foregoing
Value at Risk table -- as well as the past  performance  of the  Partnership  --
give no indication of this "risk of ruin."
Non-Trading Risk
         The  Partnership  has  non-trading  market  risk  on its  foreign  cash
balances not needed for margin.  However,  these balances (as well as any market
risk they represent) are immaterial.
         Materiality  as used in this  section,  "Qualitative  and  Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements,  taking into
account the leverage,  optionality and multiplier  features of the Partnership's
market sensitive instruments.  
Qualitative Disclosures Regarding Primary Trading Risk Exposures
         The  following  qualitative  disclosures  regarding  the  Partnership's
market risk exposures - except for (i) those  disclosures that are statements of
historical fact and (ii) the  descriptions  of how the  Partnership  manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the  Securities  Act and Section 21E of the Securities
Exchange Act. The  Partnership's  primary  market risk  exposures as well as the
strategies  used and to be used by the  General  Partner  and the  Advisors  for
managing such exposures are subject to numerous uncertainties, contingencies and
risks, any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government

                                       28
<PAGE>

interventions,  defaults and expropriations,  illiquid markets, the emergence of
dominant fundamental factors,  political upheavals,  changes in historical price
relationships,  an influx of new market  participants,  increased regulation and
many  other  factors  could  result in  material  losses as well as in  material
changes to the risk exposures and the management  strategies of the Partnership.
There can be no assurance that the Partnership's  current market exposure and/or
risk  management  strategies  will  not  change  materially  or  that  any  such
strategies will be effective in either the short- or long- term. Investors must 
be prepared  to  lose  all  or  substantially  all  of  their investment in the 
Partnership
         The  following   were  the  primary   trading  risk  exposures  of  the
Partnership as of December 31, 1998, by market sector.
         Interest Rates.  Interest rate risk is the principal market exposure of
the  Partnership.  Interest  rate  movements  directly  affect  the price of the
futures  positions held by the Partnership and indirectly the value of its stock
index and currency positions.  Interest rate movements in one country as well as
relative  interest  rate  movements  between  countries  materially  impact  the
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate  fluctuations in the United States and the other G-7 countries.
However,  the Partnership also takes futures positions on the government debt of
smaller nations -- e.g.,  Australia.  The General Partner  anticipates  that G-7

                                       29
<PAGE>

interest rates will remain the primary market  exposure of the  Partnership  for
the foreseeable future. The changes in interest rates which have the most effect
on the  Partnership are changes in long-term,  as opposed to short-term,  rates.
Consequently,  even a material  change in  short-term  rates  would have  little
effect on the Partnership were the medium- to long-term rates to remain steady.
         Currencies.  The  Partnership's  currency  exposure is to exchange rate
fluctuations,  primarily  fluctuations  which  disrupt  the  historical  pricing
relationships   between   different   currencies  and  currency   pairs.   These
fluctuations  are  influenced  by interest rate changes as well as political and
general  economic  conditions.  The General Partner does not anticipate that the
risk profile of the Partnership's  currency sector will change  significantly in
the future,  although it is difficult at this point to predict the effect of the
introduction  of the Euro on the  Advisors'  currency  trading  strategies.  The
currency trading Value at Risk figure includes foreign margin amounts  converted
into U.S.  dollars with an  incremental  adjustment to reflect the exchange rate
risk inherent to the  dollar-based  Partnership in expressing Value at Risk in a
functional currency other than dollars.
         Stock Indices.  The Partnership's  primary equity exposure is to equity
price  risk  in the  G-7  countries.  The  stock  index  futures  traded  by the
Partnership  are by law  limited  to futures on  broadly  based  indices.  As of
December 31, 1998,  the  Partnership's  primary  exposures  were in the S&P 500,
Financial  Times  (England),  Nikkei  (Japan)  and Hang Seng (Hong  Kong)  stock
indices.  The General Partner  anticipates  little,  if any,  trading in non-G-7

                                       30
<PAGE>

stock indices. The Partnership is primarily exposed to the risk of adverse price
trends or static  markets in the major  U.S.,  European  and  Japanese  indices.
(Static markets would not cause major market changes but would make it difficult
for the Partnership to avoid being "whipsawed" into numerous small losses.)
         Metals.   The  Partnership's   primary  metal  market  exposure  is  to
fluctuations in the price of gold and silver.  Although  certain of the Advisors
will from time to time  trade base  metals  such as  aluminum  and  copper,  the
principal  market  exposures of the Partnership  have  consistently  been in the
precious  metals,   gold  and  silver.  The  Advisors'  gold  trading  has  been
increasingly  limited due to the long-lasting and mainly non-volatile decline in
the  price of gold  over the last  10-15  years.  However,  silver  prices  have
remained  volatile  over this period,  and the  Advisors  have from time to time
taken  substantial  positions as they have  perceived  market  opportunities  to
develop.  The General Partner  anticipates  that gold and silver will remain the
primary metals market exposure for the Partnership.
         Commodities.  The  Partnership's  primary  commodities  exposure  is to
agricultural  price  movements  which are often  directly  affected by severe or
unexpected weather conditions. Coffee, Cocoa, Cotton and Sugar accounted for the
substantial  bulk of the  Partnership's  commodity  exposure as of December  31,
1998.
         Energy.  The  Partnership's  primary energy market  exposure is to gas 

                                       31
<PAGE>

and oil price  movements,  often  resulting from political  developments in the
Middle East.  Oil prices are  currently  depressed,  but they  can be  volatile 
and  substantial profits and losses have been and are expected to continue to be
experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure

         The  following  were  the  only   non-trading  risk  exposures  of  the
Partnership as of December 31, 1998.
         Foreign Currency Balances.  The Partnership's  primary foreign currency
balances are in Japanese yen,  German marks,  British  pounds and French francs.
The  Advisor  regularly  converts  foreign  currency  balances  to dollars in an
attempt to control the Partnership's non-trading risk.

Qualitative Disclosures Regarding Means of Managing Risk Exposure.
         The General  Partner  monitors the  Partnership's  performance  and the
concentration of its open positions,  and consults with the Advisors  concerning
the Partnership's overall risk profile. If the General Partner felt it necessary
to do so, the General Partner could require certain of the Advisors to close out
individual  positions  as  well  as  enter  programs  traded  on  behalf  of the
Partnership. However, any such intervention would be a highly unusual event. The
General  Partner  primarily  relies on the Advisors'  own risk control  policies
while maintaining a general  supervisory  overview of the  Partnership's  market
risk exposures.
         Each Advisor applies its own risk  management  policies to its trading.

                                       32
<PAGE>

The Advisors  often follow  diversification  guidelines,  margin limits and stop
loss points to exit a position.  The Advisors' research of risk management often
suggests ongoing modifications to their trading programs.
         As part of the General  Partner's risk management,  the General Partner
periodically  meets with the Advisors to discuss  their risk  management  and to
look for any material  changes to the  Advisors'  portfolio  balance and trading
techniques.  The  Advisors  are  required to notify the  General  Partner of any
material changes to their programs.

                                       33


<PAGE>



Item 8.    Financial Statements and Supplementary Data.




                   SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
                          INDEX TO FINANCIAL STATEMENTS


                                                              Page
                                                             Number

       Oath or Affirmation                                    F-2

       Report of Independent Accountants.                     F-3

       Financial Statements:
       Statement of Financial Condition at
       December 31, 1998 and 1997.                            F-4

       Statement of Income and Expenses
       for the years ended December 31, 1998
       1997 and 1996.                                         F-5

       Statement of Partners' Capital for
       the years ended December 31, 1998,
       1997 and 1996.                                         F-6

       Notes to Financial Statements.                      F-7 - F-11

















                                             F-1

                                          Continued


<PAGE>

To The Limited Partners of
                                      Smith Barney
                             Diversified Futures Fund L.P.

To the best of the  knowledge  and belief of the  undersigned,  the  information
contained herein is accurate and complete.





By:  Daniel A. Dantuono, Chief Financial Officer
     Smith Barney Futures Management Inc.
     General Partner, Smith Barney
        Diversified Futures Fund L.P.

Smith Barney Futures Management Inc.
390 Greenwich Street
1st Floor
New York, N.Y.  10013
212-723-5424



                                      F-2

<PAGE>


                        Report of Independent Accountants

To the Partners of
   Smith Barney Diversified Futures Fund L.P.:

In our  opinion,  the  accompanying  statement of  financial  condition  and the
related  statements  of income and  expenses and of  partners'  capital  present
fairly,  in all  material  respects,  the  financial  position  of Smith  Barney
Diversified  Futures Fund L.P. at December 31, 1998 and 1997, and the results of
its  operations  for each of the three years in the period  ended  December  31,
1998,  in  conformity  with  generally  accepted  accounting  principles.  These
financial  statements  are the  responsibility  of the management of the General
Partner;  our  responsibility  is to  express  an  opinion  on  these  financial
statements  based on our  audits.  We  conducted  our audits of these  financial
statements  in accordance  with  generally  accepted  auditing  standards  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by the management of the General  Partner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


                                                      PricewaterhouseCoopers LLP

New York, New York
February 26, 1999

                                       F-3                     
<PAGE>


                                  Smith Barney
                          Diversified Futures Fund L.P.
                        Statement of Financial Condition
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                   1998              1997
<S>                                                 <C>               <C>
Assets:
Equity in commodity futures trading account:
   Cash (Note 3c)                              $136,910,140   $142,852,854
   Net unrealized appreciation on
   open futures contracts                         9,155,609     11,184,770
                                               ------------   ------------
                                                146,065,749    154,037,624
  Interest receivable                               399,031        518,917
                                               ------------   ------------
                                               $146,464,780   $154,556,541
                                               ------------   ------------


Liabilities and Partners' Capital:
Liabilities:
  Accrued expenses:
   Commissions                                 $    684,171   $    721,970
   Management fees                                  360,801        359,579
   Incentive fees                                   721,179        492,736
   Other                                             89,185         79,457
  Redemptions payable (Note 5)                      705,183      1,521,538
                                               ------------   ------------
                                                  2,560,519      3,175,280
                                               ------------   ------------
Partners' capital (Notes 1, 5, and 6):
  General Partner, 2,048.9308 Unit
   equivalents outstanding in 1998 and 1997       2,863,893      2,660,393
  Limited Partners, 100,905.2113 and
   114,539.1563 Units of Limited Partnership
   Interest outstanding in 1998 and
   1997, respectively                           141,040,368    148,720,868
                                               ------------   ------------
                                                143,904,261    151,381,261
                                               ------------   ------------
                                               $146,464,780   $154,556,541
                                               ============   ============
</TABLE>
                                                                   


See notes to financial statements.

                                        F-4
<PAGE>


                                  Smith Barney
                          Diversified Futures Fund L.P.
                        Statement of Income and Expenses
                               for the Years Ended
                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                     1998            1997           1996
<S>                                                <C>             <C>            <C> 

Income:
  Net gains on trading of commodity interests:
   Realized gains on closed positions        $ 22,204,292    $ 10,556,489    $ 46,225,371
   Change in unrealized gains/ losses
    on open positions                          (2,029,161)      4,420,553     (12,187,334)
                                             ------------    ------------    ------------
                                               20,175,131      14,977,042      34,038,037
  Less, Brokerage commissions including
   clearing fees of $251,241, $316,227
   and $393,877, respectively (Note 3c)        (8,540,127)     (9,893,999)    (10,754,060)
                                             ------------    ------------    ------------
  Net realized and unrealized gains            11,635,004       5,083,043      23,283,977
  Interest income                               5,203,988       6,331,875       6,631,110
                                             ------------    ------------    ------------
                                               16,838,992      11,414,918      29,915,087
                                             ------------    ------------    ------------

Expenses:
  Management fees (Note 3b)                     4,049,675       4,455,840       4,682,124
  Incentive fees (Note 3b)                      2,741,328       1,301,462       3,923,488
  Other                                           134,841         131,807         252,861
                                             ------------    ------------    ------------
                                                6,925,844       5,889,109       8,858,473
                                             ------------    ------------    ------------
Net income                                   $  9,913,148    $  5,525,809    $ 21,056,614
                                             ============    ============    ============
Net income per Unit of Limited Partnership
  Interest and General Partner Unit
  equivalent (Notes 1 and 6)                 $      99.32    $      48.07    $     158.70
                                             ============    ============    ============
</TABLE>

                                              
See notes to financial statements.

                                              F-5
<PAGE>


                                  Smith Barney
                          Diversified Futures Fund L.P.
                         Statement of Partners' Capital
                               for the Years Ended
                        December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                   Limited          General
                                                  Partners          Partner          Total
<S>                                                 <C>                 <C>          <C>  


Partners' capital at December 31, 1995       $ 191,953,692    $   2,236,736   $ 194,190,428
Net income                                      20,731,449          325,165      21,056,614
Sale of 1,905.2800 Units of Limited
  Partnership Interest                           2,035,483             --         2,035,483
Redemption of 42,559.6065 Units of Limited
  Partnership Interest                         (45,695,264)            --       (45,695,264)
                                             -------------    -------------   -------------
Partners' capital at December 31, 1996         169,025,360        2,561,901     171,587,261
Net income                                       5,427,317           98,492       5,525,809
Sale of 256.5390 Units of Limited
  Partnership Interest                             328,301             --           328,301
Redemption of 20,899.0206 Units of Limited
  Partnership Interest                         (26,060,110)            --       (26,060,110)
                                             -------------    -------------   -------------
Partners' capital at December 31, 1997         148,720,868        2,660,393     151,381,261
Net income                                       9,709,648          203,500       9,913,148
Sale of 90.7211 Units of Limited
  Partnership Interest                             117,210             --           117,210
Redemption of 13,724.6661 Units of
  Limited Partnership Interest                 (17,507,358)            --       (17,507,358)
                                             -------------    -------------   -------------
Partners' capital at December 31, 1998       $ 141,040,368    $   2,863,893   $ 143,904,261
                                             =============    =============   =============
</TABLE>

See notes to financial statements.

                                                      F-6

<PAGE>


                                                Smith Barney
                                        Diversified Futures Fund L.P.
                                        Notes to Financial Statements


1.  Partnership Organization:

    Smith Barney Diversified  Futures Fund L.P. (the "Partnership") is a limited
    partnership  which was  organized  on August 13, 1993 under the  partnership
    laws of the  State of New York to  engage in the  speculative  trading  of a
    diversified  portfolio of commodity  interests  including futures contracts,
    options and forward  contracts.  The commodity  interests that are traded by
    the  Partnership  are volatile and involve a high degree of market risk. The
    Partnership was authorized to sell 300,000 Units during its offering period.

     Smith  Barney  Futures  Management  Inc.  acts as the general  partner (the
     "General   Partner")  of  the  Partnership.   On  September  1,  1998,  the
     Partnership's  commodity  broker,  Smith Barney  Inc.,  merged with Salomon
     Brothers Inc and changed its name to Salomon Smith Barney Inc. ("SSB"). SSB
     is an affiliate of the General Partner. The General Partner is wholly owned
     by Salomon Smith Barney Holdings, Inc. ("SSBH"), which is the sole owner of
     SSB. On October 8, 1998, Travelers Group Inc. merged with Citicorp Inc. and
     changed its name to Citigroup  Inc.  SSBH is a wholly owned  subsidiary  of
     Citigroup Inc.

    The General Partner and each limited partner share in the profits and losses
    of the Partnership in proportion to the amount of partnership interest owned
    by each except that no limited  partner shall be liable for  obligations  of
    the Partnership in excess of his initial capital  contribution  and profits,
    if any, net of distributions.

    The Partnership will be liquidated upon the first of the following to occur:
    December 31, 2013; the net asset value of a Unit decreases to less than $400
    as of the close of any  business  day;  or under  certain  circumstances  as
    defined in the Limited Partnership Agreement.

2.  Accounting Policies:

    a. All commodity interests (including  derivative financial  instruments and
       derivative  commodity  instruments)  are used for trading  purposes.  The
       commodity  interests  are recorded on trade date and open  contracts  are
       recorded in the  statement  of  financial  condition at fair value on the
       last business day of the year,  which  represents  market value for those
       commodity  interests for which market  quotations are readily  available.
       Investments in commodity interests  denominated in foreign currencies are
       translated into U.S. dollars at the exchange rates prevailing on the last
       business  day of  the  year.  Realized  gains  (losses)  and  changes  in
       unrealized values on commodity  interests are recognized in the period in
       which the contract is closed or the changes occur and are included in net
       gains (losses) on trading of commodity interests.

    b. Income  taxes have not been  provided  as each  partner  is  individually
       liable for the taxes,  if any, on his share of the  Partnership's  income
       and expenses.

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

3.  Agreements:

    a. Limited Partnership Agreement:

       The Limited Partnership Agreement provides that the General Partner shall
       manage the business of the Partnership and may make all trading decisions
       for the Partnership.

                             F-7

<PAGE>



    b. Management Agreements:

       The General Partner has entered into Management  Agreements with Campbell
       & Co., Inc., John W. Henry & Company, Inc. ("JWH"),  Trendview Management
       Inc.,  Rabar Market Research Inc.  ("Rabar") and Telesis  Management Inc.
       (collectively,  the "Advisors"),  registered  commodity trading advisors.
       The Advisors are not  affiliated  with one another and none is affiliated
       with  the  General  Partner  or SSB  and  are  not  responsible  for  the
       organization or operation of the  Partnership.  The Partnership  will pay
       each Advisor a monthly management fee equal to 1/6 of 1% (2% per year) of
       Net Assets  allocated to the Advisor as of the end of each month  (except
       JWH,  which will receive a monthly  management fee equal to 1/3 of 1% (4%
       per year) of month-end  Net  Assets).  In addition,  the  Partnership  is
       obligated to pay each Advisor 20% of the New Trading Profits, as defined,
       earned by each  Advisor  for the  Partnership  in each  calendar  quarter
       (Rabar  will be  paid  annually)  (except  JWH,  which  will  receive  an
       incentive  fee  of  15%  of  New  Trading  Profits).  Chesapeake  Capital
       Corporation  and  Abraham  Trading  Co.  were  terminated  as advisors on
       January 31,  1998.  AIS Futures  Management,  Inc. was  terminated  as an
       Advisor on September 30, 1998.

    c. Customer Agreement

       The Partnership has entered into a Customer Agreement which provides that
       the Partnership will pay SSB a monthly brokerage fee equal to 11/24 of 1%
       (5.5% per year) of month-end Net Assets in lieu of brokerage  commissions
       on a per trade basis.  Persons  investing  $1,000,000  or more will pay a
       reduced  brokerage  fee of 7/24 of 1% of  month-end  Net Assets (3.5% per
       year),  receiving the differential  between this reduced fee and 5.5% per
       year in the form of additional Units. SSB will pay a portion of brokerage
       fees to its financial  consultants  who have sold Units in this offering.
       Brokerage fees will be paid for the life of the Partnership, although the
       rate at which such fees are paid may be changed. The Partnership will pay
       for National Futures Association ("NFA") fees, exchange,  clearing, user,
       give-up and floor  brokerage  fees. All of the  Partnership's  assets are
       deposited in the Partnership's  account at SSB. The Partnership's cash is
       deposited by SSB in segregated  bank  accounts to the extent  required by
       Commodity Futures Trading  Commission  regulations.  At December 31, 1998
       and 1997, the amount of cash held for margin requirements was $15,565,181
       and  $28,016,682,  respectively.  SSB has  agreed to pay the  Partnership
       interest on 80% of the average  daily  equity  maintained  in cash in its
       account during each month at a 30-day U.S.  Treasury bill rate determined
       weekly by SSB based on the average  noncompetitive  yield on 3-month U.S.
       Treasury  bills  maturing  in 30 days from the date on which such  weekly
       rate is determined.  The Customer  Agreement  between the Partnership and
       SSB gives the  Partnership  the legal right to net  unrealized  gains and
       losses.  The Customer  Agreement may be terminated  upon notice by either
       party.

4.  Trading Activities:

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

    All of the commodity interests owned by the Partnership are held for trading
    purposes.  The fair value of these commodity  interests,  including  options
    thereon,  if  applicable,  at December 31, 1998 and 1997 was  $9,155,609 and
    $11,184,770,  respectively, and the average fair value during the years then
    ended,  based on a monthly  calculation,  was  $8,814,289  and  $10,552,252,
    respectively.

                                    F-8

<PAGE>



5.  Distributions and Redemptions:

    Distributions of profits, if any, will be made at the sole discretion of the
    General  Partner  and at such times as the General  Partner  may  decide.  A
    limited partner may require the Partnership to redeem his Units at their Net
    Asset  Value  as of the last day of each  month  on 10 days'  notice  to the
    General Partner. No fee will be charged for redemptions.

6.  Net Asset Value Per Unit:

    Changes  in the net asset  value per Unit of  Partnership  interest  for the
    years ended December 31, 1998, 1997 and 1996 were as follows:





<TABLE>
<CAPTION>

                                                1998         1997        1996

<S>                                              <C>          <C>        <C> 

    Net realized and unrealized gains     $   115.88   $    44.59   $   175.18
    Interest income                            47.60        49.04        41.97
    Expenses                                  (64.16)      (45.56)      (58.45)
                                            ---------    ---------    ---------
    Increase for year                          99.32        48.07       158.70
    Net asset value per
     Unit, beginning of year                1,298.43     1,250.36     1,091.66
                                           ---------    ---------    ---------
    Net asset value per
     Unit, end of year                    $ 1,397.75   $ 1,298.43   $ 1,250.36
                                           =========    =========    =========
</TABLE>

  
7.  Financial Instrument Risks:

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

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

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

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


                                      F-9

<PAGE>




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

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

    At  December  31,  1998,  the  notional  or   contractual   amounts  of  the
    Partnership's   commitment  to  purchase  and  sell  these  instruments  was
    $710,781,714 and $672,667,460, respectively. All of these instruments mature
    within one year of  December  31,  1998.  However,  due to the nature of the
    Partnership's  business,  these instruments may not be held to maturity.  At
    December  31,  1998,  the  fair  value  of  the  Partnership's  derivatives,
    including options thereon, if applicable, was $9,155,609, as detailed below.

                                    December 31, 1998
                                  Notional or Contractual
                                   Amount of Commitments
<TABLE>
<CAPTION>
                                To Purchase        To Sell     Fair Value
<S>                                   <C>           <C>               <C>
 Currencies
  -Exchange Traded Contracts   $  1,854,238   $  8,298,013   $     57,514
  -OTC Contracts                101,811,752     92,268,276         56,390
Energy                               29,148     13,483,496        433,210
Grains                              316,896     18,245,823        415,008
Interest Rate U.S.               79,457,250     95,731,294       (740,429)
Interest Rate Non-U.S           496,535,139    404,533,682      7,987,464
Livestock                              --          636,650         20,120
Metals                            2,326,150     29,063,147        468,466
Softs                            13,219,410      7,949,559        383,544
Indices                          15,231,731      2,457,520         74,322
                               ------------   ------------   ------------
Total                          $710,781,714   $672,667,460   $  9,155,609
                               ------------   ------------   ------------

</TABLE>
    

                                            F-10


<PAGE>



    At  December  31,  1997,  the  notional  or   contractual   amounts  of  the
    Partnership's   commitment  to  purchase  and  sell  these  instruments  was
    $825,601,374  and  $788,720,477,  respectively,  and the  fair  value of the
    Partnership's  derivatives,  including options thereon,  if applicable,  was
    $11,184,770 as detailed below.


                                    December 31, 1997
                                 Notional or Contractual
                                 Amount of Commitments
<TABLE>
<CAPTION>

                               To Purchase        To Sell     Fair Value
<S>                                  <C>           <C>               <C>
     
Currencies
 -Exchange Traded Contracts   $ 11,004,227   $ 85,052,231   $    710,480
  -OTC Contracts                91,780,207    172,891,448        430,261
Energy                           2,293,498     51,019,266      2,859,466
Grains                           1,900,330     34,874,210        884,824
Interest Rate U.S.             221,651,270           --        1,004,688
Interest Rate Non-U.S          450,921,559    320,673,268      1,205,068
Livestock                             --        7,873,583        241,315
Metals                          23,394,060     69,472,845      2,414,000
Softs                           18,743,743     20,872,968        934,676
Indices                          3,912,480     25,990,658        499,992
                              ------------   ------------   ------------
Total                         $825,601,374   $788,720,477   $ 11,184,770
                              ============   ============   ============
</TABLE>

8.  Subsequent Events:

     Telesis  Management Inc. was terminated as an Advisor to the Partnership on
     January 31, 1999. Willowbridge Associates,  Inc. was added as an Advisor on
     February 1, 1999.

9.  New Accounting Pronouncements:

    In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS 133,
    Accounting for Derivative  Instruments and Hedging  Activities ("SFAS 133").
    SFAS 133 requires that an entity  recognize all derivatives in the statement
    of financial condition and measure those instruments at fair value. SFAS 133
    is effective  for fiscal years  beginning  after June 15, 1999.  SFAS 133 is
    expected  to have no  material  impact on the  financial  statements  of the
    Partnership  as all  commodity  interests  are recorded at fair value,  with
    changes therein reported in the statement of income and expenses.

                                      F-11

 




<PAGE>





Item 9. Changes  in  and  Disagreements  with  Accountants  on   Accounting  and
Financial Disclosure.
              During  the last  two  fiscal  years  and any  subsequent  interim
period, no independent accountant who was engaged as the principal accountant to
audit the Partnership's financial statements has resigned or was dismissed.

                                    PART III
Item 10.  Directors and Executive Officers of the Registrant.
              The  Partnership  has no  officers  or  directors  and its affairs
are  managed  by its General  Partner,  Smith  Barney  Futures  Management  Inc.
Investment  decisions will be made by Campbell & Company,  Inc., John W. Henry &
Company,  Inc.,  Rabar  Market Research,  Inc., Trendview  Management,  Inc. and
Telesis Management Inc. (collectively the "Advisors").
Item 11.         Executive Compensation.
                 The Partnership  has no directors or officers.  Its affairs are
managed by Smith Barney Futures  Management Inc., its General  Partner.  SSB, an
affiliate of the General  Partner,  is the commodity  broker for the Partnership
and receives brokerage  commissions for such services,  as described under "Item
1.  Business."  Brokerage  commissions and clearing fees of $8,540,127 were paid
for the year ended  December 31, 1998.  Management  fees and  incentive  fees of
$4,049,675 and  $2,741,328,  respectively,  were paid or payable to the Advisors
for the year ended December 31, 1998.

                                       34
<PAGE>


Item 12.         Security Ownership of Certain Beneficial Owners and Management.
                 (a).  Security   ownership   of   certain   beneficial  owners
      .          The Partnership  knows of no person who beneficially  owns more
than 5% of the Units outstanding.
                 (b). Security  ownership of management.  Under the terms of the
Limited  Partnership  Agreement,  the  Partnership's  affairs are managed by the
General Partner.  The General Partner owns Units of general partnership interest
equivalent  to  2,048.9308  Units (2.0%) of Limited  Partnership  Interest as of
December 31, 1998.
                 (c).  Changes in control.   None.
Item 13.         Certain Relationship and Related Transactions.
                 Salomon    Smith   Barney  Inc.  and  Smith   Barney    Futures
Management  Inc.  would be  considered  promoters  for  purposes of item 404 (d)
of Regulation  S-K. The nature and the amounts of  compensation  each  promoter 
will  receive  from the  Partnership are set forth under "Item 1. Business@ and 
"Item11. Executive Compensation."
                                     PART IV
Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
             (a) (1)  Financial Statements:
                      Statement  of  Financial  Condition  at December 31, 1998
                      and 1997.

                                       35
<PAGE>


                         Statement  of Income and  Expenses for the years ended
                         December  31,  1998,  1997  and  1996.   Statement  of
                         Partners'  Capital  for the years ended  December  31,
                         1998, 1997, and 1996.
               (2)       Financial Statement Schedules: Financial Data Schedule 
                         for the year ended December 31, 1998.
               (3)       Exhibits:
              3.1 -      Limited  Partnership Agreement (filed as Exhibit 3.1 to
                         the   Registration  Statement  on  Form  S-1 (File  No.
                         33-75056 and incorporated herein by reference).
              3.2 -      Certificate  of  Limited Partnership of the Partnership
                         as filed in the office of the County  Clerk of New York
                         County on October 13, 1993 (filed as Exhibit 3.2 to the
                         Registration  Statement on Form S-1 (File No. 33-75056)
                         and incorporated herein by reference).
              10.1-      Customer  Agreement  between the  Partnership and Smith
                         Barney  (filed  as  Exhibit  10.1  to the  Registration
                         Statement   on  Form  S-1  (File  No.   33-75056)   and
                         incorporated herein by reference).
              10.3-      Escrow Instructions  relating to escrow of subscription
                         funds  (filed  as  Exhibit  10.3  to  the  Registration
                         Statement   on  Form  S-1  (File  No.   33-75056)   and
                         incorporated herein by reference).
              10.5-      Management Agreement among the Partnership, the General
                         Partner and Campbell & Company,  Inc. (filed as Exhibit
                         10.5 to the Registration Statement on Form  S-1  (File 
                         No. 33-75056) and incorporated herein by reference).

                                       36
<PAGE>


              10.6-      Management Agreement among the Partnership, the General
                         Partner and Colorado Commodity Management Corp. (filed 
                         as Exhibit 10.6 to the Registration Statement on  Form 
                         S-1  (File  No. 33-75056)  and  incorporated herein by 
                         reference).
              10.7-      Management   Agreement   among  the   Partnership,  the
                         General  Partner  and John W.  Henry  &  Company,  Inc.
                        (filed as  Exhibit  10.7 to the  Registration Statement 
                         on Form S-1 (File No. 33-75056) and incorporated herein
                         by reference).
              10.8-      Management Agreement among the Partnership, the General
                         Partner and Hyman  Beck  &  Company   (filed as Exhibit
                         10.8 to the  Registration Statement on Form S-1  (File 
                         No. 33-75056) and incorporated herein by reference).
              10.9-      Letter  dated May 19,  1994 from the General Partner to
                         Colorado  Commodities  Management Corp. terminating the
                         Management  Agreement
                         (previously filed).
             10.10-      Management Agreement among the Partnership, the General
                         Partner and Chesapeake Capital Corp.(previously filed).
             10.11-      Letters extending  Management  Agreements with John W. 
                         Henry & Company,  Inc., Hyman Beck & Company,  Campbell
                         & Co., Inc. and Chesapeake   Capital  Corp. (previously
                         filed).

                                       37
<PAGE>

             10.12-      Management Agreement among the Partnership, the General
                         Partner and Abraham Trading Co. (previously filed).
             10.13-      Management Agreement among the Partnership, the General
                         Partner  and  Rabar  Market  Research  Inc. (previously
                         filed).
             10.14-      Management Agreement among the Partnership, the General
                         Partner  and  AIS Futures Management,  Inc. (previously
                         filed).
             10.15-      Letter dated October 1, 1996 from  the Genera l Partner
                         to  Hyman  Beck  & Company terminating  the  Management
                         Agreement (previously filed).
             10.16-      Management Agreement among the Partnership, the General
                         Partner and Telesis  Management Inc. (filed as Exhibit 
                         10.16 to the Form 10-K for the year  ended December 31,
                         1997).
             10.17-      Letter terminating Management Agreement with Chesapeake
                         Capital Corporation (filed as Exhibit 10.17 to the Form
                         10-K for the year ended December 31, 1997).
             10.18-      Letter terminating Management  Agreement  with  Abraham
                         Trading Co. (filed as Exhibit 10.18 to  the  Form  10-K
                         for the year ended December 31, 1997).
             10.19-      Management  Agreement among the Partnership the General
                         Partner  and   Trendview  Management,  Inc.  (filed  as
                         Exhibit  10.19  to  the  Form  10-K for the  year ended
                         December 31, 1997).

                                       38
<PAGE>

             10.20-      Letters extending Management Agreements with Campbell &
                         Co., Chesapeake Capital Corp., John W.  Henry & Company
                         Inc., AIS Futures Management L.L.C.,Abraham Trading Co.
                         and Rabar Market Research Inc. (filed as Exhibit  10.20
                         to the Form 10-K for the year ended December 31, 1997).
             10.21-      Letter terminating AIS Futures  Management, Inc. (filed
                         herein).
             10.22-      Letter  terminating   Telesis  Management   Inc. (filed
                         herein).
             10.23-      Letters extending Management Agreements with Campbell &
                         Co.,  John W.  Henry  &  Company   Inc.,  Rabar  Market
                         Research  Inc.  and  Trendview  Management  Inc. (filed
                         herein)
         (b) Reports on 8-K:   None Filed.

                                       39
<PAGE>


         Supplemental  Information To Be Furnished With Reports  Filed  Pursuant
To Section 15(d) Of The Act by Registrants Which Have Not Registered  Securities
Pursuant To Section 12 Of the Act.




Annual Report to Limited Partners

                                       40
<PAGE>




                                   SIGNATURES

          Pursuant to the  requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 24th day of March 1999.


SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.


By:       Smith Barney Futures Management Inc.
          (General Partner)



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


          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  Registration  Statement has been signed below by the following  persons in
the capacities and on the date indicated


/s/     David J. Vogel                               /s/     Jack H. Lehman III
David J. Vogel,                                      Jack H. Lehman III
Director, Principal Executive                        Chairman and Director
Officer and President



/s/      Michael Schaefer                            /s/    Daniel A. Dantuono
Michael Schaefer                                     Daniel A. Dantuono
Director                                             Treasurer, Chief Financial
                                                     Officer and Director



/s/ Daniel R. McAuliffe, Jr.                          /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr.                              Steve J. Keltz
Director                                              Secretary and Director




/s/   Shelley Ullman
Shelley Ullman
Director

                                       41