UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended June 30, 2009

OR (  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number 000-22491

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II

(Exact name of registrant as specified in its charter)

New York	13-3769020
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

c/o Citigroup Managed Futures LLC
55 East 59^th Street – 10^th Floor
New York, New York 10022

(Address of principal executive offices) (Zip Code)

(212) 559-2011

(Registrant’s telephone number, including area code)

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

Yes X  No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    Accelerated filer    Non-accelerated filer X Smaller reporting company   

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

Yes    No X

As of July 31, 2009, 19,889.9264 Limited Partnership Redeemable Units were outstanding.

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II

FORM 10-Q

INDEX

		Page
		Number
PART I – Financial Information:
Item 1.	Financial Statements:
	Statements of Financial Condition at June 30, 2009 and December 31, 2008 (unaudited)	3
	Schedules of Investments at June 30, 2009 and December 31, 2008 (unaudited)	4 – 5
	Statements of Income and Expenses and Partners’ Capital for the three and six months ended June 30, 2009 and 2008 (unaudited)	6
	Notes to Financial Statements (unaudited)	7 – 13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 – 17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18 – 21
Item 4T.	Controls and Procedures	22
PART II – Other Information		23 – 26
Exhibits
EX-10 JOINDER AGREEMENT
EX-31.1 CERTIFICATION
EX-31.2 CERTIFICATION
EX-32.1 CERTIFICATION
EX-32.2 CERTIFICATION

2

PART I

Item 1. Financial Statements

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

	June 30,		December 31,
	2009		2008
Assets:
Investment in Partnerships, at fair value	$	26,679,416	$	34,424,088
Equity in trading account:
Cash		8,510,723		10,597,297
Cash margin		1,960,395		696,680
Net unrealized appreciation on open futures contracts		105,106		—
		37,255,640		45,718,065
Interest receivable		702		169
Total assets	$	37,256,342	$	45,718,234
Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open futures contracts	$	—	$	449
Accrued expenses:
Brokerage commissions		186,282		228,589
Management fees		61,665		75,664
Incentive fees		11,339		136,374
Other		70,944		90,644
Redemptions payable		530,734		793,186
Total liabilities		860,964		1,324,906
Partners’ Capital:
General Partner, 274.2452 and 748.5217 Unit equivalents at June 30, 2009 and December 31, 2008, respectively		489,722		1,397,490
Limited Partners, 20,107.2646 and 23,029.4237 Redeemable Units of Limited Partnership Interest outstanding at June 30, 2009 and December 31, 2008, respectively		35,905,656		42,995,838
Total partners’ capital		36,395,378		44,393,328
Total liabilities and partners’ capital	$	37,256,342	$	45,718,234

See accompanying notes to financial statements.

3

Smith Barney Diversified Futures Fund L.P. II

Schedule of Investments

June 30, 2009

(Unaudited)

	Number of					% of Partners’
	Contracts		Fair Value			Capital
Futures Contracts Purchased
Currencies		85	$	6,074			0.02	%
Energy		16		(10,241	)		(0.03	)
Grains		3		(4,683	)		(0.01	)
Indices		109		6,337			0.02
Interest Rates Non-U.S.		1		5,596			0.01
Interest Rates U.S.		327		54,832			0.15
Metals		2		(3,695	)		(0.01	)
Softs		8		12,401			0.03
Total futures contracts purchased				66,621			0.18
Futures Contracts Sold
Currencies		20		600			0.00	*
Energy		7		10,786			0.03
Grains		15		17,861			0.05
Indices		12		830			0.00	*
Interest Rates Non-U.S.		75		1,450			0.01
Livestock		3		740			0.00	*
Softs		5		6,218			0.02
Total futures contracts sold				38,485			0.11
Investment in Partnerships
CMF Willowbridge Argo Master Fund L.P.				7,776,461			21.37
CMF Graham Capital Master Fund L.P.				9,152,279			25.15
CMF Eckhardt Master Fund L.P.				5,374,338			14.76
CMF SandRidge Master Fund L.P.				4,376,338			12.02
Total investment in Partnerships				26,679,416			73.30
Total fair value			$	26,784,522			73.59	%

* Due to rounding.

See accompanying notes to financial statements.

4

Smith Barney Diversified Futures Fund L.P. II
Schedule of Investments
December 31, 2008

	Number of					% of Partners’
	Contracts		Fair Value			Capital
Futures Contracts Purchased
Currencies		23	$	(21,305	)		(0.05	)%
Indices		57		45,056			0.10
Interest Rates Non-U.S.		33		7,783			0.02
Interest Rates U.S.		47		(25,794	)		(0.06	)
Metals		1		(110	)		(0.00	)*
Softs		2		5,033			0.01
Total futures contracts purchased				10,663			0.02
Futures Contracts Sold
Currencies		9		(797	)		(0.00	)*
Energy		1		(5,450	)		(0.01	)
Grains		3		(3,924	)		(0.01	)
Softs		5		(941	)		(0.00	)*
Total futures contracts sold				(11,112	)		(0.02	)
Investment in Partnerships
CMF Willowbridge Argo Master Fund L.P.				10,048,176			22.63
CMF Campbell Master Fund L.P.				7,553,372			17.01
CMF Graham Capital Master Fund L.P.				10,523,350			23.71
CMF Eckhardt Master Fund L.P.				6,299,190			14.19
Total investment in Partnerships				34,424,088			77.54
Total fair value			$	34,423,639			77.54	%

* Due to rounding

See accompanying notes to financial statements.

5

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Income:
Net gains (losses) on trading of commodity interests and investment in Partnerships:
Net realized gains (losses) on closed contracts	$	34,632		$	1,120,099		$	738,600		$	1,763,947
Net realized gains (losses) on investment in Partnerships		1,138,417			2,828,137			68,377			4,961,877
Change in net unrealized gains (losses) on open contracts		(206,747	)		331,338			105,555			287,868
Change in net unrealized gains (losses) on investments in Partnerships		(688,013	)		1,245,468			(858,070	)		934,014
Gain (loss) from trading, net		278,289			5,525,042			54,462			7,947,706
Interest income		2,102			35,634			4,470			102,206
Interest income from investment in Partnerships		5,567			100,769			12,681			236,768
Total income (loss)		285,958			5,661,445			71,613			8,286,680
Expenses:
Brokerage commissions including clearing fees		652,999			797,788			1,381,703			1,615,646
Management fees		188,642			242,491			404,998			484,121
Incentive fees		11,339			326,593			114,788			368,626
Other expenses		37,941			47,367			79,856			74,281
Total expenses		890,921			1,414,239			1,981,345			2,542,674
Net income (loss)		(604,963	)		4,247,206			(1,909,732	)		5,744,006
Redemptions — General Partner		(809,941	)		(2,000,000	)		(809,941	)		(2,000,000	)
Redemptions — Limited Partners		(1,905,404	)		(2,093,306	)		(5,278,277	)		(3,350,678	)
Net increase (decrease) in Partners’ capital		(3,320,308	)		153,900			(7,997,950	)		393,328
Partners’ capital, beginning of period		39,715,686			47,650,436			44,393,328			47,411,008
Partners’ capital, end of period	$	36,395,378		$	47,804,336		$	36,395,378		$	47,804,336
Net Asset Value per Redeemable Unit (20,381.5098 and 25,647.4961 Units outstanding at June 30, 2009 and June 30, 2008, respectively)	$	1,785.71		$	1,863.90		$	1,785.71		$	1,863.90
Net income (loss) per Redeemable Unit of Limited Partnership Interest and General Partner Unit equivalent	$	(24.52	)	$	159.81		$	(81.29	)	$	212.20

See accompanying notes to financial statements.

6

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

1.   General:

Smith Barney Diversified Futures Fund L.P. II (the “Partnership”) is a limited partnership which organized on May 10, 1994 under the partnership laws of the State of New York to engage, directly or indirectly, in the speculative trading of a diversified portfolio of commodity interests including futures contracts, options, swaps and forward contracts. The sectors traded included currencies, energy, grains, indices, metals, softs, livestock, U.S. and non-U.S. interest rates. 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 100,000 redeemable units of Limited Partnership Interest (“Redeemable Units”) during its initial offering period. The Partnership no longer offers Redeemable Units for sale.

Citigroup Managed Futures LLC, a Delaware Limited Liability Company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. Through July 31, 2009, the General Partner was wholly owned by Citigroup Global Markets Holdings Inc. (“CGMHI”), a wholly owned subsidiary of Citigroup Inc. (“Citigroup”). On July 31, 2009, the General Partner was transferred from CGMHI to Morgan Stanley Smith Barney Holdings LLC, as further described in Item 5, “Other Information.”

Citigroup Global Markets Inc. (“CGM”) is the commodity broker and a selling agent for the Partnership. CGM is an affiliate of the General Partner and is wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of CGMHI.

As of June 30, 2009, all trading decisions are made for the Partnership by Capital Fund Management SA (“CFM”), Graham Capital Management L.P. (“Graham”), Willowbridge Associates Inc. (“Willowbridge”), Eckhardt Trading Company (“Eckhardt”) and SandRidge Capital L.P. (“SandRidge”) (each an “Advisor” and collectively, the “Advisors”). Campbell & Co., Inc. (“Campbell”) was terminated as of May 31, 2009. SandRidge was added as an advisor to the Partnership on June 1, 2009.

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 their initial capital contribution and profits, if any, net of distributions.

The accompanying financial statements are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at June 30, 2009 and December 31, 2008, and the results of its operations and changes in partners’ capital for the three and six months ended June 30, 2009 and 2008. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2008.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. In making these estimates and assumptions, management has considered the effects, if any, of events occurring after the date of the Partnership’s Statements of Financial Condition through August 14, 2009, which is the date the financial statements were issued. Actual results could differ from these estimates.

The Partnership has elected not to provide a Statement of Cash Flows as permitted by Statement of Financial Accounting Standards No. 102 “Statement of Cash Flows-Exemption of Certain Enterprises and Classification of Cash Flows from Certain Securities Acquired for Resale” (“FAS 102”).

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

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

7

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

2.   Financial Highlights:

Changes in Net Asset Value per Redeemable Unit of Limited Partnership Interest for the three and six months ended June 30, 2009 and 2008 were as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Net realized and unrealized gains (losses) *	$	(13.63	)	$	177.61		$	(55.33	)	$	233.82
Interest income		0.35			5.10			0.77			12.21
Expenses **		(11.24	)		(22.90	)		(26.73	)		(33.83	)
Increase (decrease) for the period		(24.52	)		159.81			(81.29	)		212.20
Net Asset Value per Redeemable Unit, beginning of period		1,810.23			1,704.09			1,867.00			1,651.70
Net Asset Value per Redeemable Unit, end of period	$	1,785.71		$	1,863.90		$	1,785.71		$	1,863.90

*	Includes brokerage commissions.
**	Excludes brokerage commissions.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Ratio to average net assets: ***
Net investment income (loss) before incentive fees ****		(9.4	)%		(8.3	)%		(9.4	)%		(8.0	)%
Operating expenses		9.5	%		9.4	%		9.5	%		9.5	%
Incentive fees		—	%*****		0.7	%		0.3	%		0.8	%
Total expenses		9.5	%		10.1	%		9.8	%		10.3	%
Total return:
Total return before incentive fees		(1.3	)%		10.1	%		(4.1	)%		13.7	%
Incentive fees		(0.1	)%		(0.7	)%		(0.3	)%		(0.9	)%
Total return after incentive fees		(1.4	)%		9.4	%		(4.4	)%		12.8	%

***	Annualized (other than incentive fees).
****	Interest income less total expenses.
*****	Due to rounding.

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

3.   Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership’s trading activities are shown in the Statements of Income and Expenses and Partners’ Capital.

The customer agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures contracts. The Partnership nets, for financial reporting purposes, the unrealized gains and losses on open futures and forward contracts on the Statements of Financial Condition as the criteria under Financial Accounting Standards Board (“FASB”) Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts” (“FIN No. 39”) have been met.

8

All of the commodity interests owned by the Partnership are held for trading purposes. The average fair values of these interests during the six and twelve months ended June 30, 2009 and December 31, 2008, based on a monthly calculation, were $326,802 and $151,002, respectively. The fair values of these commodity interests, including options thereon, if applicable, at June 30, 2009 and December 31, 2008, were $105,106 and $(449), respectively. Fair values for exchange traded commodity futures and options are based on quoted market prices for those futures and options. Fair values for all other financial instruments for which market quotations are not readily available are based on other measures of fair value deemed appropriate by the General Partner.

Brokerage commissions are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, additions and redemptions.

The Partnership adopted Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”) as of January 1, 2009 which requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 only expands the disclosure requirements for derivative instruments and related hedging activities and has no impact on the Statements of Financial Condition or Statements of Income and Expenses and Partners’ Capital. The contracts outstanding at the period ended June 30, 2009, are indicative of volume traded during the period. See the Schedule of Investments. The following table indicates the fair values of derivative instruments of futures and forward contract as separate assets and liabilities.

	June 30, 2009
Assets
Futures Contracts
Currencies	$	37,180
Energy		11,348
Grains		17,966
Indices		12,277
Interest Rates U.S.		67,514
Interest Rates Non-U.S.		9,528
Livestock		1,450
Softs		18,619
Total unrealized appreciation on open futures contracts	$	175,882
Liabilities
Futures Contracts
Currencies	$	(30,506	)
Energy		(10,803	)
Grains		(4,788	)
Indices		(5,110	)
Interest Rates U.S.		(12,682	)
Interest Rates Non-U.S.		(2,482	)
Livestock		(710	)
Metals		(3,695	)
Total unrealized depreciation on open futures contracts	$	(70,776	)
Net unrealized appreciation on open futures contracts	$	105,106	*

* This amount is included in “Net unrealized appreciation on open futures contracts” on the Statements of Financial Condition.

9

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and six months ended June 30, 2009.

	Three Months Ended			Six Months Ended
	June 30, 2009			June 30, 2009
	Gain (loss) from			Gain (loss) from
Sector	trading			trading
Currencies		$(146,844	)		$   294,603
Energy		(549,958	)		(616,797	)
Grains		53,949			41,024
Indices		475,391			1,203,505
Interest Rates U.S.		424,238			113,474
Interest Rates Non-U.S.		(392,568	)		(82,806	)
Livestock		2,520			2,580
Softs		(11,453	)		(47,000	)
Metals		(27,390	)		(64,428	)
Total		$(172,115	)		$   844,155

4.   Fair Value Measurements:

Investments.  All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

Fair Value Measurements.  The Partnership and the Funds (as defined in note 5 “Investment in Partnerships”) adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”) as of January 1, 2008 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a framework for measuring fair value and expands disclosures regarding fair value measurements in accordance with GAAP. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Partnership did not apply the deferral allowed by FASB Staff Positions No. FAS 157-2, Effective Date of FASB Statement No. 157, for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.

The Partnership and the Funds consider prices for exchange traded commodity futures, forwards and options contracts to be based on quoted prices in active markets for identical assets (Level 1). The values of non exchange traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). Investments in partnerships (other commodity pools) where there are no other rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in partnerships reflects its proportional interest in the partnerships. As of June 30, 2009 and December 31, 2008, the Partnership and the Funds did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

10

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
	6/30/2009		(Level 1)		(Level 2)		(Level 3)
Assets
Investment in Partnerships	$	26,679,416	$	—	$	26,679,416	$	—
Futures		105,106		105,106		—		—
Total assets		26,784,522		105,106		26,679,416		—
Total fair value	$	26,784,522	$	105,106	$	26,679,416	$	—

			Quoted Prices in
			Active Markets for			Significant Other		Significant
			Identical Assets			Observable Inputs		Unobservable Inputs
	12/31/2008		(Level 1)			(Level 2)		(Level 3)
Assets
Investment in Partnerships	$	34,424,088	$	—		$	34,424,088	$	—
Total assets		34,424,088		—			34,424,088		—
Liabilities
Futures	$	449	$	449		$	—	$	—
Total liabilities		449		449			—		—
Total fair value	$	34,423,639	$	(449	)	$	34,424,088	$	—

5.   Investment in Partnerships:

On January 1, 2005, the assets allocated to Campbell for trading were invested in CMF Campbell Master Fund L.P. (“Campbell Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 18,800.3931 units of Campbell Master with cash of $18,587,905 and a contribution of open commodity futures and forward positions with a fair value of $212,488. Campbell Master was formed in order to permit commodity pools managed now or in the future by Campbell using Campbell’s Financials, Metals and Energy Portfolio to invest together in one trading vehicle. The Partnership fully redeemed its investment in Campbell Master on May 31, 2009 for cash equal to $4,288,986.

On July 1, 2005, the assets allocated to Willowbridge for trading were invested in CMF Willowbridge Argo Master Fund L.P. (“Willowbridge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 10,980.9796 units of Willowbridge Master with cash of $9,895,326 and a contribution of open commodity futures and forward positions with a fair value of $1,085,654. Willowbridge Master was formed in order to permit commodity pools managed now or in the future using Willowbridge’s Argo Trading Program, to invest together in one trading vehicle. The General Partner is also the general partner of Willowbridge Master. Individual and pooled accounts currently managed by Willowbridge, including the Partnership, are permitted to be a limited partner of Willowbridge Master. The General Partner and Willowbridge believe that trading through this structure should promote efficiency and economy in the trading process.

On April 1, 2006, the assets allocated to Graham for trading were invested in CMF Graham Capital Master Fund L.P. (“Graham Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 11,192.9908 units of Graham Master with cash of $11,192,991. Graham Master was formed in order to permit commodity pools managed now or in the future by using Graham’s K4D-12.5 Program to invest together in one trading vehicle. The General Partner is also the general partner of Graham Master. Individual and pooled accounts currently managed by Graham, including the Partnership, are permitted to be a limited partner of Graham Master. The General Partner and Graham believe that trading through this structure should promote efficiency and economy in the trading process.

On April 1, 2008, the assets allocated to Eckhardt for trading were invested in CMF Eckhardt Master Fund L.P. (“Eckhardt Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 7,000.0000 units of Eckhardt Master with cash of $7,000,000. Eckhardt Master was formed in order to permit commodity pools managed now or in the future by using Eckhardt’s Standard Program, to invest together in one trading vehicle. The General Partner is also the general partner of Eckhardt Master. Individual and pooled accounts currently managed by Eckhardt, including the Partnership, are permitted to be a limited partner of Eckhardt Master. The General Partner and Eckhardt believe that trading through this structure should promote efficiency and economy in the trading process.

On June 1, 2009, the assets allocated to SandRidge for trading were in invested in the CMF SandRidge Master Fund L.P. (“SandRidge Master”), a limited partnership organized under the partnership laws of the State of New York. The Partnership purchased 2,086.0213 units of SandRidge Master with cash of $4,288,986. SandRidge Master was formed in order to permit commodity pools managed now or in the future by SandRidge using the Managed Account Program, to invest together in one trading vehicle. The General Partner is also the general partner of SandRidge Master. Individual and pooled accounts currently managed by SandRidge, including the Partnership, are permitted to be limited partners of SandRidge Master. The General Partner and SandRidge believe that trading through this structure should promote efficiency and economy in the trading process.

Willowbridge Master’s, Graham Master’s, Eckhardt Master’s and SandRidge Master’s (collectively, the “Funds”) trading of futures, forwards, swaps and options contracts, if applicable, on commodities is done primarily on United States of America and foreign commodity exchanges. The Funds engage in such trading through a commodity brokerage account maintained with CGM.

A Limited Partner may withdraw all or part of their capital contribution and undistributed profits, if any, from the Funds in multiples of the Net Asset Value per Redeemable Unit of Limited Partnership Interest as of the end of any day (the “Redemption Date”) after a request for redemption has been made to the General Partner at least 3 days in advance of the Redemption Date. The Units are classified as a liability when the Limited Partner elects to redeem and inform the Funds.

All exchange, clearing, user, give-up, floor brokerage and National Futures Association fees (collectively the “clearing fees”) are borne by the Partnership and through its investment in the Funds. All other fees, including CGM’s direct brokerage commissions, are charged at the Partnership level.

As of June 30, 2009, the Partnership owned approximately 3.1%, 5.5%, 29.1% and 0.8%, of Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. As of December 31, 2008, the Partnership owned approximately 5.9%, 3.4%, 4.7% and 30.7% of Campbell Master, Willowbridge Master, Graham Master and Eckhardt Master, respectively. The performance of the Partnership is directly affected by the performance of the Funds. It is Willowbridge’s, Graham’s, Eckhardt’s and SandRidge’s intention to continue to invest the assets allocated to each by the Partnership in Willowbridge Master, Graham Master, Eckhardt Master and SandRidge Master, respectively. Expenses to investors as a result of the investment in the Funds are approximately the same and redemption rights are not affected.

11

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

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

	June 30, 2009
	Total Assets		Total Liabilities		Total Capital
Willowbridge Master	$	259,072,410	$	5,438,678	$	253,633,732
Graham Master		167,640,064		1,650,079		165,989,985
Eckhardt Master		18,490,776		21,668		18,469,108
SandRidge Master		555,427,974		3,678,000		551,749,974
Total	$	1,000,631,224	$	10,788,425	$	989,842,799
	December 31, 2008
	Total		Total		Total
	Assets		Liabilities		Capital
Willowbridge Master	$	297,439,763	$	19,759	$	297,420,004
Campbell Master		127,587,225		112,263		127,474,962
Graham Master		224,787,639		296,697		224,490,942
Eckhardt Master		20,544,954		15,519		20,529,435
Total	$	670,359,581	$	444,238	$	669,915,343

Summarized information reflecting the Partnership’s investment in, and the operations of the Funds are shown in the following tables.

	June 30, 2009					For the three months ended June 30, 2009
	% of												Net
	Partnership’s			Fair		Income			Expenses				Income			Investment	Redemptions
Fund	Net Assets			Value		(Loss)			Commissions		Other		(Loss)			Objective	Permitted
Willowbridge Master		21.37	%		7,776,461		979,555			2,503		375		976,677		Commodity Portfolio	Monthly
Campbell Master		—	%		—		(292,629	)		359		413		(293,401	)	Financials, Metals & Energy Portfolio	Monthly
Graham Master		25.15	%		9,152,279		(121,658	)		8,733		468		(130,859	)	Commodity Portfolio	Monthly
Eckhardt Master		14.76	%		5,374,338		(197,072	)		3,372		5,723		(206,167	)	Commodity Portfolio	Monthly
SandRidge Master		12.02	%		4,376,338		87,775			326		98		87,351
Total				$	26,679,416	$	455,971		$	15,293	$	7,077	$	433,601
	June 30, 2009					For the six months ended June 30, 2009
	% of												Net
	Partnership’s			Fair		Income			Expenses				Income			Investment	Redemptions
Investment	Net Assets			Value		(Loss)			Commissions		Other		(Loss)			Objective	Permitted
Willowbridge Master		21.37	%		7,776,461		(151,158	)		4,330		651		(156,139	)	Commodity Portfolio	Monthly
Campbell Master		—	%		—		(272,274	)		1,385		1,144		(274,803	)	Financials, Metals & Energy Portfolio	Monthly
Graham Master		25.15	%		9,152,279		(216,373	)		15,113		878		(232,364	)	Commodity Portfolio	Monthly
Eckhardt Master		14.76	%		5,374,338		(224,982	)		4,164		11,323		(240,469	)	Commodity Portfolio	Monthly
SandRidge Master		12.02	%		4,376,338		87,775			326		98		87,351
Total				$	26,679,416	$	(777,012	)	$	25,318	$	14,094	$	(816,424	)
	December 31, 2008					For the three months ended June 30, 2008
	% of												Net
	Partnership’s			Fair		Income			Expenses				Income			Investment	Redemptions
Fund	Net Assets			Value		(Loss)			Commissions		Other		(Loss)			Objective	Permitted
Willowbridge Master		22.63	%	$	10,048,176	$	2,161,038		$	3,105	$	342	$	2,157,591		Commodity Portfolio	Monthly
Campbell Master		17.01	%		7,553,372		507,887			1,561		428		505,898		Financials, Metals & Energy Portfolio	Monthly
Graham Master		23.71	%		10,523,350		872,504			15,572		387		856,545		Commodity Portfolio	Monthly
Eckhardt Master		14.19	%		6,299,190		632,945			2,600		12,016		618,329		Commodity Portfolio	Monthly
Total				$	34,424,088	$	4,174,374		$	22,838	$	13,173	$	4,138,363

12

Smith Barney Diversified Futures Fund L.P. II
Notes to Financial Statements
June 30, 2009
(Unaudited)

	December 31, 2008					For the six months ended June 30, 2008
	% of											Net
	Partnership’s			Fair		Income		Expense				Income		Investment	Redemption
Investment	Net Assets			Value		(Loss)		Commissions		Other		(Loss)		Objectives	Permitted
Willowbridge Master		22.63	%	$	10,048,176	$	2,895,049	$	7,376	$	657	$	2,887,016	Commodity Portfolio	Monthly
Campbell Master		17.01	%		7,553,372		676,793		3,938		945		671,910	Financials, Metals & Energy Portfolio	Monthly
Graham Master		23.71	%		10,523,350		1,927,872		30,723		826		1,896,323	Commodity Portfolio	Monthly
Eckhardt Master		14.19	%		6,299,190		632,945		2,600		12,016		618,329	Commodity Portfolio	Monthly
Total				$	34,424,088	$	6,132,659	$	44,637	$	14,444	$	6,073,578

6.   Financial Instrument Risks:

In the normal course of its business, the Partnership and the Funds are parties to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include forwards, futures, options and swaps, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, or to purchase or sell other financial instruments at specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange traded instruments are standardized and include futures and certain forwards and option contracts. OTC contracts are negotiated between contracting parties and include certain forwards and option contracts. 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/Funds due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership/Funds are exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.

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. The Partnership’s/Funds’ risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and not represented by the contract or notional amounts of the instruments. The Partnership’s/Funds’ risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership/Funds to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership/Funds have credit risk and concentration risk as the sole counterparty or broker with respect to the Partnership’s/Funds’ assets is CGM or a CGM affiliate. Credit risk with respect to exchange-traded instruments is reduced to the extent that through CGM, the Partnership’s/Funds’ counterparty is an exchange or clearing organization.

As both a buyer and seller of options, the Partnership/Funds pay or receive a premium at the outset and then bear the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership/Funds to potentially unlimited liability; for purchased options the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Partnership/Funds do not consider these contracts to be guarantees as described in FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees” (“FIN 45”).

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

The majority of these instruments mature within one year of the inception date. However, due to the nature of the Partnership’s/Funds’ business, these instruments may not be held to maturity.

13

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

Liquidity and Capital Resources

The Partnership does not engage in sales of goods and services. Its only assets are its investment in Partnerships and equity in its trading account, consisting of cash, net unrealized appreciation 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. While substantial losses could lead to a material decrease in liquidity, no such losses occurred during the second quarter of 2009.

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

For the six months ended June 30, 2009, Partners’ Capital decreased 18.0% from $44,393,328 to $36,395,378. This decrease was attributable to the net loss from operations of $1,909,732, coupled with a redemption of 2,922.1591 Redeemable Units of Limited Partnership Interest resulting in an outflow of $5,278,277 and 474.2765 General Partner Unit equivalents totaling $809,941. Future redemptions could impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

     Use of Estimates.  The preparation of financial statements and accompanying notes in conformity with U.S.  GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

     Statement of Cash Flows.  The Partnership has elected not to provide a Statement of Cash Flows as permitted by FAS 102.

     Investments.  All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts are included as a component of equity in trading account on the Statements of Financial Condition. Realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses and Partners’ Capital.

     Fair Value Measurements.  The Partnership and the Funds adopted SFAS 157 as of January 1, 2008 which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Partnership did not apply the deferral allowed by FASB Staff Positions No. FAS 157-2, Effective Date of FASB Statement No. 157, for nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis.

      The Partnership and the Funds consider prices for exchange traded commodity futures, forwards and options contracts to be based on quoted prices in active markets for identical assets (Level 1). The values of non exchange traded forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2). Investments in partnerships (other commodity pools) where there are no other rights or obligations inherent within the ownership interest held by the Partnership are priced based on the end of the day net asset value (Level 2). The value of the Partnership’s investments in partnerships reflects its proportional interest in the partnerships. As of June 30, 2009, the Partnership and the Funds did not hold any derivative instruments that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

     Futures Contracts. The Partnership and the Funds trade futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as S&P 500 Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Partnership each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures brokers, directly with the exchange on which the contracts are traded, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on futures contracts are included in the Statements of Income and Expenses and Partners’ Capital.

14

     London Metals Exchange Forward Contracts.  Metal contracts traded on the London Metals Exchange (“LME”) represent a firm commitment to buy or sell a specified quantity of Aluminum, Copper, Lead, Nickel, Tin or Zinc. LME contracts traded by the Partnership and the Funds are cash settled based on prompt dates published by the LME. Payments (“variation margin”) may be made or received by the Partnership and the Funds each business day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded as unrealized gains or losses by the Partnership and the Funds. A contract is considered offset when all long positions have been matched with short positions. When the contract is closed at the prompt date, the Partnership and the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Because transactions in LME contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the broker, directly with the LME, credit exposure is limited. Realized gains (losses) and changes in unrealized gains (losses) on metal contracts are included in the Statements of Income and Expenses and Partners’ Capital.

     Forward Foreign Currency Contracts.  Foreign currency contracts are those contracts where the Funds agree to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign currency contracts are valued daily, and the Funds’ net equity therein, representing unrealized gain or loss on the contracts as measured by the difference between the forward foreign exchange rates at the dates of entry into the contracts and the forward rates at the reporting date, is included in the Statements of Financial Condition. Realized gains (losses) and changes in unrealized gains (losses) on foreign currency contracts are recognized in the period in which the contract is closed or the changes occur, respectively, and are included in the Statements of Income and Expenses and Partners’ Capital.

     The Partnership does not isolate that portion of the results of operations arising from the effect of changes in foreign exchange rates on investments from fluctuations from changes in market prices of investments held. Such fluctuations are included in net gain (loss) on investments in the Statements of Income and Expenses and Partners’ Capital.

     Options.  The Funds may purchase and write (sell) both exchange listed and over-the counter, options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Funds write an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Funds purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Realized gains (losses) and changes in unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses and Partners’ Capital.

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

     In 2007, the Master adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner has continued to evaluate the application of FIN 48 and has concluded that the adoption of FIN 48 had no impact on the operations of the Partnership for the six months ended June 30, 2009 and that no provision for income tax is required in the Partnership’s financial statements.

     The following are the major tax jurisdictions for the Partnership and the earliest tax year subject to examination: United States — 2005.

     Recent Accounting Pronouncements. In 2009, the Partnership adopted FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP”). The FSP reaffirms that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The FSP also reaffirms the need to use judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. The application of the FSP is required for interim and annual reporting periods ending after June 15, 2009. Management has concluded that based on available information in the marketplace, there has not been a decrease in the volume and level of activity in the Partnership’s Level 2 assets and liabilities. The adoption of the FSP had no effect on the Partnership’s Financial Statements.

Subsequent Events. In 2009, the Partnership adopted FASB Statement of Accounting Standards No. 165, “Subsequent Events” (“SFAS 165”). The objective of SFAS 165 is to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.

Results of Operations

      During the Partnership’s second quarter of 2009, the Net Asset Value per Redeemable Unit decreased 1.4% from $1,810.23 to $1,785.71 as compared to an increase of 9.4% in the second quarter of 2008. The Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed positions and investment in Partnerships and change in net unrealized gains (losses) on open positions and investment in Partnerships) before brokerage commissions and related fees in the second quarter of 2009 of $278,289. Gains were primarily attributable to the Partnership’s and the Funds’ trading of commodity futures in currencies, grains, U.S. interest rates and indices and were partially offset by losses in energy, non-U.S. interest rates, livestock, metal and softs. The Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed positions and investment in Partnerships and change in net unrealized gains (losses) on open positions and investment in Partnerships) before brokerage commissions and fees in the second quarter of 2008 of $5,525,042. Gains were primarily attributable to the Partnership’s and the Funds’ trading of commodity futures in currencies, energy, grains, non-U.S. interest rates, softs and indices and were partially offset by losses in metals, U.S. interest rates and livestock.

15

The markets expressed a broad increase in risk tolerance during the second quarter as government programs encouraged the re-leveraging of the financial system. Equities and crude oil rose, while yield curves steepened and the U.S. dollar fell. The positive economic sentiment returned in April and spilled over into May as investors became increasingly convinced that the worst of the economic crisis was behind them. However, this optimism turned towards the end of the quarter due to some worse—than—expected economic data, fears about the lack of action by the European Central Bank and a lack of clarity in the economic environment. The Partnership realized gains for the quarter from trading currencies and equity indices. Concerns that inflationary pressures would emerge and coincide with a widening budget deficit added to doubts over the credit rating of the U.S. Profits were earned from trading in foreign exchange, primarily in the Australian dollar. Equity indices also proved profitable as the equities rallied.

Slightly offsetting gains were losses in global fixed income. Losses were recorded in fixed income as prices of long-dated bonds fell. U.S. fixed income continues to be affected by supply and demand factors. While the U.S. Treasury continued to sell record levels of debt to finance various stimulus packages, the Federal Reserve was seen purchasing treasuries as part of their quantitative easing activities.

During the Partnership’s six months ended June 30, 2009, the Net Asset Value per Redeemable Unit decreased 4.4% from $1,867.00 to $1,785.71, as compared to an increase of 12.8% during the six months ended June 30, 2008. The Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed positions and investment in Partnerships and change in net unrealized gains (losses) on open positions and investment in Partnerships) before brokerage commissions and related fees during the six months ended June 30, 2009 of $54,462. Gains were primarily attributable to the Partnership’s and the Funds’ trading of commodity futures in currencies and indices were partially offset by losses in energy, grains, non-U.S. and U.S. interest rates, livestock, metals, and softs. The Partnership experienced a net trading gain (comprised of net realized gains (losses) on closed positions and investment in Partnerships and change in net unrealized gains (losses) on open positions and investment in Partnerships) before brokerage commissions and related fees in the six months ended June 30, 2008 of $7,947,706. Gains were primarily attributable to the Partnership’s and the Funds’ trading of commodity futures in currencies, energy, grains, U.S. and non-U.S. interest rates, metals, livestock, and indices and were partially offset by losses in softs.

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

Interest income on 80% of the Partnership’s daily equity average maintained in cash was earned at the 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. CGM may continue to maintain the Partnership’s assets in cash and/or place all of the Partnership’s assets in 90-day Treasury bills and pay the Partnership 80% on the interest earned on the Treasury bills purchased. CGM will retain 20% of any interest earned on Treasury bills. Interest income for the three and six months ended June 30, 2009 decreased by $128,734 and $321,823, respectively, as compared to the corresponding periods in 2008. This decrease was due to lower daily equity average maintained in cash and lower U.S. Treasury bill rates during the three and six months ended June 30, 2009 as compared to the corresponding periods in 2008.

16

     Brokerage commissions are calculated as a percentage of the Partnership’s net asset value as of the last day of each month and are affected by trading performance, additions and redemptions. Accordingly, they must be compared in relation to the fluctuations in the monthly net asset values. Brokerage commissions and fees for the three and six months ended June 30, 2009 decreased by $144,789 and $233,943, respectively, as compared to the corresponding periods in 2008. The decrease in brokerage commissions and fees is due to lower average net assets during the three and six months ended June 30, 2009 as compared to the corresponding periods in 2008.

     Management fees are calculated on the portion of the Partnership’s net asset value allocated to each Advisor at the end of the month and are affected by trading performance, additions and redemptions. Management fees for the three and six months ended June 30, 2009 decreased by $53,849 and $79,123, respectively, as compared to the corresponding periods in 2008. The decrease in management fees is due to lower average net assets during the three and six months ended June 30, 2009 as compared to the corresponding periods in 2008.

     Incentive fees are based on the new trading profits generated by each Advisor as defined in the advisory agreements between the Partnership, the General Partner and each Advisor. Trading performance for the three and six months ended June 30, 2009 resulted in incentive fees of $11,339 and $114,788, respectively. Trading performance for the three and six months ended June 30, 2008 resulted in incentive fees of $326,593 and $368,626, respectively.

17

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

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

The risk to the limited partners that have purchased interests in the Partnership and the Funds is limited to the amount of their capital contributions to the Partnership/Funds and their share of the Partnership assets and undistributed profits. This limited liability is a consequence of the organization of the Partnership and the Funds as a limited partnership under applicable law.

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

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

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

Exchange maintenance margin requirements have been used by the Partnership and the Funds 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 interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

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The following tables indicate the trading Value at Risk associated with the Partnership’s investments and investments in the Funds by market category as of June 30, 2009, and the highest, lowest and average values during the three months ended June 30, 2009. All open position trading risk exposures of the Partnership/Funds have been included in calculating the figures set forth below. There have been no material changes in the trading Value at Risk information previously disclosed in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.

As of June 30, 2009, the Partnership’s total capitalization was $36,395,378.

June 30, 2009
(Unaudited)

						Three months ended June 30, 2009
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk*
Currencies		306,453		0.84	%	$	924,240	$	94,665		393,819
Energy		108,828		0.30	%		468,290		39,948		170,473
Grains		21,201		0.06	%		67,500		8,640		23,297
Indices		627,202		1.72	%		1,308,177		84,453		607,091
Interest Rates U.S.		687,893		1.89	%		687,893		3,443		176,079
Interest Rates Non-U.S.		156,719		0.43	%		737,979		48,465		216,131
Livestock		4,253		0.01	%		8,505		709		4,102
Metals		13,162		0.04	%		118,770		5,399		16,129
Softs		21,781		0.06	%		95,784		15,770		41,526
Total	$	1,947,492		5.35	%

* Average of month-end Values at Risk.

As of June 30, 2009, SandRidge Master’s total capitalization was $551,745,974. The Partnership owned approximately 0.8% of SandRidge Master.

June 30, 2009
(Unaudited)

						Three months ended June 30, 2009
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk*
Energy	$	27,679,472		5.02	%	$	37,013,942	$	11,157,117	$	23,300,777
Total	$	27,679,472		5.02	%

* Average of month-end Values at Risk.

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As of June 30, 2009, Willowbridge Master’s total capitalization was $253,633,732. The Partnership owned approximately 3.1% of Willowbridge Master.

June 30, 2009
(Unaudited)

						Three months ended June 30, 2009
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk*
Currencies	$	13,118,128		5.18	%	$	13,147,160	$	5,538,108	$	8,545,585
Energy		12,294,113		4.85	%		12,294,113		3,461,603		7,404,729
Grains		3,284,044		1.29	%		5,919,480		714,826		3,531,527
Interest Rates U.S.		4,041,900		1.59	%		5,954,715		1,232,010		2,404,608
Interest Rates Non-U.S.		3,643,986		1.44	%		7,303,934		2,589,407		4,302,563
Softs		1,021,440		0.40	%		2,249,100		320,040		1,392,978
Total	$	37,403,611		14.75	%
*  Average of month-end Values at Risk.
As of June 30, 2009, Graham Master’s total capitalization was $165,989,985. The Partnership owned approximately 5.5% of Graham Master.
June 30, 2009 (Unaudited)
						Three months ended June 30, 2009
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk*
Currencies	$	3,102,364		1.87	%	$	7,588,894	$	3,102,364	$	5,298,470
Energy		1,355,746		0.82	%		3,017,929		951,459		1,590,887
Grains		258,736		0.15	%		1,356,550		190,880		839,923
Interest Rates U.S.		418,266		0.25	%		2,310,120		355,318		1,097,898
Interest Rates Non-U.S.		818,966		0.49	%		3,850,371		818,966		2,316,813
Livestock		46,575		0.03	%		160,380		1,080		78,671
Metals		628,262		0.38	%		1,223,707		303,915		613,811
Softs		574,090		0.35	%		1,041,887		492,343		733,819
Indices		5,683,722		3.42	%		8,672,872		1,905,290		5,108,007
Total	$	12,886,727		7.76	%

* Average of month-end Values at Risk.

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As of June 30, 2009, Eckhardt Master’s total capitalization was $18,469,108. The Partnership owned approximately 29.1% of Eckhardt Master.

June 30, 2009
(Unaudited)

						Three months ended June 30, 2009
			% of Total			High		Low		Average
Market Sector	Value at Risk		Capitalization			Value at Risk		Value at Risk		Value at Risk*
Currencies	$	422,065		2.29	%	$	422,065	$	9,044	$	199,305
Energy		110,625		0.60	%		597,050		22,050		278,817
Grains		120,975		0.65	%		362,365		10,800		192,002
Interest Rates Non-U.S.		107,096		0.58	%		528,463		68,741		241,206
Metals		191,195		1.03	%		369,340		16,196		173,718
Softs		118,810		0.64	%		157,263		64,434		108,961
Indices		252,171		1.37	%		253,026		22,367		196,373
Total	$	1,322,937		7.16	%

* Average of month-end Values at Risk.

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Item 4T.   Controls and Procedures

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods expected in the Commission's rules and forms. Disclosed controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

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

The General Partner’s CEO and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2009 and, based on that evaluation, the CEO and CFO have concluded that at that date the Partnership’s disclosure controls and procedures were effective.

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

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

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

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

There were no changes in the Partnership’s internal control over financial reporting during the fiscal quarter ended June 30, 2009 that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.        Legal Proceedings

        The following information supplements and amends our discussion set forth under Part I, Item 3 “Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as updated by our Quarterly Report on Form 10-Q for the quarterly ended March 31, 2009. There are no material legal proceedings pending against the Partnership or the General Partner.

Enron-Related Civil Actions

         On May 14, 2009, a settlement agreement was executed among the parties in Acquisition Partners, L.P., et al. v. J.P. Morgan Chase & Co., et al., and Avenue Capital Management II, L.P., et al. v. J.P. Morgan Chase & Co., et al. On June 3, 2009, a settlement agreement was executed among the parties in UniCredito Italiano, SpA, et al. v. J.P. Morgan Chase Bank, et. al. The three actions, which were consolidated and pending trial in the United States District Court for the Southern District of New York, were brought against Citigroup and certain of its affiliates, including CGM) and JPMorgan Chase and certain of its affiliates, in their capacity as co-agents on certain Enron revolving credit facilities. Pursuant to the settlements, the cases were dismissed with prejudice.

Subprime Mortgage-Related Litigation

         On May 7, 2009, Buckingham v. Citigroup Inc., et al. and Chen v. Citigroup Inc., et al. were consolidated with In re Citigroup Inc. Bond Litigation.

         On May 11, 2009, a putative class action Asher, et al. v. Citigroup Inc., et al. was filed in the United States District Court for the Southern District of New York alleging violations of the Securities Act of 1933 in connection with plaintiffs’ investments in certain offerings of preferred stock issued by the Citigroup. On May 15, 2009, plaintiffs in In re Citigroup Inc. Bond Litigation requested that Asher, et al. v. Citigroup Inc., et al. and Pellegrini v. Citigroup Inc., et al. be consolidated with In re Citigroup Inc. Bond Litigation.

         On May 20, 2009, Epirus Capital Management, LLC, et al. v. Citigroup Inc., et al. was designated as related to In re Citigroup Inc. Securities Litigation. On June 10 and June 24, 2009, defendants filed motions to dismiss the verified complaint.

Auction Rate Securities-Related Litigation

         Securities Actions.        On June 10, 2009, the Judicial Panel on Multidistrict Litigation granted CGM’s motion to transfer American Eagle Outfitters, Inc., et al. v. Citigroup Global Markets Inc. from the United States District Court for the Western District of Pennsylvania to the United States District Court for the Southern District of New York, where it will be coordinated with In re Citigroup Inc. Auction Rate Securities Litigation and Finn v. Smith Barney, et al. On June 17, 2009, the Judicial Panel on Multidistrict Litigation issued an order conditionally transferring three other individual auction rate securities actions pending against CGM in other federal courts to the United States District Court for the Southern District of New York. Plaintiffs in those actions have opposed their transfer.

         On April 1, 2009, Texas Instruments Inc. v. Citigroup Global Markets Inc. et al. was filed in Texas state court asserting violations of state securities law by CGM, BNY Capital Markets, Inc. and Morgan Stanley & Co., Inc. Defendants removed the case to the United States District Court for the Northern District of Texas, and plaintiff has moved to have it remanded to state court. On May 8, 2009, CGM filed a motion to sever the claims against it from the claims against its co-defendants.

         Governmental and Regulatory Actions.        Citigroup and certain of its affiliates are subject to formal and informal investigations, as well as subpoenas and/or requests for information, from various governmental and self-regulatory agencies relating to auction rate securities. Citigroup and its affiliates are cooperating fully and are engaged in discussions on these matters.

Falcon and ASTA/MAT-Related Litigation

         Marie Raymond Revocable Trust, et al. v. MAT Five LLC, et al.        On June 19, 2009, the Delaware Supreme Court denied the appeal of the settlement objectors from the Delaware Chancery Court’s approval of the settlement of this matter and affirmed the order approving the settlement.

         In re MAT Five Securities Litigation.        On July 8, 2009, the United States District Court for the Southern District of New York approved the voluntary dismissal of this action.

         ECA Acquisitions, Inc., et al. v. MAT Three LLC, et al.        On May 1, 2009, the United States District Court for the Southern District of New York denied plaintiffs’ motion to remand this action to state court. On July 15, 2009, plaintiffs filed an amended complaint.

         Zentner v. Citigroup, et al.        (Putative class action concerning In re MAT Two Securities Litigation, In re MAT Three Securities Litigation and In re MAT Five Securities Litigation.) On July 8, 2009, the United States District Court for the Southern District of New York dismissed this action, without prejudice, in connection with the dismissal of In re MAT Five Securities Litigation.

         Zentner v. Citigroup, et al.        (Putative class action concerning Falcon Plus.) On May 19, 2009, the New York Supreme Court issued a letter order, stating that it would approve a settlement of plaintiff’s individual claims. Plaintiff filed a stipulation dismissing this action on July 6, 2009.

Other Matters

         Underwriting Actions. In its capacity as a member of various underwriting syndicates, CGM has been named as a defendant in several subprime-related actions asserted against various issuers of debt and other securities. Most of these actions involve claims asserted on behalf of putative classes of purchasers of securities for alleged violations of Sections 11 and 12(a)(2) of the Securities Act of 1933.

         American Home Mortgage.        On July 7, 2009, lead plaintiffs filed a motion in In re American Home Mortgage Securities Litigation for preliminary approval of settlements reached with all defendants (including Citigroup and CGM).

         American International Group.        On March 20, 2009, four putative class actions were consolidated by the United States District Court for the Southern District of New York under the caption In re American International Group, Inc. 2008 Securities Litigation. Plaintiffs filed a consolidated amended complaint on May 19, 2009. These actions allege violations of Sections 11, 12, and 15 of the Securities Act of 1933 arising out of allegedly false and misleading statements contained in the registration statements and prospectuses issued in connection with offerings of American International Group debt securities and common stock, some of which were underwritten by CGM.

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Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part  I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.

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

The Redeemable Units were issued to accredited investors in reliance upon applicable exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder. There were no additional sales of Redeemable Units during the three months ended June 30, 2009.

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

							(d) Maximum Number
							(or Approximate
					(c) Total Number		Dollar Value) of Shares
					of Shares (or Units)		(or Units) that
	(a) Total Number		(b) Average		Purchased as Part		May Yet Be
	of Shares		Price Paid per		of Publicly Announced		Purchased Under the
Period	(or Units) Purchased*		Share (or Unit)**		Plans or Programs		Plans or Programs
April 1, 2009 – April 30, 2009		560.1373	$	1,707.74		N/A		N/A
May 1, 2009 – May 31, 2009		226.4965	$	1,845.95		N/A		N/A
June 1, 2009 – June 30, 2009		297.2118	$	1,785.71		N/A		N/A
		1,083.8456	$	1,758.00

* Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on 10 days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption but to date the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for Limited Partners.

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

Item 3.   Defaults Upon Senior Securities – None

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

Item 5.   Other Information

Morgan Stanley/Citigroup Joint Venture

On June 1, 2009, Morgan Stanley and Citigroup entered into a joint venture that combined Morgan Stanley’s Global Wealth Management Group and the Smith Barney division of CGM. The joint venture created Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”). MSSB Holdings owns Morgan Stanley Smith Barney LLC (“MSSB”), a newly registered non-clearing futures commission merchant and a member of the National Futures Association. MSSB acts as an additional selling agent for the Partnership. As of July 31, 2009, Morgan Stanley, indirectly through various subsidiaries, owns 51% of MSSB Holdings, CGM directly owns 49% of MSSB Holdings, and Citigroup, indirectly through its intermediate subsidiaries, wholly owns CGM.

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Item 6.   Exhibits

The exhibits required to be filed by Item 601 of Regulation S-K are incorporated herein by reference to the exhibit index of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2009.

Exhibit – 10 – Joinder Agreement among the Partnership, Citigroup Managed Futures LLC, Citigroup Global Markets Inc. and Morgan Stanley Smith Barney LLC.

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

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

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

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II

By:  Citigroup Managed Futures LLC

(General Partner)

By:  /s/ Jerry Pascucci

Jerry Pascucci

President and Director

Date:  August 14, 2009

By:  /s/ Jennifer Magro

Jennifer Magro

Chief Financial Officer and Director

Date:  August 14, 2009

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