(
                              MANAGEMENT AGREEMENT


                  AGREEMENT  made as of the 1st day of July,  2000  among  SMITH
BARNEY FUTURES  MANAGEMENT LLC, a Delaware  corporation  ("SBFM"),  SMITH BARNEY
DIVERSIFIED  FUTURES  FUND  L.  P.  II,  a New  York  limited  partnership  (the
"Partnership")  and  GRAHAM  CAPITAL   MANAGEMENT,   L.P.,  a  Delaware  limited
partnership (the "Advisor").

                                                W I T N E S S E T H :

                  WHEREAS,   SBFM  is  the  general   partner  of  Smith  Barney
Diversified  Futures  Fund L. P. II, a  limited  partnership  organized  for the
purpose  of  speculative  trading  of  commodity  interests,  including  futures
contracts,  options  and  forward  contracts  with the  objective  of  achieving
substantial capital appreciation; and

                  WHEREAS,  the Limited Partnership  Agreement  establishing the
Partnership (the "Limited  Partnership  Agreement")  permits SBFM to delegate to
one or  more  commodity  trading  advisors  SBFM's  authority  to  make  trading
decisions for the Partnership; and

                  WHEREAS,  the Advisor is  registered  as a  commodity  trading
advisor with the Commodity Futures Trading  Commission  ("CFTC") and is a member
of the National Futures Association ("NFA"); and

                  WHEREAS, SBFM is registered as a commodity pool operator with
 the CFTC and is a member of the NFA; and

                  WHEREAS,  SBFM, the  Partnership and the Advisor wish to enter
into this  Agreement in order to set forth the terms and  conditions  upon which
the Advisor will render and implement  advisory  services in connection with the
conduct by the Partnership of its commodity  trading  activities during the term
of this Agreement;

                  NOW, THEREFORE, the parties agree as follows:

                  1. DUTIES OF THE ADVISOR.  (a) For the period and on the terms
and  conditions of this  Agreement,  the Advisor  shall have sole  authority and
responsibility,  as one of the Partnership's agents and  attorneys-in-fact,  for
directing the trading of the assets and funds of the Partnership allocated to it
from time to time by the  General  Partner  in  commodity  interests,  including
commodity futures contracts,  options and forward contracts. All such trading on
behalf of the Partnership  shall be in accordance with the trading  policies set
forth in the  Prospectus  and  Disclosure  Document  dated  April 30,  1997,  as
supplemented  (the  "Prospectus"),  and as such trading  policies may be changed
from time to time upon  receipt by the Advisor of prior  written  notice of such
change and pursuant to the trading  strategy  selected by SBFM to be utilized by
the Advisor in managing the Partnership's  assets.  SBFM has initially  selected
the  Advisor's  Non-Trend  Based  Program  to manage  the  Partnership's  assets
allocated to it. Any open positions or other  investments at the time of receipt
of such notice of a change in trading  policy shall not be deemed to violate the
changed  policy and shall be closed or sold in the  ordinary  course of trading.
The  Advisor  may not  deviate  from  the  trading  policies  set  forth  in the
Prospectus  without the prior written consent of the Partnership  given by SBFM.
The Advisor makes no  representation or warranty that the trading to be directed
by it for the Partnership will be profitable or will not incur losses.

                  (b) SBFM  acknowledges  receipt  of the  Advisor's  Disclosure
Document  dated March 28,  2000 as filed with the NFA and CFTC (the  "Disclosure
Document").  All trades made by the  Advisor for the account of the  Partnership
shall be made through such commodity broker or brokers as SBFM shall direct, and
the  Advisor  shall  have  no  authority  or  responsibility  for  selecting  or
supervising  any such broker in  connection  with the  execution,  clearance  or
confirmation  of  transactions  for the  Partnership  or for the  negotiation of
brokerage rates charged therefor.  However, the Advisor,  with the prior written
permission  (by  either  original  or fax copy) of SBFM,  may direct any and all
trades in  commodity  futures  and options to a futures  commission  merchant or
independent  floor broker it chooses for execution with  instructions to give-up
the  trades  to the  broker  designated  by  SBFM,  provided  that  the  futures
commission  merchant  or  independent  floor  broker  and any  give-up  or floor
brokerage  fees are  approved in advance by SBFM.  All  give-up or similar  fees
relating to the  foregoing  shall be paid by the  Partnership  after all parties
have executed the relevant give-up agreements (by either original or fax copy).

                  (c) The initial allocation of the Partnership's  assets to the
Advisor will be made to the Advisor's  Non-Trend Based Program using leverage of
1.5 times the assets allocated to the Advisor (the "Program").  In the event the
Advisor wishes to use a trading system or methodology  other than or in addition
to the system or methodology  outlined in the  description of the Program in the
Disclosure  Document in connection with its trading for the Partnership,  either
in whole or in part,  it may not do so  unless  the  Advisor  gives  SBFM  prior
written  notice of its  intention to utilize such  different  trading  system or
methodology and SBFM consents thereto in writing. In addition,  the Advisor will
provide  five days'  prior  written  notice to SBFM of any change in the trading
system or methodology to be utilized for the Partnership which the Advisor deems
material.  If the  Advisor  deems  such  change in system or  methodology  or in
markets  traded to be material,  the changed  system or  methodology  or markets
traded  will not be  utilized  for the  Partnership  without  the prior  written
consent of SBFM. In addition, the Advisor will notify SBFM of any changes to the
trading system or methodology  that would require a change in the description of
the trading strategy or methods described in the Disclosure  Document.  Further,
the Advisor will provide the  Partnership  with a current list of all  commodity
interests  to be traded  for the  Partnership's  account  and will not trade any
additional commodity interests for such account without providing notice thereof
to SBFM and  receiving  SBFM's  written  approval.  The  Advisor  also agrees to
provide SBFM, on a monthly basis,  with a written report of the assets under the
Advisor's management together with all other matters deemed by the Advisor to be
material  changes to its business not  previously  reported to SBFM. The Advisor
further agrees that it will convert foreign  currency  balances (not required to
margin  positions  denominated  in a foreign  currency) to U.S.  dollars no less
frequently  than  monthly.   U.S.  dollar   equivalents  in  individual  foreign
currencies of more than $100,000  will be converted to U.S.  dollars  within one
business day after such funds are no longer needed to margin foreign positions.

                  (d) The Advisor agrees to make all material disclosures to the
Partnership  regarding  itself  and its  principals  as defined in Part 4 of the
CFTC's  regulations  ("principals"),   shareholders,   directors,  officers  and
employees,  their trading performance and general trading methods,  its customer
accounts (but not the identities of or identifying  information  with respect to
its customers) and otherwise as are required in the reasonable  judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding  Sections 1(d) and 4(d) of this Agreement, the Advisor shall not
be required to disclose the actual trading  results of  proprietary  accounts of
the  Advisor or its  principals  unless  SBFM  reasonably  determines  that such
disclosure  is  required in order to fulfill its  fiduciary  obligations  to the
Partnership  or the  reporting,  filing or other  obligations  imposed  on it by
Federal or state law or NFA rule or order.  The Partnership and SBFM acknowledge
that the  trading  advice to be  provided  by the  Advisor is a  property  right
belonging  to the Advisor and that they will keep all such advice  confidential.
Further,  SBFM  agrees  to treat as  confidential  any  results  of  proprietary
accounts and/or proprietary information with respect to trading systems obtained
from the Advisor.

                  (e) The Advisor understands and agrees that SBFM may designate
other trading  advisors for the Partnership and apportion or reapportion to such
other trading  advisors the management of an amount of Net Assets (as defined in
Section 3(b)  hereof) as it shall  determine  in its  absolute  discretion.  The
designation of other trading advisors and the  apportionment or  reapportionment
of Net Assets to any such  trading  advisors  pursuant  to this  Section 1 shall
neither  terminate this Agreement nor modify in any regard the respective rights
and obligations of the parties hereunder.

                  (f) SBFM may, from time to time,  in its absolute  discretion,
select  additional  trading  advisors  and  reapportion  funds among the trading
advisors for the  Partnership as it deems  appropriate.  SBFM shall use its best
efforts to make  reapportionments,  if any, as of the first day of a month.  The
Advisor  agrees  that it may be called upon at any time  promptly  to  liquidate
positions  in  SBFM's  sole   discretion  so  that  SBFM  may   reallocate   the
Partnership's  assets,  meet margin  calls on the  Partnership's  account,  fund
redemptions,  or for any other  reason,  except  that SBFM will not  require the
liquidation of specific positions by the Advisor. SBFM will use its best efforts
to  give  two  days'  prior  notice  to  the  Advisor  of any  reallocations  or
liquidations.

                  (g) The Advisor  will not be liable for trading  losses in the
Partnership's account including losses caused by errors; provided, however, that
(i) the  Advisor  will be  liable  to the  Partnership  with  respect  to losses
incurred  due to errors  committed or caused by it or any of its  principals  or
employees in communicating improper trading instructions or orders to any broker
on  behalf  of the  Partnership  and  (ii) the  Advisor  will be  liable  to the
Partnership with respect to losses incurred due to errors committed or caused by
any executing broker (other than any SBFM affiliate) selected by the Advisor, it
being  understood  that SBFM,  with the  assistance  of the Advisor,  will first
attempt to recover such losses from the executing broker.

                  2. INDEPENDENCE OF THE ADVISOR.  For all purposes herein,  the
Advisor shall be deemed to be an independent contractor and, except as otherwise
expressly  provided  or  authorized,  shall  have  no  authority  to act  for or
represent the Partnership in any way and shall not be deemed an agent,  promoter
or sponsor of the Partnership,  SBFM, or any other trading advisor.  The Advisor
shall not be responsible to the Partnership,  the General  Partner,  any trading
advisor or any limited  partners for any acts or omissions of any other  trading
advisor no longer acting as an advisor to the Partnership.

                  3.  COMPENSATION.  (a) In consideration of and as compensation
for all of the services to be rendered by the Advisor to the  Partnership  under
this  Agreement,  the  Partnership  shall pay the Advisor (i) an  incentive  fee
payable  quarterly  equal to (A) 10% of New  Trading  Profits  (as such  term is
defined below) earned by the Advisor for the Partnership on the first $5,000,000
of such New Trading  Profits and (B) 20% of New Trading Profits for all such New
Trading Profits in excess of $5,000,000 and (ii) a monthly fee for  professional
management services equal to 1/6 of 1% (2% per year) of the month-end Net Assets
of the Partnership  allocated to the Advisor.  Progress  towards such $5,000,000
threshold shall be determined on a cumulative basis (as opposed to quarterly) so
that if cumulative New Trading  Profits of $5,000,000  are achieved  through any
date,  then such 20% incentive  fee rate shall be  applicable in all  subsequent
fiscal periods or partial fiscal periods.

                  (b) "Net Assets" shall have the meaning set forth in Paragraph
7(d)(1) of the Limited  Partnership  Agreement dated as of May 19, 1994, amended
as of August 8, 1994,  and amended and  restated as of July 31, 1995 and without
regard to further  amendments  thereto,  provided  that in  determining  the Net
Assets of the  Partnership  on any date, no adjustment  shall be made to reflect
any distributions,  redemptions or incentive fees payable as of the date of such
determination.

                  (c) "New Trading  Profits"  shall mean the excess,  if any, of
Net Assets  managed by the  Advisor  at the end of the  fiscal  period  over Net
Assets managed by the Advisor at the end of the highest  previous  fiscal period
or Net Assets allocated to the Advisor at the date trading commences,  whichever
is  higher,  and as  further  adjusted  to  eliminate  the  effect on Net Assets
resulting from new capital contributions,  redemptions, reallocations or capital
distributions,  if any, made during the fiscal  period  decreased by interest or
other  income,  not  directly  related  to  trading  activity,   earned  on  the
Partnership's  assets  during the  fiscal  period,  whether  the assets are held
separately  or in margin  accounts.  Ongoing  expenses will be attributed to the
Advisor  based  on the  Advisor's  proportionate  share of Net  Assets.  Ongoing
expenses  above will not  include  expenses  of  litigation  not  involving  the
activities of the Advisor on behalf of the  Partnership.  Ongoing  expenses will
not  include  offering  and  organizational  expenses  of  the  Partnership.  No
incentive fee shall be paid until the end of the first full calendar  quarter of
trading by the Advisor,  which fee shall be based on New Trading  Profits earned
from the  commencement  of trading by the  Advisor on behalf of the  Partnership
through the end of the first full calendar  quarter.  Interest income earned, if
any, will not be taken into account in computing New Trading  Profits  earned by
the  Advisor.  If  Net  Assets  allocated  to the  Advisor  are  reduced  due to
redemptions,  distributions or reallocations (net of additions),  or if leverage
is  reduced  at  SBFM's  request,  there  will be a  corresponding  proportional
reduction in the related loss  carryforward  amount that must be recouped before
the Advisor is eligible to receive another incentive fee.

                  (d) Quarterly incentive fees and monthly management fees shall
be paid within twenty (20) business days following the end of the period, as the
case may be, for which such fee is payable.  In the event of the  termination of
this  Agreement as of any date which shall not be the end of a fiscal quarter or
a calendar  month,  as the case may be,  the  quarterly  incentive  fee shall be
computed as if the effective date of  termination  were the last day of the then
current  quarter  and the  monthly  management  fee  shall  be  prorated  to the
effective date of termination.  If, during any month,  the Partnership  does not
conduct  business  operations  or the Advisor is unable to provide the  services
contemplated  herein for more than two  successive  business  days,  the monthly
management  fee shall be prorated by the ratio which the number of business days
during which SBFM conducted the  Partnership's  business  operations or utilized
the Advisor's  services  bears in the month to the total number of business days
in such month.

                  (e) The  provisions  of this  Paragraph  3 shall  survive  the
termination of this Agreement.

                  4.  RIGHT TO  ENGAGE  IN OTHER  ACTIVITIES.  (a) The  services
provided by the Advisor  hereunder are not to be deemed  exclusive.  SBFM on its
own behalf and on behalf of the Partnership  acknowledges  that,  subject to the
terms of this Agreement, the Advisor and its officers, directors,  employees and
shareholder(s), may render advisory, consulting and management services to other
clients and  accounts.  The Advisor and its officers,  directors,  employees and
shareholder(s) shall be free to trade for their own accounts and to advise other
investors and manage other commodity  accounts during the term of this Agreement
and to use the same  information,  computer  programs  and  trading  strategies,
programs or formulas which they obtain, produce or utilize in the performance of
services to SBFM for the Partnership.  However, the Advisor represents, warrants
and agrees that it believes  the  rendering  of such  consulting,  advisory  and
management services to other accounts and entities will not require any material
change  in the  Advisor's  basic  trading  strategies  and will not  affect  the
capacity  of the  Advisor  to  continue  to  render  services  to  SBFM  for the
Partnership of the quality and nature contemplated by this Agreement.

                  (b) If, at any time  during  the term of this  Agreement,  the
Advisor is required to aggregate the Partnership's  commodity positions with the
positions of any other person for purposes of applying CFTC- or exchange-imposed
speculative  position  limits,  the Advisor agrees that it will promptly  notify
SBFM if the  Partnership's  positions are included in an aggregate  amount which
exceeds the applicable  speculative  position limit. The Advisor agrees that, if
its  trading  recommendations  are  altered  because of the  application  of any
speculative  position limits,  it will not modify the trading  instructions with
respect to the Partnership's account in such manner as to affect the Partnership
substantially  disproportionately as compared with the Advisor's other accounts.
The Advisor further represents,  warrants and agrees that under no circumstances
will it  knowingly or  deliberately  use trading  strategies  or methods for the
Partnership  that are inferior to strategies  or methods  employed for any other
client or  account  and that it will not  knowingly  or  deliberately  favor any
client or account  managed by it over any other client or account in any manner,
it being acknowledged, however, that different trading strategies or methods may
be utilized for differing  sizes of accounts,  accounts with  different  trading
policies,  accounts  experiencing  differing  inflows  or  outflows  of  equity,
accounts  which  commence  trading  at  different  times,  accounts  which  have
different  portfolios or different fiscal years,  accounts  utilizing  different
executing brokers and accounts with other differences, and that such differences
may cause divergent trading results.

                  (c) It is  acknowledged  that the Advisor and/or its officers,
employees,  directors and  shareholder(s)  presently  act, and it is agreed that
they may continue to act, as advisor for other accounts managed by them, and may
continue to receive  compensation  with respect to services for such accounts in
amounts  which  may  be  more  or  less  than  the  amounts  received  from  the
Partnership.

                  (d) The  Advisor  agrees  that it shall make such  information
available to SBFM  respecting the  performance of the  Partnership's  account as
compared  to the  performance  of other  accounts  managed by the Advisor or its
principals  as shall be  reasonably  requested  by SBFM.  The Advisor  presently
believes and  represents  that  existing  speculative  position  limits will not
materially  adversely  affect its  ability to manage the  Partnership's  account
given the potential size of the Partnership's  account and the Advisor's and its
principals'  current  accounts  and all  proposed  accounts  for which they have
contracted to act as trading manager.

                  5. TERM.  (a) This  Agreement  shall  continue in effect until
June 30,  2001.  SBFM may,  in its sole  discretion,  renew this  Agreement  for
additional  one-year  periods  upon  notice to the Advisor not less than 30 days
prior to the expiration of the previous  period.  At any time during the term of
this Agreement, SBFM may terminate this Agreement at any month-end upon 30 days'
notice to the Advisor.  At any time during the term of this Agreement,  SBFM may
elect to  immediately  terminate  this  Agreement  upon 30 days'  notice  to the
Advisor  if (i) the Net Asset  Value per Unit  shall  decline as of the close of
business  on any day to $400 or  less;  (ii)  the Net  Assets  allocated  to the
Advisor (adjusted for redemptions, distributions,  withdrawals or reallocations,
if any)  decline  by 50% or more as of the end of a  trading  day from  such Net
Assets'  previous  highest value;  (iii) limited partners owning at least 50% of
the  outstanding  Units shall vote to require SBFM to terminate this  Agreement;
(iv) the Advisor fails to comply with the terms of this Agreement;  (v) SBFM, in
good faith,  reasonably  determines that the performance of the Advisor has been
such that SBFM's fiduciary  duties to the Partnership  require SBFM to terminate
this  Agreement;  or (vi)  SBFM  reasonably  believes  that the  application  of
speculative  position  limits will  substantially  affect the performance of the
Partnership.  At any time  during  the term of this  Agreement,  SBFM may  elect
immediately to terminate this Agreement if (i) the Advisor merges,  consolidates
with  another  entity,  sells a  substantial  portion of its assets,  or becomes
bankrupt or  insolvent,  (ii)  Kenneth G. Tropin  dies,  becomes  incapacitated,
leaves the employ of the Advisor,  ceases to control the Advisor or is otherwise
not  managing  the  trading  programs  or systems of the  Advisor,  or (iii) the
Advisor's  registration  as a  commodity  trading  advisor  with the CFTC or its
membership  in the NFA or any  other  regulatory  authority,  is  terminated  or
suspended.  This Agreement will  immediately  terminate upon  dissolution of the
Partnership or upon cessation of trading prior to dissolution.

                  (b) The Advisor may  terminate  this  Agreement  by giving not
less than 30 days' notice to SBFM (i) in the event that the trading  policies of
the  Partnership  as set forth in the Prospectus are changed in such manner that
the Advisor  reasonably  believes will adversely  affect the  performance of its
trading  strategies;  (ii) after June 30,  2001;  or (iii) in the event that the
General Partner or Partnership fails to comply with the terms of this Agreement.
The Advisor may immediately terminate this Agreement if SBFM's registration as a
commodity pool operator or its membership in the NFA is terminated or suspended.

                  (c)  Except  as  otherwise  provided  in this  Agreement,  any
termination of this  Agreement in accordance  with this Paragraph 5 or Paragraph
1(e) shall be without penalty or liability to any party, except for any fees due
to the Advisor pursuant to Section 3 hereof.

                  6.  INDEMNIFICATION.  (a)(i)  In any  threatened,  pending  or
completed action,  suit, or proceeding to which the Advisor was or is a party or
is  threatened  to be made a party  arising  out of or in  connection  with this
Agreement or the  management of the  Partnership's  assets by the Advisor or the
offering  and  sale  of  units  in  the  Partnership,  SBFM  shall,  subject  to
subparagraph  (a)(iii) of this  Paragraph  6,  indemnify  and hold  harmless the
Advisor against any loss, liability,  damage, cost, expense (including,  without
limitation,  attorneys' and  accountants'  fees),  judgments and amounts paid in
settlement  actually  and  reasonably  incurred  by it in  connection  with such
action,  suit,  or proceeding if the Advisor acted in good faith and in a manner
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
Partnership,  and  provided  that its  conduct  did not  constitute  negligence,
intentional  misconduct,  or a  breach  of  its  fiduciary  obligations  to  the
Partnership as a commodity  trading advisor,  unless and only to the extent that
the court or administrative forum in which such action or suit was brought shall
determine upon  application  that,  despite the adjudication of liability but in
view of all  circumstances  of the case,  the  Advisor is fairly and  reasonably
entitled to indemnity for such expenses which such court or administrative forum
shall  deem  proper;  and  further  provided  that no  indemnification  shall be
available from the Partnership if such  indemnification is prohibited by Section
16 of the  Partnership  Agreement.  The  termination  of  any  action,  suit  or
proceeding  by  judgment,  order or  settlement  shall not, of itself,  create a
presumption  that  the  Advisor  did  not  act in  good  faith  and in a  manner
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
Partnership.

                  (ii) To the extent that the Advisor has been successful on the
merits or otherwise in defense of any action,  suit or proceeding referred to in
subparagraph  (i) above,  or in defense of any claim,  issue or matter  therein,
SBFM shall  indemnify  the Advisor  against  the  expenses  (including,  without
limitation,  attorneys' and accountants' fees) actually and reasonably  incurred
by it in connection therewith.

                  (iii) Any indemnification under subparagraph (i) above, unless
ordered  by a court  or  administrative  forum,  shall  be made by SBFM  only as
authorized in the specific  case and only upon a  determination  by  independent
legal counsel in a written  opinion that such  indemnification  is proper in the
circumstances because the Advisor has met the applicable standard of conduct set
forth in  subparagraph  (i)  above.  Such  independent  legal  counsel  shall be
selected by SBFM in a timely manner,  subject to the Advisor's  approval,  which
approval shall not be unreasonably  withheld. The Advisor will be deemed to have
approved SBFM's selection unless the Advisor notifies SBFM in writing,  received
by SBFM within five days of SBFM's  telecopying  to the Advisor of the notice of
SBFM's selection, that the Advisor does not approve the selection.

                  (iv) In the event the  Advisor  is made a party to any  claim,
dispute or litigation or otherwise incurs any loss or expense as a result of, or
in connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor,  SBFM shall  indemnify,  defend and hold  harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.

                  (v) As used in this Paragraph  6(a), the terms "Advisor" shall
include the Advisor, its principals, officers, partners, directors, stockholders
and employees and the term "SBFM" shall include the Partnership.

                  (b)(i)  The  Advisor  agrees  to  indemnify,  defend  and hold
harmless SBFM, the Partnership and their affiliates against any loss, liability,
damage,  cost  or  expense  (including,   without  limitation,   attorneys'  and
accountants'  fees),  judgments  and amounts  paid in  settlement  actually  and
reasonably  incurred  by them  (A) as a result  of the  material  breach  of any
material  representations  and warranties made by the Advisor in this Agreement,
or (B) as a  result  of any  act or  omission  of the  Advisor  relating  to the
Partnership if there has been a final judicial or regulatory  determination  or,
in the event of a settlement of any action or proceeding  with the prior written
consent of the Advisor, a written opinion of an arbitrator pursuant to Paragraph
14 hereof, to the effect that such acts or omissions  violated the terms of this
Agreement  in  any  material   respect  or  involved   negligence,   bad  faith,
recklessness  or  intentional  misconduct on the part of the Advisor  (except as
otherwise provided in Section 1(g)).

                  (ii)  In the  event  SBFM,  the  Partnership  or any of  their
affiliates  is made a party to any claim,  dispute or  litigation  or  otherwise
incurs any loss or expense as a result of, or in connection with, the activities
or claimed  activities of the Advisor or its  principals,  officers,  directors,
shareholder(s) or employees  unrelated to SBFM's or the Partnership's  business,
the Advisor shall  indemnify,  defend and hold harmless SBFM, the Partnership or
any of their affiliates  against any loss,  liability,  damage,  cost or expense
(including,  without  limitation,  attorneys' and accountants' fees) incurred in
connection therewith.

                  (c) In the event  that a person  entitled  to  indemnification
under this Paragraph 6 is made a party to an action, suit or proceeding alleging
both matters for which  indemnification  can be made  hereunder  and matters for
which  indemnification  may  not  be  made  hereunder,   such  person  shall  be
indemnified  only for that  portion  of the  loss,  liability,  damage,  cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.

                  (d) None of the indemnifications contained in this Paragraph 6
shall be applicable with respect to default  judgments,  confessions of judgment
or settlements  entered into by the party claiming  indemnification  without the
prior written consent,  which shall not be unreasonably  withheld,  of the party
obligated to indemnify such party.

                  (e) The  provisions  of this  Paragraph  6 shall  survive  the
termination of this Agreement.

                  7.  REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

                  (a) The Advisor represents and warrants that:

                                    (i)  The  Disclosure  Document  is  in  full
compliance with the Commodity Exchange Act and the rules and regulations
promulgated  thereunder;  and is accurate in all material  respects and does not
contain any untrue statement of a material fact or omit to state a material fact
which is necessary to make the statements therein not misleading.  References to
the Advisor and its principals if any, in any Prospectus  will, after review and
approval of such  references by the Advisor prior to the use of such  Prospectus
in connection with the offering of the  Partnership's  units, be accurate in all
material respects.]

                  (ii) The information  with respect to the Advisor set forth in
the actual performance tables in the Disclosure  Document is based on all of the
customer accounts managed on a discretionary  basis by the Advisor's  principals
and/or the Advisor  during the period  covered by such tables and required to be
disclosed therein.

                  (iii)  The  Advisor  will be  acting  as a  commodity  trading
advisor  with  respect to the  Partnership  and not as a  securities  investment
adviser and is duly registered with the CFTC as a commodity trading advisor,  is
a member of the NFA,  and is in  compliance  with such  other  registration  and
licensing  requirements  as shall be  necessary  to  enable  it to  perform  its
obligations  hereunder,  and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.

                  (iv) The  Advisor  is a limited  partnership  duly  organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and has full power and authority to enter into this Agreement and to provide the
services required of it hereunder.

                  (v) The Advisor  will not,  by acting as a  commodity  trading
advisor to the  Partnership,  breach or cause to be  breached  any  undertaking,
agreement,  contract,  statute,  rule or regulation to which it is a party or by
which it is bound.

                  (vi)  This  Agreement  has been duly and  validly  authorized,
executed  and  delivered  by the Advisor  and is a valid and  binding  agreement
enforceable in accordance with its terms.

                  (vii) At any time  during  the term of this  Agreement  that a
prospectus  relating to the Units is required to be delivered in connection with
the offer and sale  thereof,  the  Advisor  agrees  upon the  request of SBFM to
provide the Partnership  with such information as shall be necessary so that, as
to the Advisor and its principals, such prospectus is accurate.

                  (b)  SBFM   represents   and   warrants  for  itself  and  the
Partnership that:

                  (i)  The   Prospectus   (as  from  time  to  time  amended  or
supplemented,  which  amendment or  supplement  is approved by the Advisor as to
descriptions of it) does not contain any untrue  statement of a material fact or
omit to state a material fact which is necessary to make the statements  therein
not misleading,  except that the foregoing  representation does not apply to any
statement or omission concerning the Advisor in the Prospectus, made in reliance
upon, and in conformity with,  information  furnished to SBFM by or on behalf of
the Advisor expressly for use in the Prospectus.

                  (ii) It is a limited liability company duly organized, validly
existing  and in good  standing  under the laws of the State of Delaware and has
full power and authority to perform its obligations under this Agreement.

                  (iii) SBFM and the Partnership have the capacity and authority
to enter into this Agreement on behalf of the Partnership.

                  (iv)  This  Agreement  has been duly and  validly  authorized,
executed and delivered on SBFM's and the Partnership's behalf and is a valid and
binding agreement of SBFM and the Partnership enforceable in accordance with its
terms.

                  (v) SBFM  will  not,  by  acting  as  General  Partner  to the
Partnership  and the  Partnership  will not,  breach or cause to be breached any
undertaking,  agreement,  contract, statute, rule or regulation to which it is a
party or by which  it is  bound  which  would  materially  limit or  affect  the
performance of its duties under this Agreement.

                  (vi) It is  registered  as a commodity  pool operator and is a
member  of the  NFA,  and it will  maintain  and  renew  such  registration  and
membership during the term of this Agreement.

                  (vii) The Partnership is a limited  partnership duly organized
and validly  existing under the laws of the State of New York and has full power
and authority to enter into this Agreement and to perform its obligations  under
this Agreement.

                  (viii)  SBFM  and  the   Partnership   acknowledge   that  the
Partnership's  assets managed by the Advisor may experience  results  materially
different  from  those  achieved   generally  by  the  Program  due  to  various
circumstances, including differences in fee and commission structures.

                  8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.

                  (a) The Advisor agrees as follows:

                  (i)  In  connection  with  its  activities  on  behalf  of the
Partnership,  the Advisor will comply with all applicable  rules and regulations
of the CFTC and/or the commodity exchange on which any particular transaction is
executed.

                  (ii) The Advisor will promptly notify SBFM of the commencement
of any material suit, action or proceeding involving it, whether or not any such
suit, action or proceeding also involves SBFM.

                  (iii) In the placement of orders for the Partnership's account
and  for  the  accounts  of  any  other  client,  the  Advisor  will  utilize  a
pre-determined, systematic, fair and reasonable order entry system, which shall,
on an overall basis, be no less favorable to the  Partnership  than to any other
account  managed by the Advisor.  The Advisor  acknowledges  its  obligation  to
review the Partnership's positions,  prices and equity in the account managed by
the Advisor daily and within two business days to notify, in writing, the broker
and SBFM and the Partnership's brokers of (i) any error committed by the Advisor
or its  principals or employees;  (ii) any trade which the Advisor  believes was
not executed in accordance with its instructions; and (iii) any discrepancy with
a value of  $10,000  or more (due to  differences  in the  positions,  prices or
equity in the account)  between its records and the information  reported on the
account's daily and monthly broker statements.

                  (iv)  The Advisor will maintain a net worth of not less than
                        $1,000,000 during the term of this Agreement.

                  (b) SBFM agrees for itself and the Partnership that:

                  (i) SBFM and the  Partnership  will comply with all applicable
rules and  regulations  of the CFTC and/or the  commodity  exchange on which any
particular transaction is executed.

                  (ii) SBFM will promptly notify the Advisor of the commencement
of any material  suit,  action or  proceeding  involving it or the  Partnership,
whether or not such suit, action or proceeding also involves the Advisor.

                  9. COMPLETE AGREEMENT.  This Agreement  constitutes the entire
agreement between the parties pertaining to the subject matter hereof.

                  10.  ASSIGNMENT.  This  Agreement  may not be  assigned by any
party without the express written consent of the other parties.

                  11. AMENDMENT. This Agreement may not be amended except by the
written consent of the parties.

                  12. NOTICES.  All notices,  demands or requests required to be
made or  delivered  under  this  Agreement  shall be in  writing  and  delivered
personally  or by  registered  or certified  mail or expedited  courier,  return
receipt  requested,  postage  prepaid,  to the addresses  below or to such other
addresses  as may be  designated  by the party  entitled  to receive the same by
notice similarly given:

                  If to SBFM:

                           Smith Barney Futures Management LLC
                           388 Greenwich Street, 7th Floor
                           New York, New York 10013
                           Attention:  David J. Vogel

                  If to the Advisor:

                           Graham Capital Management, L.P.
                           Stamford Harbor Park
                           333 Ludlow Street
                           Stamford, Connecticut 06902
                           Attention: Mr. Paul Sedlack

                  13.  GOVERNING  LAW. This  Agreement  shall be governed by and
construed in  accordance  with the laws of the State of New York without  giving
effect to principles of conflicts of law.

                  14.  ARBITRATION.  The  parties  agree  that  any  dispute  or
controversy  arising out of or relating to this Agreement or the  interpretation
thereof,  shall be settled by arbitration in accordance with the rules,  then in
effect,  of  the  National  Futures  Association  or,  if the  National  Futures
Association shall refuse  jurisdiction,  then in accordance with the rules, then
in effect, of the American Arbitration Association;  provided, however, that the
power of the  arbitrator  shall be limited to  interpreting  this  Agreement  as
written and the arbitrator shall state in writing his reasons for his award.
Judgment  upon any award made by the  arbitrator  may be entered in any court of
competent jurisdiction.

                  15. NO THIRD  PARTY  BENEFICIARIES.  There are no third  party
beneficiaries to this Agreement.


                  IN WITNESS  WHEREOF,  this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.

SMITH BARNEY FUTURES
MANAGEMENT LLC


By _______________________
David J. Vogel
President


SMITH BARNEY DIVERSIFIED
FUTURES FUND L. P. II


By: Smith Barney Futures Management LLC
(General Partner)


By _______________________
David J. Vogel
President


GRAHAM CAPITAL MANAGEMENT, L.P.


By ____________________
Name:
Title: