MANAGEMENT AGREEMENT


                  AGREEMENT made as of the 1st day of February, 1999 among SMITH
BARNEY FUTURES MANAGEMENT INC., a Delaware  corporation  ("SBFM" or the "Trading
Manager"),  SMITH  BARNEY  DIVERSIFIED  FUTURES  FUND L.P.,  a New York  limited
partnership  (the  "Partnership")  and BEACON  MANAGEMENT  CORPORATION  (USA), a
Delaware corporation (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  investment  and  reinvestment  of the  assets  and  funds of the
Partnership  allocated  to it 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,
1998, 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 Meka Program (the  "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  February 1, 1999 as filed with the NFA and the CFTC. 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 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).  SBFM will cause the  Partnership's  commodity brokers to provide the
Advisor with copies of all confirmation,  purchase and sale, monthly and similar
statements at the time such statements are available to SBFM.

                  (c) The initial allocation of the Partnership's  assets to the
Advisor  will be made to the Program.  In the event the Advisor  wishes to use a
trading  system or  methodology  other  than or in  addition  to the  Program as
outlined in the Prospectus 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  which  consent shall not be
unreasonably  withheld.  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 which consent shall not be
unreasonably  withheld. 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 Prospectus,  if
applicable.  Further,  the Advisor will provide the  Partnership  with a current
list of all commodity interests to be traded for the Partnership's  account. The
Advisor also agrees to provide SBFM, on a monthly  basis,  with a written report
of the assets under the  Advisor's  management  in an  agreed-upon  format.  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 is not
required to disclose the actual trading  results of proprietary  accounts of the
Advisor or its principals. 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,  and agree that
such advice shall not be disclosed to third  parties  without the prior  written
consent of the Advisor.  Nothing in this Agreement  shall require the Advisor to
disclose the non-public details of its strategies.

                  (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  and  to  require  such   reallocations  or  liquidations  only  at
month-end.

                  (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 solely and  directly to errors  committed or caused by it or any of
its principals or employees in communicating  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 Salomon Smith Barney Inc. or any of
its  affiliates)  selected by the Advisor (it also 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,  unless  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,  the  General  Partner,  or any other  trading
advisor.  The Advisor shall not be  responsible  to the  Partnership,  SBFM, any
trading  advisor or any limited  partners for any acts or omissions of any other
trading 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 20% of New Trading Profits (as such term is defined
below)  earned by the  Advisor  for the  Partnership  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.

                  (b) "Net Assets" shall have the meaning set forth in Paragraph
7(d)(1) of the Limited  Partnership  Agreement  dated 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 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,  which fee
shall be based on New Trading  Profits earned from the  commencement  of trading
operations  by 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),  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.

                  (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,  to the best of its present
knowledge,  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 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 pool accounts managed by the Advisor or its
principals using the same strategy 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,  1999.  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 in a material
manner; (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) Grant W. Schaumburg Jr. and Mark
S. Stratton die, become incapacitated, leave the employ of the Advisor, cease to
control the  Advisor or are  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.


<PAGE>



                  (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) if liquidations  are ordered pursuant to Section 1(f)
above;  (iii) after June 30, 1999; or (iv) 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
trading advisor, or SFG's registration as a commodity pool operator or either of
their memberships 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,  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 material breach of its fiduciary obligations to the
Partnership as a commodity trading advisor.  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 it 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,  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) All  references  to the Advisor and its  principals in the
Prospectus,  if any, are  accurate in all  material  respects and as to them the
Prospectus  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  with  respect  to  Table  B  in  the  Prospectus  (if
applicable),  this  representation  and warranty  extends only to the underlying
performance  data made available by the Advisor for the preparation  thereof and
not to any hypothetical or pro forma adjustments. Subject to such exception, all
references  to the Advisor and its  principals  in the  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 Advisor's  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  corporation  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 which would  materially limit or affect the performance of its
duties under this Agreement.

                  (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 itself and its actual  performance)  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 corporation duly organized,  validly existing and
in good standing  under the laws of the State of Delaware and has full corporate
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 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.

                  (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.

                  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  demonstrate to SBFM's  satisfaction its
ability  to  bear  its  responsibilities   arising  under  this  Agreement,   by
presentation of supporting  documentation (such as financial statements together
with  a  certification   of  accuracy  or,  in  certain  cases,  the  individual
obligations  of the  controlling  principals  of the Advisor  for the  Advisor's
responsibilities  hereunder) as SBFM may reasonably request. In this connection,
Advisor agrees that it shall cause the Promissory  Note attached hereto as Rider
A to be executed.

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

                  (i) SBFM and the  Partnership  will comply with all applicable
laws,  rules and  regulations  including  those 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,  by  facsimile  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 Inc.
                           390 Greenwich Street
                           1st Floor
                           New York, New York  10013
                           Attention:  David J. Vogel

                  If to the Advisor:

                           Beacon Management Corporation (USA)
                           47 Hulfish Street
                           Princeton, New Jersey  08542
                           Attention: Grant W. Schaumburg Jr.

                  13.  GOVERNING  LAW. This  Agreement  shall be governed by and
construed in accordance with the laws of the State of New York.

                  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.


<PAGE>


0556053.02

                                                        -1-

                  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 INC.


                                                     By
                                                     David J. Vogel
                                                     President and Director


                                                     SMITH BARNEY DIVERSIFIED
                                                     FUTURES FUND L. P. II

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


                                                     By
                                                     David J. Vogel
                                                     President and Director


                                                     BEACON MANAGEMENT 
                                                     CORPORATION (USA)


                                                     By
                                      Name:
                                     Title:




<PAGE>



                                     RIDER A
                                 PROMISSORY NOTE


Princeton, New Jersey
Date: February 1, 1999



                  FOR VALUE RECEIVED,  the undersigned,  Grant W. Schaumburg Jr.
and Mark S.  Stratton,  each  promise  to pay on  demand,  to the order of SMITH
BARNEY  DIVERSIFIED  FUTURES FUND L. P. II (the "Fund") or Smith Barney  Futures
Management Inc. ("SBFM") as the Fund or SBFM shall elect, the sum of Two Hundred
Thousand  Dollars  ($200,000).  This note shall be  callable by the Fund or SBFM
only if and to the extent that Beacon Management Corporation (USA) ("Beacon"), a
Delaware  corporation,  does not have  sufficient  assets  to  fulfill  Beacon's
obligations  associated  with the  Management  Agreement  dated February 1, 1999
among SBFM, the Fund and Beacon.

-------------------------           -------------------------
Grant W. Schaumburg Jr.                     Mark S. Stratton