MANAGEMENT AGREEMENT


                  AGREEMENT made as of the 1st day of February, 1999 among SMITH
BARNEY FUTURES MANAGEMENT INC., a Delaware  corporation  ("SBFM"),  SMITH BARNEY
DIVERSIFIED  FUTURES  FUND  L.  P.  II,  a New  York  limited  partnership  (the
"Partnership")  and R.G.  NIEDERHOFFER  CAPITAL  MANAGEMENT,  INC.,  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  Financial  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 materially  deviate from the trading  policies set
forth in the  Prospectus  without the prior written  consent of the  Partnership
given by SBFM.  SBFM  acknowledges  that the Advisor may  utilize  exchange  for
physical  transactions in its trading for the Partnership.  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 October 9, 1998 as filed with the NFA and CFTC (the  "Disclosure
Document").  All trades made by the  Advisor for the account of the  Partnership
shall be cleared 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 (all
actual,  no notional,  funds) to the Advisor  will be made to the  Program.  The
parties  acknowledge  that if assets of the Fund under the Advisor's  management
fall below U.S.  $1  million,  the  Advisor  may not be able to trade all of the
Program's  portfolio  for the Fund.  In the event  the  Advisor  wishes to use a
trading  system or  methodology  materially  different  from,  other  than or in
addition to the Program as outlined  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, if applicable. Immaterial changes may be instituted without
prior  written  approval  of  SBFM.  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
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 use its best efforts to convert foreign currency  balances (not required to
margin positions denominated in a foreign currency) to U.S.
dollars no less frequently than approximately monthly.

                  (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  disclosure  documents  and  amendments  thereto  or  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
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 and will not make use of such advice in any manner
or  disclose  such  advice to third  parties.  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.  The Advisor  may  terminate  this
Agreement  immediately  if the Net  Assets  of the  Partnership  managed  by the
Advisor  fall  below  $1,000,000   (after  adjustment  for  trading  losses  and
redemptions).

                  (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 and the  Partnership
acknowledge  that any such request to liquidate  positions by SBFM may result in
the  Partnership  incurring  losses which it might  otherwise not have incurred.
SBFM will use its best  efforts to give two days' prior notice to the Advisor of
any  reallocations or  liquidations.  The Advisor may refuse any increase in the
amount of the allocated assets in its sole discretion.

                  (g) The Advisor  will not be liable for trading  losses in the
Partnership's account including losses caused by errors; provided, however, that
the Advisor will be liable to the  Partnership  with respect to losses  incurred
due to negligent  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.

                  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,  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, whether or not they are still 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 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 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 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 simultaneous 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.  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 principals,  officers,  directors,
employees and  shareholder(s),  may render  advisory,  consulting and management
services  to  other  clients  and  accounts.  The  Advisor  and its  principals,
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 and  different
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.  The Partnership and SBFM acknowledge that all such trading for
other accounts may increase the level of competition  with respect to priorities
of order entry and may restrict the ability of the Advisor to obtain or maintain
positions  in  futures  due to the  application  of  CFTC  or  exchange  imposed
speculative  position  limits and daily  trading  limits.  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 materially 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 a 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 on an
overall  basis,  it  being   acknowledged,   however,   that  different  trading
strategies,  programs,  methods  and degrees of  leverage  may be  utilized  for
differing  sizes of  accounts,  accounts  with  different  trading  policies and
restrictions,  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.   SBFM  and  the  Partnership   further
acknowledge  that the Advisor  offers another  trading  program than the Program
which they have  selected  and that such other  trading  program may obtain more
favorable results than the Program.

                  (c) It is acknowledged that the Advisor and/or its principals,
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 client  accounts  managed by the Advisor or
its principals pursuant to the Program 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 advisor.

                  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 all
material  respects;  (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) R.G.  Niederhoffer  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.


<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) after June 30,  1999;  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. EXCULPATION AND  INDEMNIFICATION.  (a)(i) The Advisor shall
not be  liable  to  SBFM,  the  Partnership  or their  respective  shareholders,
partners,  successors or assigns under this  Agreement for any act or failure to
act taken or omitted in good faith in a manner  reasonably  believed to be in or
not opposed to the best  interests of the  Partnership if such act or failure to
act did not constitute negligence,  intentional misconduct, a material breach of
any  material  representations  or  warranties  made  by  the  Advisor  in  this
Agreement,  or a breach of its fiduciary  obligations  to the  Partnership  as a
commodity trading advisor. 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,   a  material  breach  of  any  material
representations or warranties made by the Advisor in this Agreement, 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 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 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 as a result of the  Advisor's  failure to act in good faith and in a manner
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
Partnership,  or if the Advisor's conduct  constituted  negligence,  intentional
misconduct, a material breach of any material representations or warranties made
by the Advisor in this  Agreement,  or a breach of its fiduciary  obligations to
the Partnership as a commodity trading advisor.

                  (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.

                  (iii) Any indemnification under subparagraph (i) above, unless
ordered by a court or administrative forum, shall be made by the Advisor 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.  Such independent  legal counsel shall be selected by the Advisor
in a timely  manner,  subject to SBFM's  approval,  which  approval shall not be
unreasonably  withheld.  SBFM  will be  deemed to have  approved  the  Advisor's
selection  unless SBFM notifies the Advisor in writing,  received by the Advisor
within five days of the Advisor's telecopying to SBFM of the notice of Advisor's
selection, that SBFM does not approve the selection.

                  (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 to the Partnership and
SBFM that:

                  (i) All references,  if any, to the Advisor and its principals
in the  Prospectus  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
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,  if any, 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 have been
prepared  in  accordance  with the "Fully  Funded  Subset"  method or such other
method  approved  by the  CFTC as  described  in the  Disclosure  Document.  The
information with respect to the Program pertains to 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  corporate  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 in all material
respects.

                  (b) SBFM represents and warrants to the Advisor 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,  if any) is  complete  and
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, except that the foregoing representation does
not apply to any statement or omission concerning the Advisor in the Prospectus,
if any, 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  (it
being understood, if applicable, that the hypothetical and pro forma adjustments
in Table B were not furnished by the Advisor).

                  (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 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)  The  Partnership  and SBFM  are and  shall  remain  in
compliance in all material respects with all statutes,  laws, rules, regulations
and  orders  of  any   government,   governmental   agency  or   self-regulatory
organization  applicable to its business,  this Agreement or the offering of the
units in the Partnership.

                  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;  (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
$250,000 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,  and any
assignment  without the express written consent of all the parties shall be null
and void.

                  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 Inc.
                           390 Greenwich Street
                           1st Floor
                           New York, New York  10013
                           Attention:  David J. Vogel

                  If to the Advisor:

                           R.G. Niederhoffer Capital Management, Inc.
                           145 West 57th Street
                           10th Floor
                           New York, New York 10019
                           Attention: Roy G. Niederhoffer

                  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.

                  15.  CONFIDENTIALITY.  Nothing in this Agreement shall require
the Advisor to disclose  the details of its  trading  system,  methods,  models,
strategies and formulas.  SBFM acknowledges  that the trading systems,  methods,
models,  strategies  and  formulas  of the  Advisor  are the sole and  exclusive
property of the Advisor;  SBFM further agrees that it will keep confidential and
will not  disseminate  information  regarding  such  systems,  methods,  models,
strategies and formulas to any person.


<PAGE>





                  15. NO THIRD PARTY BENEFICIARIES. Except as otherwise provided
in this Agreement, 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


                                                     R.G. NIEDERHOFFER CAPITAL
                                                     MANAGEMENT, INC.


                                                     By
                                                     Roy G. Niederhoffer
                                                     President