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.,  a  New  York   limited   partnership   (the
"Partnership")  and WILLOWBRIDGE  ASSOCIATES  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., 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 as of
February 17,  1994,  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 Select Investment Program using the Vulcan
Trading System to manage 50% of the  Partnership's  assets  allocated to it, and
the  Advisor's  Argo Trading  System to manage 50% of 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.  SBFM and
the  Partnership  each  acknowledge  that the Advisor may utilize  exchange  for
physicals transactions in its trading for the Partnership.

                  (b) SBFM  acknowledges  receipt  of the  Advisor's  Disclosure
Document  dated May 31,  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 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) and the  Advisor  shall  have no
responsibility  for such payment.  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  approximately  U.S.  $13,000,000  (all of which shall be actual
funds) made to the Advisor's Select Investment Program,  50% of such funds to be
traded using the Vulcan  Trading System and 50% of such funds to be traded using
the Argo  Trading  System  (each,  a  "Trading  System"  and  collectively,  the
"Program").  The Advisor will not be allocated any notional  funds.  The parties
acknowledge that if assets of the Partnership under the Advisor's  management in
either Trading System fall below $750,000,  the Advisor may not be able to trade
that Trading  System in full.  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  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 any prospectus
of the  Partnership.  Non-material  changes in the trading  systems  utilized on
behalf of the  Partnership  may be instituted  without  prior written  approval.
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 or other  information  deemed by the Advisor to be proprietary and
confidential)  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 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.  SBFM and the  Partnership  shall not distribute any description of the
Advisor,  its principals,  or its or their trading performance without the prior
written consent of 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 $500,000.

                  (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  committed  by any
commodity  broker/dealer  selected  by  SBFM;  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 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,  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.

                  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  (which shall
include any committed funds).

                  (b) "Net Assets" shall have the meaning set forth in Paragraph
7(d)(1) of the  Limited  Partnership  Agreement  dated as of August 27, 1993 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  (which shall include any committed  funds) at
the end of the fiscal period over Net Assets managed by the Advisor (which shall
include any committed funds) 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. 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.  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.  No incentive  fee shall be paid to the Advisor  until the end of
the first full calendar  quarter of the Advisor's  trading for the  Partnership,
which  incentive  fee shall be based on New  Trading  Profits  (if any) from the
commencement  of trading for the  Partnership by the Advisor  through the end of
the first full calendar quarter.

                  (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  Program 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  whose  assets are traded  pursuant to the Program and that it
will not knowingly or  deliberately  favor any such client or account managed by
it over any other  client or account  whose  assets are traded  pursuant  to the
Program in any manner, it being  acknowledged,  however,  that different trading
strategies or methods may be utilized for differing sizes of accounts,  accounts
traded with  different  degrees of leverage,  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,  provided  that nothing
contained herein shall be deemed to require the Advisor to disclose the names of
other  customers or  information  that the Advisor  deems to be  proprietary  or
confidential.  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 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,  except as
provided in Section 10 hereof, (ii) Philip Yang and Michael Gan both 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 or if the  Advisor's  license  agreement  with Caxton  Corporation  is
terminated.  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 in the event that (i) 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
or if the Advisor's license agreement with Caxton Corporation is terminated.

                  (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 Limited 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) Without  limiting sub paragraph (i) above,  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,  arbitrator 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  principals,  officers,  directors and
employees  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 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
principals,  officers,  directors  and  employees  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 principals,  officers,  directors
and employees against any loss,  liability,  damage, cost or expense (including,
without  limitation,  attorneys' and accountants'  fees) actually and reasonably
incurred in connection therewith.

                  (iii)  Neither  Philip  Yang nor  Michael  Gan shall  have any
liability  to the  Partnership  or SBFM  or any of  their  respective  officers,
directors,  employees,  partners  or  affiliates  under  this  Agreement  or  in
connection with the  transactions  contemplated by this Agreement  except in the
case of his own fraud or willful misconduct.

                  (iv) Any  indemnification  under  subparagraph  (b)(i)  above,
unless ordered by a court,  arbitrator 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  facsimile to SBFM of
the notice of the 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 that:

                  (i) All  references  to the Advisor and its  principals in the
Advisor's  Disclosure  Document are accurate in all material  respects and as to
them the Disclosure  Document as of the date of the Disclosure Document 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.

                  (ii) The performance information 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  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.

                  (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,  if any, 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 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  will  comply with all laws,
rules,  regulations and orders  applicable to the offer and sale of Units in all
jurisdictions in which Units are offered or sold.

                  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,  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
$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.

                  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 effective upon actual receipt
and  shall  be  in  writing  and  delivered  personally  or 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:  Mr. David J. Vogel

                  If to the Advisor:

                  Willowbridge Associates Inc.
                  101 Morgan Lane
                  Suite 180
                  Plainsboro, New Jersey  08536
                  Attention:  Theresa C. Morris

                  with a copy to:

                  Mayer, Brown & Platt
                  190 South LaSalle Street
                  Chicago, Illinois  60603
                  Attention:  Joseph P. Collins

                  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>


0556237.08






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

                  16. NO THIRD  PARTY  BENEFICIARIES.  There are no third  party
beneficiaries  to this Agreement except that certain persons not parties to this
Agreement have rights under Section 6 hereof.


                  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
                                                        Daniel A. Dantuono
                                                        Chief Financial Officer,
                                                        Treasurer and Director


                                                     SMITH BARNEY DIVERSIFIED
                                                     FUTURES FUND L.P.


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


                                                     By
                                                        Daniel A. Dantuono
                                                        Chief Financial Officer,
                                                        Treasurer and Director


                                                    WILLOWBRIDGE ASSOCIATES INC.


                                                     By
                                                        Theresa C. Morris
                                                        Senior Vice President