MANAGEMENT AGREEMENT


                  AGREEMENT made as of the 1st day of March, 2001 among SMITH
BARNEY FUTURES MANAGEMENT LLC, a Delaware limited liability company ("SBFM" or
the "General Partner"), SMITH BARNEY DIVERSIFIED FUTURES FUND L. P., a New York
limited partnership (the "Partnership") and GRAHAM CAPITAL MANAGEMENT, L.P., a
Delaware limited partnership (the "Advisor").

                              W I T N E S S E T H :
                               - - - - - - - - - -

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

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

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

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

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

                  NOW, THEREFORE, the parties agree as follows:

                  1. DUTIES OF THE ADVISOR. (a) For the period and on the terms
and conditions of this Agreement, the Advisor shall have sole authority and
responsibility, as one of the Partnership's agents and attorneys-in-fact, for
directing the trading of assets and funds of the Partnership allocated to it
from time to time by the General Partner in commodity interests, including
commodity futures contracts, options and forward contracts. All such trading on
behalf of the Partnership shall be in accordance with the trading policies set
forth in the Partnership's Prospectus and Disclosure Document dated 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 Global Diversified Program at 150% of the leverage normally
applied by the Advisor (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 January 19, 2001, (the "Disclosure Document") as filed with the
NFA and 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 any and all
trades in commodity futures and options to a futures commission merchant or
independent floor broker it chooses for execution with instructions to give-up
the trades to the broker designated by SBFM, provided that the futures
commission merchant or independent floor broker and any give-up or floor
brokerage fees are approved in advance by SBFM. All give-up or similar fees
relating to the foregoing shall be paid by the Partnership after all parties
have executed the relevant give-up agreements (by either original or fax copy).

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

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

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

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

                  (g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors; provided, however, that
(i) the Advisor will be liable to the Partnership with respect to losses
incurred due to errors committed or caused by it or any of its principals or
employees in communicating improper trading instructions or orders to any broker
on behalf of the Partnership and (ii) the Advisor will be liable to the
Partnership with respect to losses incurred due to errors committed or caused by
any executing broker (other than any SBFM affiliate) selected by the Advisor, it
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, except as otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Partnership in any way and shall not be deemed an agent, promoter
or sponsor of the Partnership, SBFM, or any other trading advisor. The Advisor
shall not be responsible to the Partnership, the General Partner, any trading
advisor or any limited partners for any acts or omissions of any other trading
advisor no longer acting as an advisor to the Partnership.

                  3. COMPENSATION. (a) In consideration of and as compensation
for all of the services to be rendered by the Advisor to the Partnership under
this Agreement, the Partnership shall pay the Advisor (i) an incentive fee
payable quarterly equal to 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 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 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 (i) expenses of litigation not involving the
activities of the Advisor on behalf of the Partnership; or (ii) offering and
organizational expenses of the Partnership. No incentive fee shall be paid until
the end of the first full calendar quarter of trading by the Advisor on behalf
of the Partnership, which fee shall be based on New Trading Profits earned from
the commencement of trading by the Advisor on behalf of the Partnership through
the end of the first full calendar quarter. Interest income earned, if any, will
not be taken into account in computing New Trading Profits earned by the
Advisor. If Net Assets allocated to the Advisor are reduced due to redemptions,
distributions or reallocations (net of additions), or if leverage is reduced at
SBFM's request, there will be a corresponding proportional reduction in the
related loss carryforward amount that must be recouped before the Advisor is
eligible to receive another incentive fee.

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

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


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

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

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

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

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


<PAGE>


863432.3

13


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

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

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

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

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

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

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

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

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

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

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

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

                  7.  REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
                      ------------------------------------------

                  (a) The Advisor represents and warrants that:

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

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

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

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

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

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

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

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

                  (i) The Prospectus (as from time to time amended or
supplemented, which amendment or supplement is approved by the Advisor as to
descriptions of 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 limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full power and authority to perform its obligations under this Agreement.

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

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

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

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

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

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

                  8.  COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP.
                      --------------------------------------------------
(a)  The Advisor agrees as follows:

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

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

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

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

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

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

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

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

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

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


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

                  If to SBFM:

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

                  If to the Advisor:

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

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

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

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

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

                                            SMITH BARNEY FUTURES MANAGEMENT LLC


                                            By /s/ David J. Vogel
                                              ----------------------------------
                                                David J. Vogel
                                                President


                                            SMITH BARNEY DIVERSIFIED
                                            FUTURES FUND L. P.

                                       By:  Smith Barney Futures Management LLC
                                                 (General Partner)


                                            By  /s/ David J. Vogel
                                              ----------------------------------
                                                David J. Vogel
                                                President


                                            GRAHAM CAPITAL MANAGEMENT, L.P.


                                            By   /s/Kenneth G. Tropin
                                              ----------------------------------
                                                 Name:Kenneth G. Tropin
                                                 Title: President