Document:

Escrow Agreement

  
 Exhibit 10.3 
  
 ESCROW AGREEMENT dated as of December     , 2002 by and among Citigroup Diversified Futures Fund L.P. (the “Partnership”), Smith Barney Futures Management LLC (the
“General Partner”), Salomon Smith Barney Inc. (“SSB”) and JPMorgan Chase Bank, a New York State chartered bank (the “Escrow Agent”). 
  

	To:
	 
	JPMorgan Chase Bank 
 

	  
	 
	450 West 33rd Street, 15th floor 
 

	  
	 
	New York, New York 10001 
 

	  
	 
	Attention: Institutional Trust Services 
 

  
 The following property is to be deposited with you as Escrow Agent in one or more bank accounts further described in Paragraph 4 below which shall be entitled “Subscriber Escrow Accounts for
Citigroup Diversified Futures Fund L.P.”: 
  
 All proceeds of subscriptions (the “Escrow Property”)
for Units of Limited Partnership Interest (“Units”) in CITIGROUP DIVERSIFIED FUTURES FUND L.P., a New York limited partnership, received by SSB, Selling Agent for the Partnership. SSB shall deliver to all such prospective subscribers
interim receipts for the amount of the funds deposited in this escrow. 
  
 As Escrow Agent, you are hereby directed
to hold, deal with and dispose of the Escrow Property and any other property at any time held by you hereunder subject to the terms and conditions hereinafter set forth: 
  

	1.
	 
	During the Initial Offering Period and the Continuous Offering Period (as defined in Paragraph 6 below), all Escrow Property (up to the collected balances in
the account or accounts and as the balances become collected in the account or accounts) deposited with the Escrow Agent and any interest earned thereon (which shall also be part of the Escrow Property) shall be paid over and delivered to the
Partnership as directed by written notice by the General Partner as soon as practicable after receipt by the Escrow Agent of such written notice in accordance with Paragraph 2 below. 
 

  

	2.
	 
	The Escrow Property deposited with the Escrow Agent and any interest earned thereon shall be paid over and delivered to the Partnership as directed by written
notice of the General Partner: 
 

  

	 	(i)
	with respect to the Initial Offering Period, if subscriptions for Units in the aggregate value of $25,000,000 have been received during the Initial Offering
Period, as evidenced by an affidavit of the General Partner attesting to said fact, and 
 

  

	 	(ii)
	during the Continuous Offering Period on the first day of the month. Any such written request shall be made sufficiently in advance of the first day of a month
to provide sufficient time for the Escrow Agent to process the request for delivery to the Partnership on the first day of the month. 
 

  
 During the Continuous Offering Period, any interest earned on the Escrow Property (which shall also be part of the Escrow Property) shall be returned by the
General 

 Partner directly to each subscriber in proportion to their respective subscriptions and to the period their respective
subscriptions were held in escrow. If subscriptions for Units in the aggregate value of $25,000,000 have not been received during the Initial Offering Period, as evidenced by an affidavit of the General Partner attesting to said fact, the Escrow
Property will be paid over and delivered by the Escrow Agent directly to subscribers as soon as practicable after receipt of written directions from the General Partner. Such directions will include the names, address and tax identification number
of each subscriber, along with the aggregate dollar amount (principal plus interest) due to each subscriber. Funds will be delivered by check or wire. 
  

	3.
	 
	Prior to delivery of the Escrow Property to the Partnership as described in Paragraph 2 above, the Partnership shall have no title to or interest in the funds
on deposit, and such funds shall under no circumstances be subject to the payment or satisfaction of the liabilities or indebtedness of the Partnership. 
 

  

	4.
	 
	The Escrow Agent shall cause all funds deposited with it pursuant to this Escrow Agreement to be maintained and invested (as the General Partner shall from time
to time direct by written instructions delivered to the Escrow Agent) in an interest-bearing trust account or accounts which can be readily liquidated on twenty-four hours notice, in an amount equal to the collected balances in the account or
accounts, as permitted under the Securities and Exchange Commission’s Rule 240.15c2-4. Calculations of interest on Escrow Property are set forth in Schedule 2. 
 

  

	5.
	 
	Within 15 days of receipt of a subscription agreement, the General Partner may notify the Escrow Agent that a subscription agreement of a subscriber has not
been accepted, and the General Partner may direct the Escrow Agent by written instruction to return any funds held in escrow for the benefit of such subscriber to SSB for credit to the securities account of such subscriber as instructed, together
with such subscriber’s proportionate share of any interest earned on the Escrow Property during the period such funds were held in escrow as instructed. 
 

  

	6.
	 
	The Initial Offering Period for the Units shall mean a period of 120 days commencing on the date of the Partnership’s Private Placement Offering Memorandum
and Disclosure Document (the “Offering Memorandum”), unless the General Partner terminates the offering at an earlier date or extends the Initial Offering Period for up to an additional 30 days, in which case the Initial Offering Period
shall mean such period as so terminated or extended. The General Partner shall provide the Escrow Agent with prompt written notice of the date of the Offering Memorandum and any such termination or extension. The Continuous Offering Period for the
Units shall mean a period commencing at the end of the Initial Offering Period, provided that subscription funds in the aggregate value of $25,000,000 are received during the Initial Offering Period. 
 

  

	7.
	 
	Any of the persons whose names and signatures appear on Schedule 1 annexed hereto are authorized by the General Partner to deliver any instruction or notice to
the Escrow Agent required or permitted by this Escrow Agreement. In the event funds transfer instructions are given in writing or by facsimile, the Escrow Agent is authorized to seek confirmation of such instructions by telephone call-back to the
person or persons designated on Schedule 1, other than the authorized person detailed on the written or facsimile instruction, and the Escrow Agent may 
 

 
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	rely upon the confirmations of anyone purporting to be the person or persons so designated. It is understood that the Escrow Agent and the beneficiary’s
bank (the beneficiary being such person to whom SSB shall direct that such funds be paid) in any funds transfer may rely upon any account numbers or similar identifying number provided by SSB to identify (i) the beneficiary, (ii) the
beneficiary’s bank, or (iii) an intermediary bank. The Escrow Agent, provided that it has exercised due care, may apply any of the escrowed funds for any payment order it executes using any such identifying number, even where its use may result
in a person other than the beneficiary being paid, or the transfer of funds to a bank other than the beneficiary’s bank or an intermediary bank designated by the beneficiary. 
 

  

	8.
	 
	As Escrow Agent hereunder, you shall have no duties or responsibilities except those expressly set forth herein. The Escrow Agent shall act hereunder merely as
a depository and in a ministerial capacity. The Escrow Agent shall not be deemed to be a trustee for any person. 
 

  
 The Escrow Agent may consult with counsel and shall be fully protected with respect to any action taken or omitted by it in good faith on advice of counsel and you shall have no liability hereunder except for your bad faith
or gross negligence. You shall have no responsibility as to the validity or value of the Escrow Property and you may rely on any certificate, statement, request, consent, agreement or other instrument which you believe to be genuine and to have been
signed or presented by a proper person or persons. You shall not be bound by any modification of this Escrow Agreement unless in writing and signed by all parties hereto and actually received by you and, if your duties as Escrow Agent hereunder are
affected, unless you shall have given prior written consent thereto. In the event that you shall be uncertain as to your duties or rights hereunder or shall receive instructions from any of the undersigned with respect to the Escrow Property which,
in your opinion, are in conflict with any of the provisions of this Escrow Agreement, you shall be entitled to refrain from taking any action other than to retain the Escrow Property until you shall be directed otherwise in writing by the unanimous
consent of the parties hereto or by final order of a court of competent jurisdiction. 
  
 The Escrow Agent may, at
its own discretion, refuse to accept any deposits lacking the required documentation or containing discrepancies. 
  
 In any event when the Escrow Agent receives disbursement instructions, it is expressly understood and agreed that the Escrow Agent shall not be required to make any such disbursement until such amount is, to the Escrow Agent’s
satisfaction, available in cleared funds. Further, in no event shall the aggregate amount of payments made by the Escrow Agent exceed the amount of Escrow Property. 
  

	9.
	 
	Any notice which the Escrow Agent is required or desires to give hereunder to any of the undersigned shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is to be given, on the following day if given by telegram, or on the third day after mailing if mailed to the party to whom notice is to be given by first class mail,
registered or certified with return receipt requested, postage prepaid, and properly addressed as follows: 
 

  

 
 3 

  

	 	To:
	 
	Citigroup Diversified Futures Fund L.P. and Smith Barney Futures Management LLC 
 

    388 Greenwich Street—7th floor 
    New York, New York 10013 
    Attention: Mr. Daniel R. McAuliffe, Jr. 
    Telephone Number: (212) 723-5435 
    Facsimile Number: (212) 723-8990 
  

	 	To:
	 
	Salomon Smith Barney Inc. 
 

    388 Greenwich Street—7th floor 
    New York, New York 10013 
    Attention: Mr. Daniel R. McAuliffe, Jr. 
    Telephone Number: (212) 723-5435 
    Facsimile Number: (212) 723-8990 
  
 Notices to the Escrow Agent shall be in writing and shall not be deemed to be given until actually received by the Escrow Agent at the
following address: 
  

	  
	 
	JPMorgan Chase Bank 
 

	  
	 
	450 West 33rd Street, 15th floor 
 

	  
	 
	New York, New York 10001 
 

	  
	 
	Attention: Ms. Lakeesha Middleton 
 

	  
	 
	Telephone Number: (212) 946-3390 
 

	  
	 
	Facsimile Number: (212) 946-8156 
 

  
 Whenever under the terms hereof the time for giving a notice or performing an act falls upon a Saturday, Sunday or bank holiday, such time shall be extended to the Escrow Agent’s next business
day. 
  

	10.
	 
	If any property subject hereto is at any time attached, garnished or levied upon, shall become or be the subject of any court order, or in case the payment,
assignment, transfer, conveyance or delivery of the Escrow Property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property, or any part thereof, then in
any of such events the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree, which it is advised by legal counsel of its own choosing, is binding upon it, and if it complies with
any such order, writ, judgment or decree, it shall not be liable to any of the parties hereto or to any other person, firm, or corporation for any losses, claims, costs, payments or expenses by reason of such compliance, even though such order,
writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated. 
 

  

	11.
	 
	The Escrow Agent may resign by giving ten (10) days’ written notice to the undersigned, and thereafter shall deliver the Escrow Property to a successor
escrow agent acceptable to all parties hereto, which acceptance shall be evidenced by the joint written and signed order of the undersigned. If no such order is received by the Escrow Agent by such resignation date, the 

 
 4 

	  
	 
	obligations of the Escrow Agent shall nevertheless cease and terminate and the Escrow Agent is unconditionally and irrevocably authorized and empowered to send
the Escrow Property by registered or certified mail to the respective subscribers thereof. 
 

  

	12.
	 
	SSB shall reimburse the Escrow Agent for all out-of-pocket expenses (including, without limitation, New York taxes and other governmental charges) incurred by
you in connection with your duties hereunder and shall indemnify you against and save you harmless against any and all claims, liabilities, costs, payments and expenses, including fees of counsel (who may be selected by you), for anything done or
omitted by you in the performance of this Agreement, except as a result of your own gross negligence or bad faith, and you shall have a lien on the Escrow Property for the amount thereof. All such fees and expenses shall be paid by SSB.

 

  

	13.
	 
	In addition, SSB agrees to pay the Escrow Agent an Escrow Agent fee of $2,500 per year (or partial year) per Escrow Account established, and no additional fees
or charges for transactions or maintenance shall be charged to SSB with respect to such accounts. A $10 check or wire fee will be charged in the event funds are required to be returned to the subscribers. 
 

  

	14.
	 
	Nothing in this Agreement is intended to or shall confer upon anyone other than the parties hereto any legal or equitable right, remedy or claim. This Agreement
shall be governed by, and its provisions construed in accordance with, the laws of the State of New York, and may be modified only in writing executed by all parties hereto. 
 

  

	15.
	 
	Anything in this Escrow Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. The parties hereto acknowledge that the indemnities
given hereunder shall survive the resignation or removal of the Escrow Agent, or the termination of this Agreement. 
 

  

	16.
	 
	Any corporation or association into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any corporation or association to
which all or substantially all the escrow business of the Escrow Agent’s corporate trust line of business may be transferred, shall be the Escrow Agent under and in accordance with the terms of this Escrow Agreement without further act.

 

  

	17.
	 
	Upon execution of this agreement, SSB shall provide the Escrow Agent with a fully executed Form W-9. All tax reporting, if applicable, shall be the
responsibility of the General Partner exclusively. 
 

  

	18.
	 
	This Agreement may be executed in one or more counterparts, but in such event each counterpart shall constitute an original and all of such counterparts shall
constitute one Agreement. 
 

  
  

 
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 Dated as of December     , 2002 
  
 
	 Parties to the Escrow
 
	 CITIGROUP DIVERSIFIED FUND L.P.
 
	 By:
 	 	 Smith Barney Futures Management LLC,
 
	  	 	 General Partner
 
	 
	 By                                     
                                        
                    
 
	 
	 SMITH BARNEY FUTURES
 
	 MANAGEMENT LLC
 
	 
	 By                                     
                                        
                    
 
	 
	 SALOMON SMITH BARNEY INC.
 
	 
	 By                                     
                                        
                    
 

 
  
 ACCEPTED: 
 JPMORGAN CHASE BANK 
 By                                     
                                        
                                
  

 
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 SCHEDULE 1 
  
  
 
	 Name
 
	 	  	 	 Title
 
	 	  	  	 Signature
 

	 
	 David J. Vogel
 	 	  	 	 President and Director
 	 	  	  	                                      
                            
 
	 
	 Daniel R. McAuliffe, Jr.
 	 	  	 	 Director and Chief Financial Officer
 	 	  	  	                                      
                            
 
	 
	 Shelley Ullman
 	 	  	 	 Director and Senior Vice President
 	 	  	  	                                      
                            
 

 
  

  
 SCHEDULE 2 
  
 Interest payments shall be calculated at the one-month LIBOR rate minus 50 basis points on the average daily balance in the Escrow Account. 

 
 8Management Agreement (Drury Capital)

 Exhibit 10.4 
  
 MANAGEMENT AGREEMENT 
  
 AGREEMENT made as of the
         day of December, 2002 among SMITH BARNEY FUTURES MANAGEMENT LLC, a Delaware limited liability company (“SBFM” or the “General Partner”), CITIGROUP DIVERSIFIED FUTURES FUND
L.P., a New York limited partnership (the “Partnership”) and DRURY CAPITAL, INC., an Illinois corporation (the “Advisor”). 
  
  
 W I T N E S S E T H: 
  
 WHEREAS, SBFM is the general partner of Citigroup Diversified Futures Fund L.P., a limited partnership organized for the purpose of speculative trading of commodity
interests, including futures contracts, options, swaps 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) Upon the commencement of trading operations by the Partnership and 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 and, with the prior approval of the General Partner, swaps. All such trading on behalf of the Partnership shall be in accordance with the trading strategies and trading policies set forth in the Prospectus and Disclosure
Document to be dated on or about December 31, 2002, as supplemented from time to time (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 Diversified Trend-Following Program (the “Program”) to manage the
Partnership’s assets allocated to it. Any open positions or other investments at the time of receipt of such notice of a change in trading policy shall not be deemed to violate the changed policy and shall 

 
be closed or sold in the ordinary course of trading. The Advisor may not deviate from the trading policies set forth in the Prospectus without the prior written consent of the Partnership given
by SBFM. The Advisor makes no representation or warranty that the trading to be directed by it for the Partnership will be profitable or will not incur losses. 
  
 (b) SBFM acknowledges receipt of the Advisor’s Disclosure Document dated
                                , 200  , as filed with the
NFA and the CFTC. All trades made by the Advisor for the account of the Partnership shall be made through such commodity broker or brokers as SBFM shall direct, and the Advisor shall have no authority or responsibility for selecting or supervising
any such broker in connection with the execution, clearance or confirmation of transactions for the Partnership or for the negotiation of brokerage rates charged therefor. However, the Advisor, with the prior written permission (by either original
or fax copy) of SBFM, may direct all trades in commodity futures and options to a futures commission merchant or independent floor broker it chooses for execution with instructions to give-up the trades to the broker designated by SBFM, provided
that the futures commission merchant or independent floor broker and any give-up or floor brokerage fees are approved in advance by SBFM. All give-up or similar fees relating to the foregoing shall be paid by the Partnership after all parties have
executed the relevant give-up agreements (by either original or fax copy). 
  
 (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 Prospectus in connection with its trading for the Partnership, either in whole or in part, it may not do so unless the Advisor gives SBFM prior written notice of its intention to utilize such different trading system or methodology
and SBFM consents thereto in writing, which consent shall not be unreasonably withheld. In addition, the Advisor will provide five days’ prior written notice to SBFM of any change in the trading system or methodology to be utilized for the
Partnership which the Advisor deems material. If the Advisor deems such change in system or methodology or in markets traded to be material, the changed system or methodology or markets traded will not be utilized for the Partnership without the
prior written consent of SBFM, which consent shall not be unreasonably withheld. In addition, the Advisor will notify SBFM of any changes to the trading system or methodology that would require a change in the description of the trading strategy or
methods described in the Prospectus. 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 enter a standing order with the Partnership’s commodity broker to convert foreign currency balances
(not required to margin positions denominated in a foreign currency) to U.S. dollars no less frequently than monthly, although the Advisor may also convert such balances more frequently, in its sole and absolute discretion. 
  
 (d) The Advisor, at the request of SBFM or as required by this Agreement, 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, 

 
 2 

 
their trading performance and general trading methods, its customer accounts (but not the identities of or identifying information with respect to its customers) and otherwise as are required in
the reasonable judgment of SBFM to be made in any filings required by Federal or state law or NFA rule or order. Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not required to disclose the actual trading results of
proprietary accounts of the Advisor or its principals 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, 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 to the Partnership. The parties to this Agreement acknowledge that the Advisor has not been an
organizer or promoter of the Partnership. 

 
 3 

  
 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 December
3, 2002, 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 shall be attributed to the Advisor based on the Advisor’s proportionate share of Net Assets as of
the end of each month. Ongoing expenses shall not include expenses of litigation not involving the activities of the Advisor on behalf of the Partnership. Ongoing expenses shall not include initial offering and organizational expenses of the
Partnership. No incentive fee shall be paid until the end of the first full calendar quarter of trading, which fee shall be based on New Trading Profits earned from the commencement of trading operations by the Partnership through the end of the
first full calendar quarter. Interest income earned, if any, will not be taken into account in computing New Trading Profits earned by the Advisor. If Net Assets allocated to the Advisor are reduced due to redemptions, distributions or reallocations
(net of additions), there will be a corresponding proportional reduction in the related loss carryforward amount that must be recouped before the Advisor is eligible to receive another incentive fee. 
  
 (d) Quarterly incentive fees and monthly management fees shall be paid within twenty (20) business days following the end of the period
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 calendar quarter or 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 

  
 4.  RIGHT TO ENGAGE IN OTHER ACTIVITIES.  (a) The
services provided by the Advisor hereunder are not to be deemed exclusive. SBFM on its own behalf and on behalf of the Partnership acknowledges that, subject to the terms of this Agreement, the Advisor and its officers, directors, employees and
shareholder(s), may render advisory, consulting and management services to other clients and accounts. The Advisor and its officers, directors, employees and shareholder(s) shall be free to trade for their own accounts and to advise other investors
and manage other commodity accounts during the term of this Agreement and to use the same information, computer programs and trading strategies, programs or formulas which they obtain, produce or utilize in the performance of services to SBFM for
the Partnership. However, the Advisor represents, warrants and agrees that it believes the rendering of such consulting, advisory and management services to other accounts and entities, to the best of its knowledge, will not require any material
change in the Advisor’s basic trading strategies and will not affect the capacity of the Advisor to continue to render services to SBFM for the Partnership of the quality and nature contemplated by this Agreement. 
  
 (b) If, at any time during the term of this Agreement, the Advisor is required to aggregate the Partnership’s commodity positions
with the positions of any other person for purposes of applying CFTC- or exchange-imposed speculative position limits, the Advisor agrees that it will promptly notify SBFM if the Partnership’s positions are included in an aggregate amount which
exceeds the applicable speculative position limit. The Advisor agrees that, if its trading recommendations are altered because of the application of any speculative position limits, it will not modify the trading instructions with respect to the
Partnership’s account in such manner as to affect the Partnership substantially disproportionately as compared with the Advisor’s other accounts. The Advisor further represents, warrants and agrees that 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 using the same strategy as shall be reasonably
requested by SBFM. The Advisor presently believes and represents that existing speculative position limits will not materially adversely affect its ability to manage the Partnership’s account given the potential size of the Partnership’s
account and the Advisor’s and its principals’ current accounts and all proposed accounts for which they have contracted to act as trading manager. 

 
 5 

  
 5.  TERM.  (a) This Agreement shall continue in effect
until June 30, 2003. 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) Bernard Drury dies, becomes incapacitated, leaves the employ of the Advisor, ceases to control the Advisor or is otherwise
not managing the trading programs or systems of the Advisor, or (iii) the Advisor’s registration as a commodity trading advisor with the CFTC or its membership in the NFA or any other regulatory authority, is terminated or suspended. This
Agreement will immediately terminate upon dissolution of the Partnership or upon cessation of trading prior to dissolution. 
  
 (b) The Advisor may terminate this Agreement by giving not less than 30 days’ notice to SBFM (i) in the event that the trading policies of the Partnership as set forth in the Prospectus are changed in such manner that the
Advisor reasonably believes will adversely affect the performance of its trading strategies; (ii) after June 30, 2003; (iii) in the event that the General Partner or Partnership fails to comply with the terms of this Agreement; or (iv) if the
Advisor makes a material change in its trading strategy (including the addition of commodity interests) or methodology used for the Partnership and SBFM does not consent to such change. 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 

 
 6 

 
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 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, the term “SBFM” shall include the Partnership and liability shall be joint and several. 
  
 (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

 
 7 

 
material respect or involved negligence, bad faith, recklessness or intentional misconduct on the part of the Advisor (except as otherwise provided in Section 1(g)). 
  
 (ii) In the event SBFM, the Partnership or any of their affiliates is made a party to any claim, dispute or litigation or
otherwise incurs any loss or expense as a result of, or in connection with, the activities or claimed activities of the Advisor or its principals, officers, directors, shareholder(s) or employees unrelated to SBFM’s or the Partnership’s
business, the Advisor shall indemnify, defend and hold harmless SBFM, the Partnership or any of their affiliates against any loss, liability, damage, cost or expense (including, without limitation, attorneys’ and accountants’ fees)
incurred in connection therewith. 
  
 (c) In the event that a person entitled to indemnification under this Paragraph
6 is made a party to an action, suit or proceeding alleging both matters for which indemnification can be made hereunder and matters for which indemnification may not be made hereunder, such person shall be indemnified only for that portion of the
loss, liability, damage, cost or expense incurred in such action, suit or proceeding which relates to the matters for which indemnification can be made. 
  
 (d) None of the indemnifications contained in this Paragraph 6 shall be applicable with respect to default judgments, confessions of judgment or settlements entered into by the party claiming
indemnification without the prior written consent, which shall not be unreasonably withheld, of the party obligated to indemnify such party. 
  
 (e) The provisions of this Paragraph 6 shall survive the termination of this Agreement. 
  
 7.  REPRESENTATIONS, WARRANTIES AND AGREEMENTS. 
  
 (a) The Advisor
represents and warrants that: 
  
 (i) All references to the Advisor and its principals in the
Prospectus that have been approved in writing by the Advisor 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 and any other pro forma or hypothetical performance information in the Prospectus, if any, this representation and warranty extends only to the underlying performance data made
available by the Advisor for the preparation of the Prospectus and not to any hypothetical or pro forma adjustments. Subject to such exception, all references to the Advisor and its principals in the Prospectus will, after review and approval of
such references by the Advisor in writing 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 Prospectus 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. 

 
 8 

  
 (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 Illinois and has full power and
authority to enter into this Agreement and to provide the services required of it hereunder. The Advisor is qualified to conduct its business as a foreign corporation and is in good standing in every jurisdiction in which the nature or conduct of
its business requires such qualification and failure to so qualify would have a material adverse effect on its ability to comply with or perform its obligations under this Agreement. 
  
 (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,
or, to the best of its knowledge, statute, rule or regulation to which it is a party or by which it is bound which would materially limit or affect the performance of its duties under this Agreement. 
  
 (vi) This Agreement has been duly and validly authorized, executed and delivered by the Advisor and is a valid and binding
agreement enforceable in accordance with its terms. 
  
 (vii) At any time during the term of this
Agreement that a prospectus relating to the units is required to be delivered in connection with the offer and sale thereof, the Advisor agrees upon the request of SBFM to provide the Partnership with such information as shall be necessary so that,
as to the Advisor and its principals, such prospectus is accurate. 
  
 (b) SBFM represents and warrants for itself
and the Partnership that: 
  
 (i) The Prospectus (as from time to time amended or supplemented, which
amendment or supplement is approved in writing 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 and approved by the Advisor in writing expressly for use in the Prospectus (it being understood that the hypothetical and pro forma adjustments in the Prospectus, were not furnished by the Advisor). 
  
 (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. It is qualified to conduct its business as a foreign limited liability company and is in good standing in every jurisdiction in which the nature or conduct
of its business requires such qualification and failure to so qualify would have a material adverse effect on its ability to comply with or perform its obligations under this Agreement. 

 
 9 

  
 (iii) SBFM and the Partnership have the capacity and authority to
enter into this Agreement on behalf of the Partnership. 
  
 (iv) This Agreement has been duly and
validly authorized, executed and delivered on SBFM’s and the Partnership’s behalf and is a valid and binding agreement of SBFM and the Partnership enforceable in accordance with its terms. 
  
 (v) SBFM will not, by acting as General Partner to the Partnership and the Partnership will not, breach or cause to be
breached any undertaking, agreement, contract, statute, rule or regulation to which it is a party or by which it is bound which would materially limit or affect the performance of its duties under this Agreement. 
  
 (vi) It is registered as a commodity pool operator and is a member of the NFA, and is in compliance with such other
registration and licensing requirements as shall be necessary to enable it to perform its obligations hereunder, and it agrees to maintain and renew such registrations and licenses during the term of this Agreement. 
  
 (vii) The Partnership is a limited partnership duly organized and validly existing under the laws of the State of New York
and has full power and authority to enter into this Agreement and to perform its obligations under this Agreement. The Partnership is qualified to conduct its business as a foreign limited partnership and is in good standing in every jurisdiction in
which the nature or conduct of its business requires such qualification and failure to so qualify would have a material adverse effect on its ability to comply with or perform its obligations under this Agreement. 
  
 8.  COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP. 
  
 (a) The Advisor agrees as follows: 
  
 (i) In connection with its activities on behalf of the Partnership, the Advisor will comply with all applicable rules and regulations of the CFTC and/or the commodity exchange on which any particular transaction is executed.

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

 
 10 

 
Trade Break Report provided by the Advisor to the Partnership’s commodity broker each business day. 
  
 (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. 
  
 (iii) SBFM will be responsible for compliance with applicable anti-money laundering laws (including the USA Patriot Act) and related regulations with respect to the Partnership and its limited
partners. SBFM is registered as a commodity pool operator and is not currently required to have an anti-money laundering program. Nonetheless, all of the limited partners of the Partnership will be customers of Salomon Smith Barney Inc., which has
an anti-money laundering program in place as required of broker-dealers and futures commissions merchants. At such time as there are additional anti-money laundering requirements applicable to SBFM, SBFM will comply with such additional
requirements. 
  
 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 

 
 11 

  
 If to the Advisor: 
  
 Drury Capital, Inc. 
 One Palmer Square, Suite
311 
 Princeton, New Jersey, 08542 
 Attention: Mr. Bernard Drury 
  
 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. 

 
 12 

  
 IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the
undersigned as of the day and year first above written. 
  
 
	 SMITH BARNEY FUTURES MANAGEMENT LLC
 
	 
	 By:
 	 	  
	  	 	 

	  	 	 David J. Vogel
 President and
Director
 
	 
	 CITIGROUP DIVERSIFIED FUTURES FUND L.P.
 
	 
	 By: Smith Barney Futures Management LLC
        (General Partner)
 
	 
	 By:
 	 	  
	  	 	 

	  	 	 David J. Vogel
 President and
Director
 
	 
	 DRURY CAPITAL, INC.
 
	 
	 By:
 	 	  
	  	 	 

	  	 	 Bernard Drury
 President and Director
 

 

 
 13

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