UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the year ended December 31, 1997
Commission File Number 33-75056
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
(Exact name of registrant as specified in its charter)
New York 13-3729162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Smith Barney Futures Management Inc.
390 Greenwich St. - 1st Fl.
New York, New York 10013
(Address and Zip Code of principal executive offices)
(212) 723-5424
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: 300,000 Units
of Limited
Partnership
Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [ ]
<PAGE>
PART I
Item 1. Business.
(a) General development of business. Smith Barney Diversified Futures
Fund L.P. ("Partnership") is a limited partnership organized under the laws of
the State of New York, on August 13, 1993 to engage in speculative trading of a
diversified portfolio of commodity interests, including futures contracts,
options and forwards. The commodity interests that are traded by the Partnership
are volatile and involve a high degree of market risk. The Partnership commenced
trading operations on January 12, 1994. A total of 150,000 Units of Limited
Partnership Interest in the Partnership ("Units") were offered to the public. A
Registration Statement on Form S-1 relating to the public offering became
effective on October 29, 1993. Between October 29, 1993 and January 11, 1994,
75,615 Units were sold to the public at $1,000 per Unit. Proceeds of the
offering were held in an escrow account and were transferred, along with the
General Partner's contribution of $781,000 to the Partnership's trading account
on January 12, 1994 when the Partnership commenced trading. An additional
150,000 Units were registered on a Registration Statement on Form S-1 effective
February 17, 1994. Sales of additional Units and additional General Partner's
contributions and redemptions of Units for the year ended December 31, 1997 are
reported in the Statement of Partners' Capital on page F-5 under "Item 8.
Financial Statements and Supplementary Data."
2
<PAGE>
The General Partner has agreed to make capital contributions, if
necessary, so that its general partnership interest will be equal to the greater
of (i) an amount to entitle it to 1% of each material item of Partnership
income, loss, deduction or credit and (ii) the greater of (a) 1% of the
partners' contributions to the Partnership or (b) $25,000. The Partnership will
be liquidated upon the first of the following to occur: December 31, 2013; the
net asset value of a Unit decreases to less than $400 as of the close of any
business day; or under certain circumstances as defined in the Limited
Partnership Agreement of the Partnership (the "Limited Partnership Agreement").
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of Smith
Barney Inc. ("SB"). SB acts as commodity broker for the Partnership. On November
28, 1997, Smith Barney Holdings Inc. was merged with Salomon Inc to form Salomon
Smith Barney Holdings Inc. ("SSBH"), a wholly owned subsidiary of Travelers
Group Inc. SB is a wholly owned subsidiary of SSBH.
The Partnership's trading of futures contracts on commodities is done
on United States and foreign commodity exchanges. It engages in such trading
through a commodity brokerage account maintained with SB.
As of December 31, 1997, all commodity trading decisions are made for the
Partnership by Campbell & Company, Inc., John W. Henry & Company, Inc. ("JWH"),
Chesapeake Capital Corporation, Abraham Trading Co., Rabar Market Research
3
<PAGE>
Inc.("Rabar"), Telesis Management Inc. and AIS Futures Management, Inc.
(collectively, the "Advisors"). None of the Advisors is affiliated with one
another, the General Partner or SB. The Advisors are not responsible for the
organization or operation of the Partnership. Telesis Management Inc. was added
as an Advisor to the Partnership effective August 1, 1997.
Pursuant to the terms of the Management Agreements (the "Management
Agreements"), the Partnership is obligated to pay each Advisor: (i) a monthly
management fee equal to 1/6 of 1% (2% per year) of month-end Net Assets (except
that JWH will receive a monthly management fee equal to 1/3 of 1% (4% per year))
of the Partnership allocated to each Advisor as of the end of each month and
(ii) an incentive fee payable quarterly (except for Rabar who will be paid
annually), equal to 20% of the New Trading Profits (as defined in the Management
Agreements)(except JWH, which will receive an incentive fee of 15% of New
Trading Profits) of the Partnership.
The Partnership has entered into a Customer Agreement with SB (the
"Customer Agreement") which provides that the Partnership will pay SB a monthly
brokerage fee equal to 11/24 of 1% of month-end Net Assets allocated to the
Advisors (5.5% per year) in lieu of brokerage commissions on a per trade basis.
Persons investing $1,000,000 or more will pay a reduced brokerage fee of 7/24 of
1% of month-end Net Assets (3.5% per year), receiving the differential between
this reduced fee and 5.5% per year in the form of additional Units. SB pays a
portion of its brokerage fees to its
4
<PAGE>
financial consultants who have sold Units and who are registered as associated
persons with the Commodity Futures Trading Commission (the "CFTC"). The
Partnership pays for National Futures Association ("NFA") fees, exchange and
clearing fees, give-up and user fees and floor brokerage fees. The Customer
Agreement between the Partnership and SB gives the Partnership the legal right
to net unrealized gains and losses. Brokerage fees will be paid for the life of
the Partnership, although the rate at which such fees are paid may be changed.
In addition, SB pays the Partnership interest on 80% of the average
daily equity maintained in cash in its account during each month at a 30-day
U.S. Treasury bill rate determined weekly by SB based on the average
non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days from
the date on which such weekly rate is determined.
(b) Financial information about industry segments. The Partnership's
business consists of only one segment, speculative trading of commodity
interests. The Partnership does not engage in sales of goods or services. The
Partnership's net income (loss) from operations for the year ended December 31,
1997, 1996 and 1995 and for the period from January 12, 1994 (commencement of
trading operations) to December 31, 1994 is set forth under "Item 6. Select
Financial Data". The Partnership capital as of December 31, 1997 was
$151,381,261.
5
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(c) Narrative description of business.
See Paragraphs (a) and (b above.
(i) through (x) - Not applicable.
(xi) through (xii) - Not applicable.
(xiii) - The Partnership has no employees.
(d) Financial Information About Foreign and Domestic
Operations and Export Sales. The Partnership does not engage in sales of goods
or services, and therefore this item is not applicable.
Item 2. Properties.
The Partnership does not own or lease any properties. The General
Partner operates out of facilities provided by its affiliate, SB.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnership is a
party or to which any of its assets is subject. No material legal proceedings
affecting the Partnership were terminated during the fiscal year. Item 4.
Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the security holders for a vote
during the last fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters.
(a) Market Information. The Partnership has issued no
stock. There is no established public market for the
Units of Limited Partnership Interest.
(b) Holders. The number of holders of Units of Limited
6
<PAGE>
Partnership Interest as of December 31, 1997 was 6,817.
(c) Distribution. The Partnership did not declare a
distribution in 1997 or 1996.
7
<PAGE>
Item 6. Select Financial Data. The Partnership commenced trading operations on
January 12, 1994. Realized and unrealized trading gains (losses), interest
income, net income (loss) and increase (decrease) in net asset value per Unit
for the years ended December 31, 1997, 1996 and 1995 and for the period from
January 12, 1994 (commencement of trading operations) to December 31, 1994 and
total assets at December 31, 1997, 1996, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Realized and unrealized
trading gains (losses) net
of brokerage commissions
and clearing fees of
$9,893,999, $10,754,060,
$11,751,508 and $9,866,501,
respectively $ 5,083,043 $ 23,283,977 $ 23,528,907 $ 1,167,729
Interest Income 6,331,875 6,631,110 8,077,695 5,227,466
------------- ------------- ------------- -------------
$ 11,414,918 $ 29,915,087 $ 31,606,602 $ 6,395,195
============= ============= ============= =============
Net Income (loss) $ 5,525,809 $ 21,056,614 $ 22,177,218 $ (2,229,371)
============= ============= ============= =============
Increase (decrease) in net
asset value per unit $ 48.07 $ 158.70 $ 124.60 $ (32.94)
============= ============= ============= =============
Total assets $ 154,556,541 $ 178,462,215 $ 201,319,665 $ 186,365,419 $ 2,000
============= ============= ============= ============= =============
</TABLE>
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(a) Liquidity. The Partnership does not engage in sales of goods or
services. Its only assets are its equity in its commodity futures trading
account, consisting of cash and cash equivalents, net unrealized appreciation
(depreciation) on open futures contracts and interest receivable. Because of the
low margin deposits normally required in commodity futures trading, relatively
small price movements may result in substantial losses to the Partnership. Such
substantial losses could lead to a material decrease in liquidity. To minimize
this risk, the Partnership will follow certain policies including:
(1) Partnership funds are invested only in futures contracts which are
traded in sufficient volume to permit, in the opinion of the Advisors, ease of
taking and liquidating positions.
(2) The Partnership diversifies its positions among various
commodities.
(3) No Advisor initiates additional positions in any commodity if such
additional positions would result in aggregate positions for all commodities
requiring as margin more than 66-2/3% of the Partnership's assets allocated to
the Advisor.
(4) The Partnership may occasionally accept delivery of a commodity.
Unless such delivery is disposed of promptly by retendering the warehouse
receipt representing the delivery to the appropriate clearing house, the
physical commodity position will be fully hedged.
9
<PAGE>
(5) The Partnership does not employ the trading technique commonly
known as "pyramiding", in which the speculator uses unrealized profits on
existing positions as margin for the purchase or sale of additional positions in
the same or related commodities.
(6) The Partnership does not utilize borrowings except short-term
borrowings if the Partnership takes delivery of any cash commodities.
(7) The Advisor may, from time to time, employ trading strategies such
as spreads or straddles on behalf of the Partnership. The term "spread" or
straddle" describes a commodity futures trading strategy involving the
simultaneous buying and selling of futures contracts on the same commodity but
involving different delivery dates or markets and in which the trader expects to
earn a profit from a widening or narrowing of the difference between the prices
of the two contracts.
The Partnership is party to financial instruments with off- balance
sheet risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial instruments
include forwards, futures and options, whose value is based upon an underlying
asset, index, or reference rate, and generally represent future commitments to
exchange currencies or cash flows, or to purchase or sell other financial
instruments at specified terms at specified future dates. Each of these
instruments is subject to various risks similar to those relating to the
underlying financial instruments including market and credit risk. The General
Partner monitors and controls
10
<PAGE>
the Partnership's risk exposure on a daily basis through financial, credit and
risk management monitoring systems and, accordingly believes that it has
effective procedures for evaluating and limiting the credit and market risks to
which the Partnership is subject. (See also Item 8. Financial Statements and
Supplementary Data., for further information on financial instrument risk
included in the notes to financial statements.)
Other than the risks inherent in commodity futures trading, the
Partnership knows of no trends, demands, commitments, events or uncertainties
which will result in or which are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way. The
Limited Partnership Agreement provides that the General Partner may, at its
discretion, cause the Partnership to cease trading operations and liquidate all
open positions upon the first to occur of the following: (i) December 31, 2013;
(ii) the vote to dissolve the Partnership by limited partners owning more than
50% of the Units; (iii) assignment by the General Partner of all of its interest
in the Partnership or withdrawal, removal, bankruptcy or any other event that
causes the General Partner to cease to be a general partner under the New York
Revised Limited Partnership Act unless the Partnership is continued as described
in the Limited Partnership Agreement; (iv) Net Asset Value per Unit falls to
less than $400 as of the end of any trading day; or (v) the occurrence of any
event which shall make it unlawful for the existence of the Partnership to be
continued.
11
<PAGE>
(b) Capital resources. (i) The Partnership has made no material
commitments for capital expenditures.
(ii) The Partnership's capital consists of the capital
contributions of the partners as increased or decreased by gains or losses on
commodity trading, and by expenses, interest income, redemptions of Units and
distributions of profits, if any. Gains or losses on commodity futures trading
cannot be predicted. Market moves in commodities are dependent upon fundamental
and technical factors which the Partnership may or may not be able to identify.
Partnership expenses will consist of, among other things, commissions,
management fees and incentive fees. The level of these expenses is dependent
upon the level of trading and the ability of the Advisors to identify and take
advantage of price movements in the commodity markets, in addition to the level
of net assets maintained. In addition, the amount of interest income payable by
SB is dependent upon interest rates over which the Partnership has no control.
No forecast can be made as to the level of redemptions in any given
period. Beginning on April 1, 1994, a Limited Partner may cause all of his Units
to be redeemed by the Partnership at the net Asset Value thereof as of the last
day of each month on ten days' written notice to the General Partner. No fee
will be charged for redemptions. For the year ended December 31, 1997,
20,899.0206 Units were redeemed totaling $26,060,110. For the year ended
December 31, 1996, 42,559.6065 Units were redeemed totaling $45,695,264. For the
year ended December 31, 1995, 46,400.1653
12
<PAGE>
Units were redeemed totaling $47,827,665 which includes the General Partner's
redemption representing 48.7530 Units equivalents
totaling $60,045.
The Partnership ceased to offer Units effective April 1, 1996.
Additional sales of 256.5390 Units totaling $328,301 for the year ending
December 31, 1997 represent additional Units offered as a reduced brokerage fee
to existing limited partners investing $1,000,000 or more. For the year ended
December 31, 1996, there were additional sales of 1,905.2800 Units totaling
$2,035,483. For the year ended December 31, 1995, there were additional sales of
38,919.4389 Units totaling $40,580,354.
(c) Results of Operations.
For the year ended December 31, 1997, the net asset value per Unit
increased 3.8% from $1,250.36 to $1,298.43. For the year ended December 31,
1996, the net asset value per Unit increased 14.5% from $1,091.66 to $1,250.36.
For the year ended December 31, 1995, the net asset value per Unit increased
12.9% from $967.06 to $1,091.66.
The Partnership experienced net trading gains of $14,977,042 before
commissions and expenses for the year ended December 31, 1997. Gains were
recognized in the trading of commodity futures in currencies, indices, metals,
softs and interest rates and were partially offset by losses recognized in the
trading of energy, grains and livestock.
The Partnership experienced net trading gains of $34,038,037
before commissions and expenses in 1996. These gains were
13
<PAGE>
recognized in the trading of interest rates, metals, currencies and energy
commodity futures. These gains were partially offset by losses recognized in the
trading of indices and agricultural products.
The Partnership experienced net trading gains of $35,280,415 before
commissions and expenses in 1995. Realized trading gains of $39,663,772 were
attributable to gains incurred in the trading of interest rates, stock indices
and foreign currencies commodity futures. However, these realized trading gains
were partially offset by realized losses experienced in the trading of energy
and agricultural commodity futures.
Commodity futures markets are highly volatile. Broad price
fluctuations and rapid inflation increase the risks involved in commodity
trading, but also increase the possibility of profit. The profitability of the
Partnership depends on the existence of major price trends and the ability of
the Advisors to identify those price trends correctly. Price trends are
influenced by, among other things, changing supply and demand relationships,
weather, governmental, agricultural, commercial and trade programs and policies,
national and international political and economic events and changes in interest
rates. To the extent that market trends exist and the Advisors are able to
identify them, the Partnership expects to increase capital through operations.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants. F-2
Financial Statements:
Statement of Financial Condition at
December 31, 1997 and 1996. F-3
Statement of Income and Expenses
for the years ended December 31, 1997
1996 and 1995. F-4
Statement of Partners' Capital for
the years ended December 31, 1997,
1996 and 1995. F-5
Notes to Financial Statements. F-6 - F-11
F-1
Continued
<PAGE>
Report of Independent Accountants
To the Partners of
Smith Barney Diversified Futures Fund L.P.:
We have audited the accompanying statement of financial condition of SMITH
BARNEY DIVERSIFIED FUTURES FUND L.P. (a New York Limited Partnership) as of
December 31, 1997 and 1996, and the related statements of income and expenses
and partners' capital for the years ended December 31, 1997, 1996 and 1995.
These financial statements are the responsibility of the management of the
General Partner. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management of the General Partner, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SMITH BARNEY DIVERSIFIED
FUTURES FUND L.P. as of December 31, 1997 and 1996, and the results of its
operations for the years ended December 31, 1997, 1996 and 1995, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
March 6, 1998
F-2
<PAGE>
Smith Barney
Diversified Futures Fund L.P.
Statement of Financial Condition
December 31, 1997 and 1996
1997 1996
Assets:
Equity in commodity futures
trading account:
Cash and cash equivalents $142,852,854 $170,574,018
(Note 3c)
Net unrealized appreciation
on open futures contracts 11,184,770 6,887,203
Commodity options owned,
at market
value (cost $607,539 in
1996) -- 442,696
------------ ------------
154,037,624 177,903,917
Interest receivable 518,917 558,298
------------ ------------
$154,556,541 $178,462,215
------------ ------------
Liabilities and Partners'
Capital:
Liabilities:
Accrued expenses:
Commissions $ 721,970 $ 831,169
Management fees 359,579 412,599
Incentive fees 492,736 3,476,717
Other 79,457 108,043
Redemptions payable (Note 5) 1,521,538 2,005,213
Commodity options written,
at market value (premiums
received $83,070 in 1996 -- 41,213
------------ ------------
3,175,280 6,874,954
Partners' capital (Notes 1, 5, and 6):
General Partner, 2,048.9308
Unit equivalents
outstanding
in 1997 and 1996 2,660,393 2,561,901
Limited Partners,
114,539.1563 and
135,181.6379 Units of
Limited Partnership
Interest outstanding in
1997 and 1996, respectively 148,720,868 169,025,360
------------ ------------
151,381,261 171,587,261
------------ ------------
$154,556,541 $178,462,215
------------ ------------
See notes to financial statements.
F-3
<PAGE>
Smith Barney
Diversified Futures Fund L.P.
Statement of Income and Expenses
for the years ended
December 31, 1997, 1996 and 1995
1997 1996 1995
Income:
Net gains on trading of
commodity interests:
Realized gains on
closed positions $ 10,556,489 $ 46,225,371 $ 39,663,772
Change in
unrealized gains/
losses on open
positions 4,420,553 (12,187,334) (4,383,357)
------------ ------------ ------------
14,977,042 34,038,037 35,280,415
Less, Brokerage
commissions and
clearing fees
($316,227,
$393,877 and
$433,213,
respectively)
(Note 3c) (9,893,999) (10,754,060) (11,751,508)
------------ ------------ ------------
Net realized and
unrealized gains 5,083,043 23,283,977 23,528,907
Interest income 6,331,875 6,631,110 8,077,695
------------ ------------ ------------
11,414,918 29,915,087 31,606,602
------------ ------------ ------------
Expenses:
Management fees
(Note 3b) 4,455,840 4,682,124 4,940,353
Incentive fees
(Note 3b) 1,301,462 3,923,488 4,073,071
Other 131,807 252,861 415,960
------------ ------------ ------------
5,889,109 8,858,473 9,429,384
------------ ------------ ------------
Net income $ 5,525,809 $ 21,056,614 $ 22,177,218
------------ ------------ ------------
Net income per Unit of
Limited Partnership
Interest
and General Partner Unit
equivalent (Notes 1 and 6) $ 48.07 $ 158.70 $ 124.60
------------ ------------ ------------
See notes to financial statements.
F-4
<PAGE>
Smith Barney
Diversified Futures Fund L.P.
Statement of Partners' Capital
for the years ended
December 31, 1997, 1996 and 1995
Limited General
Partners Partner Total
Partners' capital at
December 31, 1994 $ 177,231,935 $ 2,028,586 $ 179,260,521
Net income 21,909,023 268,195 22,177,218
Sale of 38,919.4389
Units of Limited
Partnership
Interest 40,580,354 -- 40,580,354
Redemption of
46,351.4123 Units
of Limited
Partnership
Interest and
General Partner's
redemption
representing
48.7530 Unit
equivalents (47,767,620) (60,045) (47,827,665)
------------- ------------- -------------
Partners' capital at
December 31, 1995 191,953,692 2,236,736 194,190,428
Net income 20,731,449 325,165 21,056,614
Sale of 1,905.2800
Units of Limited
Partnership
Interest 2,035,483 -- 2,035,483
Redemption of
42,559.6065 Units
of Limited
Partnership
Interest (45,695,264) -- (45,695,264)
------------- ------------- -------------
Partners' capital at
December 31, 1996 169,025,360 2,561,901 171,587,261
Net income 5,427,317 98,492 5,525,809
Sale of 256.5390
Units of Limited
Partnership
Interest 328,301 -- 328,301
Redemption of
20,899.0206 Units
of Limited
Partnership
Interest (26,060,110) -- (26,060,110)
------------- ------------- -------------
Partners' capital at
December 31, 1997 $ 148,720,868 $ 2,660,393 $ 151,381,261
------------- ------------- -------------
See notes to financial statements.
F-5
<PAGE>
Smith Barney
Diversified Futures Fund L.P.
Notes to Financial Statements
1. Partnership Organization:
Smith Barney Diversified Futures Fund L.P. (the "Partnership") is a limited
partnership which was organized on August 13, 1993 under the partnership
laws of the State of New York to engage in the speculative trading of a
diversified portfolio of commodity interests including futures contracts,
options and forward contracts. The commodity interests that are traded by
the Partnership are volatile and involve a high degree of market risk. The
Partnership was authorized to sell 300,000 Units during its offering period.
Smith Barney Futures Management Inc. acts as the general partner (the
"General Partner") of the Partnership and is a wholly owned subsidiary of
Smith Barney Inc. ("SB"). SB acts as commodity broker for the Partnership
(see Note 3c). On November 28, 1997, Smith Barney Holdings Inc. was merged
with Salomon Inc to form Salomon Smith Barney Holdings Inc. ("SSBH"), a
wholly owned subsidiary of Travelers Group Inc. SB is a wholly owned
subsidiary of SSBH.
The General Partner and each limited partner share in the profits and losses
of the Partnership in proportion to the amount of partnership interest owned
by each except that no limited partner shall be liable for obligations of
the Partnership in excess of his initial capital contribution and profits,
if any, net of distributions.
The Partnership will be liquidated upon the first of the following to occur:
December 31, 2013; the net asset value of a Unit decreases to less than $400
as of the close of any business day; or under certain circumstances as
defined in the Limited Partnership Agreement.
2. Accounting Policies:
a. All commodity interests (including derivative financial instruments and
derivative commodity instruments) are used for trading purposes. The
commodity interests are recorded on trade date and open contracts are
recorded in the statement of financial condition at market value for
those commodity interests for which market quotations are readily
available or at fair value on the last business day of the year.
Investments in commodity interests denominated in foreign currency are
translated into U.S. dollars at the exchange rates prevailing on the last
business day of the year. Realized gain (loss) and changes in unrealized
values on commodity interests are recognized in the period in which the
contract is closed or the changes occur and are included in net gains
(losses) on trading of commodity interests.
F-6
<PAGE>
b. Income taxes have not been provided as each partner is individually
liable for the taxes, if any, on his share of the Partnership's income
and expenses.
c. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
3. Agreements:
a. Limited Partnership Agreement:
The Limited Partnership Agreement provides that the General Partner shall
manage the business of the Partnership and may make all trading decisions
for the Partnership.
b. Management Agreements:
The General Partner has entered into Management Agreements with Campbell
& Co., Inc., Chesapeake Capital Corporation, John W. Henry & Company,
Inc. ("JWH"), AIS Futures Management, Inc., Abraham Trading Co., Rabar
Market Research Inc. ("Rabar") and Telesis Management Inc. (collectively,
the "Advisors"), registered commodity trading advisors. The Advisors are
not affiliated with one another and none is affiliated with the General
Partner or SB and are not responsible for the organization or operation
of the Partnership. The Partnership will pay each Advisor a monthly
management fee equal to 1/6 of 1% (2% per year) of Net Assets allocated
to the Advisor as of the end of each month (except JWH, which will
receive a monthly management fee equal to 1/3 of 1% (4% per year) of
month-end Net Assets). In addition, the Partnership is obligated to pay
each Advisor 20% of the New Trading Profits earned by each Advisor for
the Partnership in each calendar quarter (Rabar will be paid annually)
(except JWH, which will receive an incentive fee of 15% of New Trading
Profits). Telesis Management Inc. was added as an Advisor to the
Partnership effective August 1, 1997.
c. Customer Agreement
The Partnership has entered into a Customer Agreement which provides that
the Partnership will pay SB a monthly brokerage fee equal up to 11/24 of
1% (5.5% per year) of month-end Net Assets in lieu of brokerage
commissions on a per trade basis. Persons investing $1,000,000 or more
will pay a reduced brokerage fee of 7/24 of 1% of month-end Net Assets
(3.5% per year), receiving the differential between this reduced fee and
5.5% per year in the form of additional Units. SB will pay a portion of
brokerage fees to its financial consultants who have sold Units in this
offering. Brokerage fees will be paid for the life of the Partnership,
although the rate at which such fees are paid may be changed. The
Partnership will pay for National Futures Association ("NFA") fees,
F-7
<PAGE>
exchange, clearing, user, give-up and floor brokerage fees. All of the
Partnership's assets are deposited in the Partnership's account at SB.
The Partnership's cash is deposited by SB in segregated bank accounts as
required by Commodity Futures Trading Commission regulations. At December
31, 1997 and 1996, the amount of cash held for margin requirements was
$28,016,682 and $17,906,764, respectively. SB has agreed to pay the
Partnership interest on 80% of the average daily equity maintained in
cash in its account during each month at a 30-day U.S. Treasury bill rate
determined weekly by SB based on the average noncompetitive yield on
3-month U.S. Treasury bills maturing in 30 days from the date on which
such weekly rate is determined. The Customer Agreement between the
Partnership and SB gives the Partnership the legal right to net
unrealized gains and losses. The Customer Agreement may be terminated
upon notice by either party.
4. Trading Activities:
The Partnership was formed for the purpose of trading contracts in a variety
of commodity interests, including derivative financial instruments and
derivative commodity instruments. The results of the Partnership's trading
activities are shown in the statement of income and expenses.
All of the commodity interests owned by the Partnership are held for trading
purposes. The fair value of these commodity interests, including options
thereon, at December 31, 1997 and 1996 was $11,184,770 and $7,288,686,
respectively, and the average fair value during the years then ended, based
on monthly calculation, was $10,552,252 and $14,427,778, respectively.
5. Distributions and Redemptions:
Distributions of profits, if any, will be made at the sole discretion of the
General Partner and at such times as the General Partner may decide. A
limited partner may require the Partnership to redeem his Units at their Net
Asset Value as of the last day of each month on 10 days' notice to the
General Partner. No fee will be charged for redemptions.
F-8
<PAGE>
6. Net Asset Value Per Unit:
Changes in the net asset value per Unit for the years ended December 31,
1997, 1996 and 1995 were as follows:
1997 1996 1995
Net realized and
unrealized gains $ 44.59 $ 175.18 $ 132.42
Interest income 49.04 41.97 44.48
Expenses (45.56) (58.45) (52.30)
--------- --------- ---------
Increase for year 48.07 158.70 124.60
Net asset value per
Unit, beginning of
year 1,250.36 1,091.66 967.06
--------- --------- ---------
Net asset value per
Unit, end of year $1,298.43 $1,250.36 $1,091.66
--------- --------- ---------
7. Financial Instrument Risk:
The Partnership is party to financial instruments with off-balance sheet
risk, including derivative financial instruments and derivative commodity
instruments, in the normal course of its business. These financial
instruments include forwards, futures and options, whose value is based upon
an underlying asset, index, or reference rate, and generally represent
future commitments to exchange currencies or cash flows, to purchase or sell
other financial instruments at specific terms at specified future dates, or,
in the case of derivative commodity instruments, to have a reasonable
possibility to be settled in cash or with another financial instrument.
These instruments may be traded on an exchange or over-the-counter ("OTC").
Exchange traded instruments are standardized and include futures and certain
option contracts. OTC contracts are negotiated between contracting parties
and include forwards and certain options. Each of these instruments is
subject to various risks similar to those related to the underlying
financial instruments including market and credit risk. In general, the
risks associated with OTC contracts are greater than those associated with
exchange traded instruments because of the greater risk of default by the
counterparty to an OTC contract.
Market risk is the potential for changes in the value of the financial
instruments traded by the Partnership due to market changes, including
interest and foreign exchange rate movements and fluctuations in commodity
or security prices. Market risk is directly impacted by the volatility and
liquidity in the markets in which the related underlying assets are traded.
F-9
<PAGE>
Credit risk is the possibility that a loss may occur due to the failure of a
counterparty to perform according to the terms of a contract. Credit risk
with respect to exchange traded instruments is reduced to the extent that an
exchange or clearing organization acts as a counterparty to the
transactions. The Partnership's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the statement of
financial condition and not represented by the contract or notional amounts
of the instruments. The Partnership has concentration risk because the sole
counterparty or broker with respect to the Partnership's assets is SB.
The General Partner monitors and controls the Partnership's risk exposure on
a daily basis through financial, credit and risk management monitoring
systems, and accordingly believes that it has effective procedures for
evaluating and limiting the credit and market risks to which the Partnership
is subject. These monitoring systems allow the General Partner to
statistically analyze actual trading results with risk-adjusted performance
indicators and correlation statistics. In addition, on-line monitoring
systems provide account analysis of futures, forwards and options positions
by sector, margin requirements, gain and loss transactions and collateral
positions.
The notional or contractual amounts of these instruments, while not recorded
in the financial statements, reflect the extent of the Partnership's
involvement in these instruments. At December 31, 1997, the notional or
contractual amounts of the Partnership's commitment to purchase and sell
these instruments was $825,601,374 and $788,720,477, respectively. All of
these instruments mature within one year of December 31, 1997. However, due
to the nature of the Partnership's business, these instruments may not be
held to maturity.
F-10
<PAGE>
At December 31, 1997, the fair value of the Partnership's derivatives,
including options thereon, was $11,184,770, as detailed below.
December 31, 1997
-------------------------------------
Notional or Contractual
Amount of Commitment
To Purchase To Sell Fair Value
Currencies
-Exchange
Traded
Contracts $ 11,004,227 $ 85,052,231 $ 710,480
-OTC
Contracts 91,780,207 172,891,448 430,261
Energy 2,293,498 51,019,266 2,859,466
Grains 1,900,330 34,874,210 884,824
Interest Rate
Non-U.S 450,921,559 320,673,268 1,205,068
Interest Rate
U.S 221,651,270 -- 1,004,688
Livestock -- 7,873,583 241,315
Metals 23,394,060 69,472,845 2,414,000
Softs 18,743,743 20,872,968 934,676
Indices 3,912,480 25,990,658 499,992
------------ ------------ -----------
Total $825,601,374 $788,720,477 $11,184,770
------------ ------------ -----------
At December 31, 1996, the notional or contractual amounts of the
Partnership's commitment to purchase and sell these instruments was $852,011,994
and $465,891,579, respectively, and the fair value of the Partnership's
derivatives, including options thereon, was $7,288,686 as detailed below.
December 31, 1996
--------------------------------------
Notional or Contractual
Amount of Commitment
To Purchase To Sell Fair Value
Currencies
-Exchange
Traded
Contracts $ 45,531,748 $ 99,346,984 $ 2,104,939
-OTC
Contracts 81,321,969 94,859,240 893,020
Energy 39,406,151 -- 2,582,805
Interest Rate
U.S 128,723,410 20,658,535 (57,409)
Interest Rate
Non-U.S 494,435,015 117,300,683 (389,818)
Grains 3,521,825 31,295,014 694,742
Metals 22,575,658 72,077,301 1,126,558
Indices 24,509,712 15,044,568 453,162
Softs 5,868,966 15,302,854 (141,817)
Livestock 6,117,540 6,400 22,504
------------ ------------ -----------
Total $852,011,994 $465,891,579 $ 7,288,686
------------ ------------ -----------
8. Subsequent Events:
Effective January 31, 1998, Chesapeake Capital Corporation and Abraham
Trading Co. were terminated as Advisors. Trendview Management, Inc. was
added as an Advisor on February 1, 1998.
F-11
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
During the last two fiscal years and any subsequent interim
period, no independent accountant who was engaged as the principal accountant to
audit the Partnership's financial statements has resigned or was dismissed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no officers or directors and its affairs are managed by
its General Partner, Smith Barney Futures Management Inc. Investment decisions
will be made by Campbell & Company, Inc., Chesapeake Capital Corporation, John
W. Henry & Company, Inc., Abraham Trading Co., Rabar Market Research, Inc., AIS
Futures Management, Inc. and Telesis Management Inc. (collectively the
"Advisors").
Item 11. Executive Compensation.
The Partnership has no directors or officers. Its affairs are
managed by Smith Barney Futures Management Inc., its General Partner, which
receives compensation for its services, as set forth under "Item 1. Business."
SB, an affiliate of the General Partner, is the commodity broker for the
Partnership and receives brokerage commissions for such services, as described
under "Item 1. Business." Brokerage commissions and clearing fees of $9,893,999
were paid for the year ended December 31, 1997. Management fees and incentive
fees of $4,455,840 and $1,301,462, respectively, were paid or payable to the
Advisors for the year ended December 31, 1997.
15
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
(a). Security ownership of certain beneficial owners.
The Partnership knows of no person who beneficially owns more than 5% of the
Units outstanding.
(b). Security ownership of management. Under the terms of the
Limited Partnership Agreement, the Partnership's affairs are managed by the
General Partner. The General Partner owns Units of general partnership interest
equivalent to 2,048.9308 Units (1.8%) of Limited Partnership Interest as of
December 31, 1997.
(c). Changes in control. None.
Item 13. Certain Relationship and Related Transactions.
Smith Barney Inc. and Smith Barney Futures Management Inc. would be
considered promoters for purposes of item 404 (d) of Regulation S-K. The nature
and the amounts of compensation each promoter will receive from the Partnership
are set forth under "Item 1. Business" and "Item 11. Executive Compensation."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) Financial Statements:
Statement of Financial Condition at December 31, 1997 and 1996.
Statement of Income and Expenses for the years ended December
31, 1997, 1996 and 1995.
16
<PAGE>
Statement of Partners' Capital for the years ended
December 31, 1997, 1996, and 1995.
(2) Financial Statement Schedules: Financial Data
Schedule for the year ended December 31, 1997.
(3) Exhibits:
3.1 - Limited Partnership Agreement (filed as Exhibit 3.1
to the Registration Statement on Form S-1 (File No.
33-75056 and incorporated herein by reference).
3.2 - Certificate of Limited Partnership of the
Partnership as filed in the office of the County
Clerk of New York County on October 13, 1993 (filed
as Exhibit 3.2 to the Registration Statement on Form
S-1 (File No. 33-75056) and incorporated herein by
reference).
10.1- Customer Agreement between the Partnership and Smith
Barney (filed as Exhibit 10.1 to the Registration
Statement on Form S-1 (File No. 33-75056) and
incorporated herein by reference).
10.3- Escrow Instructions relating to escrow of
subscription funds (filed as Exhibit 10.3 to the
Registration Statement on Form S-1 (File No. 33-
75056) and incorporated herein by reference).
10.5- Management Agreement among the Partnership, the
General Partner and Campbell & Company, Inc. (filed
as Exhibit 10.5 to the Registration Statement on
Form S-1 (File No. 33-75056) and incorporated herein
by reference).
17
<PAGE>
10.6- Management Agreement among the Partnership, the
General Partner and Colorado Commodity Management
Corp. (filed as Exhibit 10.6 to the Registration
Statement on Form S-1 (File No. 33-75056) and
incorporated herein by reference).
10.7- Management Agreement among the Partnership, the
General Partner and John W. Henry & Company, Inc.
(filed as Exhibit 10.7 to the Registration Statement
on Form S-1 (File No. 33-75056) and incorporated
herein by reference).
10.8- Management Agreement among the Partnership, the
General Partner and Hyman Beck & Company (filed as
Exhibit 10.8 to the Registration Statement on Form
S-1 (File No. 33-75056) and incorporated herein by
reference).
10.9- Letter dated May 19, 1994 from the General Partner
to Colorado Commodities Management Corp. terminating
the Management Agreement (previously filed).
10.10- Management Agreement among the Partnership, the
General Partner and Chesapeake Capital Corp.(previously
filed).
10.11- Letters extending Management Agreements with John W.
Henry & Company, Inc., Hyman Beck & Company,
Campbell & Co., Inc. and Chesapeake Capital Corp.
(previously filed).
18
<PAGE>
10.12- Management Agreement among the Partnership, the
General Partner and Abraham Trading Co. (previously
filed).
10.13- Management Agreement among the Partnership, the
General Partner and Rabar Market Research Inc.
(previously filed).
10.14- Management Agreement among the Partnership, the General
Partner and AIS Futures Management, Inc. (previously
filed).
10.15- Letter dated October 1, 1996 from the General Partner
to Hyman Beck & Company terminating the Management
Agreement (previously filed).
10.16- Management Agreement among the Partnership, the
General Partner and Telesis Management Inc. (filed
herein).
10.17- Letter terminating Management Agreement with
Chesapeake Capital Corporation (filed herein).
10.18- Letter terminating Management Agreement with Abraham
Trading Co. (filed herein).
10.19- Management Agreement among the Partnership the
General Partner and Trendview Management, Inc.
(filed herein).
10.20- Letters extending Management Agreements with Campbell &
Co., Chesapeake Capital Corp., John W. Henry & Company,
Inc., AIS Futures Managment, Inc, Abraham Trading Co.,
and Rabar Market Research Inc. for 1996 and 1997 (filed
herein)
(b) Reports on 8-K: None Filed.
19
<PAGE>
Supplemental Information To Be Furnished With Reports Filed Pursuant To
Section 15(d) Of The Act by Registrants Which Have Not Registered Securities
Pursuant To Section 12 Of the Act.
Annual Report to Limited Partners
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York
and State of New York on the 24th day of March 1998.
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
By: Smith Barney Futures Management Inc.
(General Partner)
By /s/ David J. Vogel
David J. Vogel, President & Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
/s/ David J. Vogel /s/ Jack H. Lehman III
David J. Vogel, Jack H. Lehman III
Director, Principal Executive Chairman and Director
Officer and President
/s/ Michael Schaefer /s/ Daniel A. Dantuono
Michael Schaefer Daniel A. Dantuono
Director Treasurer, Chief Financial
Officer and Director
/s/ Daniel R. McAuliffe, Jr. /s/ Steve J. Keltz
Daniel R. McAuliffe, Jr. Steve J. Keltz
Director Secretary and Director
/s/ Shelley Ullman
Shelley Ullman
Director
21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000911503
<NAME> SMITH BARNEY DIVERSIFIED FUTURES FUND L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 142,852,854
<SECURITIES> 11,184,770
<RECEIVABLES> 518,917
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 154,556,541
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 154,556,541
<CURRENT-LIABILITIES> 3,175,280
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 151,381,261
<TOTAL-LIABILITY-AND-EQUITY> 154,556,541
<SALES> 0
<TOTAL-REVENUES> 11,414,918
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,889,109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,525,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,525,809
<EPS-PRIMARY> 48.07
<EPS-DILUTED> 0
</TABLE>
May 31, 1996
Abraham Trading & Co. "ATC"
Moody Building
2nd & Main
Canadain, Texas 790144
Attention: Mr. Craig L. Caudle
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Caudle:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through to June 30,
1997. All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
ABRAHAM TRADING & CO. "ATC"
By:
Print Name:
DAD/sr
rw/1
<PAGE>
May 31, 1996
Campbell & Co. Inc.
210 West Pennsylvania Avenue
Baltimore, MD. 21204
Attention: Mr. Terry Livesey
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Livesey:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1997.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
CAMPBELL & CO. INC.
By:
Print Name:
DAD/sr
rw/1
<PAGE>
May 31, 1996
Chesapeake Capital Corp.
500 Forest Avenue
Richmond, Va. 23229
Attention: Mr. John Hoade
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Hoade:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1997.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of these modifications by
signing one copy of this letter and returning it to the attention of Mr. Daniel
Dantuono at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
CHESAPEAKE CAPITAL CORP.
By:
Print Name:
DAD/sr
rw/1
<PAGE>
May 31, 1996
John W. Henry & Company
One Glendinning Place
Westport, Ct. 06880
Attn: Ms. Beth Kenton
Re: Management Agreement Renewal
SB Diversified Futures Fund
Dear Ms. Kenton:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1997.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
JOHN W. HENRY & COMPANY
By:
Print Name:
DAD/sr
<PAGE>
May 31, 1996
Rabar Market Research
10 Bank St. - Suite 830
White Plain, N.Y. 10606
Attention: Mr. John Dreyer &
Mr. Paul Rabar
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund
Dear Mr. Dreyer & Mr. Rabar:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1997.
The incentive fee will now be paid annually instead of quarterly. All other
provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
RABAR MARKET RESEARCH
By:
Print Name:
DAD/sr
rw/1
<PAGE>
June 24, 1997
Abraham Trading & Co. "ATC"
Moody Building
2nd & Main
Canadain, Texas 790144
Attention: Mr. Craig L. Caudle
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Caudle:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through to June 30,
1998. All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
ABRAHAM TRADING & CO. "ATC"
By:
Print Name:
DAD/sr
rw/1
<PAGE>
June 24, 1997
AIS FUTURES MANAGEMENT
375 Park Avenue
Suite 3403
New York, Nerw York 10152
Attention: Mr. John R. Hummel
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Hummel:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1998.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
AIS FUTURES MANAGEMENT
By:
Print Name:
DAD/sr
rw/1
<PAGE>
June 24, 1997
Campbell & Co. Inc.
210 West Pennsylvania Avenue
Baltimore, MD. 21204
Attention: Mr. Terry Livesey
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Livesey:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1998.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
CAMPBELL & CO. INC.
By:
Print Name:
DAD/sr
rw/1
<PAGE>
August 12, 1997
Chesapeake Capital Corp.
500 Forest Avenue
Richmond, Va. 23229
Attention: Mr. John Hoade
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund L.P.
Dear Mr. Hoade:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1998.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of these modifications by
signing one copy of this letter and returning it to the attention of Mr. Daniel
Dantuono at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
CHESAPEAKE CAPITAL CORP.
By:
Print Name:
DAD/sr
rw/1
<PAGE>
June 19, 1997
John W. Henry & Company
One Glendinning Place
Westport, Ct. 06880
Attn: Ms. Beth Kenton
Re: Management Agreement Renewal
SB Diversified Futures Fund
Dear Ms. Kenton:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1998.
All other provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
JOHN W. HENRY & COMPANY
By:
Print Name:
DAD/sr
<PAGE>
June 24, 1997
Rabar Market Research
10 Bank St. - Suite 830
White Plain, N.Y. 10606
Attention: Mr. John Dreyer &
Mr. Paul Rabar
Re: Management Agreement Renewal
Smith Barney Diversified Futures Fund
Dear Mr. Dreyer & Mr. Rabar:
We are writing with respect to your management agreement concerning the
commodity pool to which reference is made above (the "Management Agreement"). We
would like to extend the term of the Management Agreement through June 30, 1998.
The incentive fee will now be paid annually instead of quarterly. All other
provisions of the Management Agreement will remain unchanged.
Please indicate your agreement to and acceptance of this modification by signing
one copy of this letter and returning it to the attention of Mr. Daniel Dantuono
at the address above.
Very truly yours,
SMITH BARNEY FUTURES MANAGEMENT INC.
By:
Chief Financial Officer,
Director & Treasurer
AGREED AND ACCEPTED
RABAR MARKET RESEARCH
By:
Print Name:
DAD/sr
rw/1
MANAGEMENT AGREEMENT
AGREEMENT made as of the 31st day of July, 1997 among SMITH
BARNEY FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SMITH BARNEY
DIVERSIFIED FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and TELESIS MANAGEMENT INC., a Delaware corporation (the
"Advisor").
W I T N E S S E T H :
WHEREAS, SBFM is the general partner of Smith Barney
Diversified Futures Fund L.P., a limited partnership organized for the purpose
of speculative trading of commodity interests, including futures contracts,
options and forward contracts with the objective of achieving substantial
capital appreciation; and
WHEREAS, the Limited Partnership Agreement establishing the
Partnership (the "Limited Partnership Agreement") permits SBFM to delegate to
one or more commodity trading advisors SBFM's authority to make trading
decisions for the Partnership; and
WHEREAS, the Advisor is registered as a commodity trading
advisor with the Commodity Futures Trading Commission ("CFTC") and is a member
of the National Futures Association ("NFA"); and
WHEREAS, SBFM is registered as a commodity pool operator with
the CFTC and is a member of the NFA; and
WHEREAS, SBFM, the Partnership and the Advisor wish to enter
into this Agreement in order to set forth the terms and conditions upon which
the Advisor will render and implement advisory services in connection with the
conduct by the Partnership of its commodity trading activities during the term
of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) For the period and on the terms
and conditions of this Agreement, the Advisor shall have sole authority and
responsibility, as one of the Partnership's agents and attorneys-in-fact, for
directing the investment and reinvestment of the assets and funds of the
Partnership allocated to it by the General Partner in commodity interests,
including commodity futures contracts, options and forward contracts. All such
trading on behalf of the Partnership shall be in accordance with the trading
strategies and trading policies set forth in the Partnership's Prospectus dated
as of February 17, 1994, as supplemented (the "Prospectus"), and as such trading
policies may be changed from time to time upon receipt by the Advisor of prior
written notice of such change and pursuant to the trading strategy selected by
SBFM to be utilized by the Advisor in managing the Partnership's assets. SBFM
has initially selected the Advisor's Leveraged 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 March 31, 1997 as filed with the CFTC (the "Disclosure
Document"). All trades made by the Advisor for the account of the Partnership
shall be made through such commodity broker or brokers as SBFM shall direct, and
the Advisor shall have no authority or responsibility for selecting or
supervising any such broker in connection with the execution, clearance or
confirmation of transactions for the Partnership or for the negotiation of
brokerage rates charged therefor. However, the Advisor, with the prior written
permission (by either original or fax copy) of SBFM, may direct all trades in
commodity futures and options to a futures commission merchant or independent
floor broker it chooses for execution with instructions to give-up the trades to
the broker designated by SBFM, provided that the futures commission merchant or
independent floor broker and any give-up or floor brokerage fees are approved in
advance by SBFM. All give-up or similar fees relating to the foregoing shall be
paid by the Partnership after all parties have executed the relevant give-up
agreements (by either original or fax copy).
(c) The initial allocation of the Partnership's assets to the
Advisor will be made to the Advisor's Leveraged Program. In the event the
Advisor wishes to use a trading system or methodology other than or in addition
to such system or methodology 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. Further, the Advisor will provide the
Partnership with a current list of all commodity interests to be traded for the
Partnership's account and the exchanges on which such commodity interests will
be traded. The Advisor will not trade commodity interests on any additional
exchanges for such account without providing notice thereof to SBFM and
receiving SBFM's written approval. The Advisor will update the list of commodity
interests traded no less frequently than quarterly and will provide such updated
list to the Partnership. 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.
(d) The Advisor agrees to make all material disclosures to
the Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers or the specific details of its trading methodology) 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 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 (and as set forth in
Appendix A hereto), provided that in determining the Net Assets of the
Partnership on any date, no adjustment shall be made to reflect any
distributions, redemptions or incentive fees payable as of the date of such
determination.
(c) "New Trading Profits" shall mean the excess, if any, of
Net Assets managed by the Advisor at the end of the fiscal period over Net
Assets managed by the Advisor at the end of the highest previous fiscal period
or Net Assets allocated to the Advisor at the date trading commences, whichever
is higher, and as further adjusted to eliminate the effect on Net Assets
resulting from new capital contributions, redemptions, reallocations or capital
distributions, if any, made during the fiscal period decreased by interest or
other income, not directly related to trading activity, earned on the
Partnership's assets during the fiscal period, whether the assets are held
separately or in margin accounts. Ongoing expenses will be attributed to the
Advisor based on the Advisor's proportionate share of Net Assets. Ongoing
expenses above will not include expenses of litigation not involving the
activities of the Advisor on behalf of the Partnership. Ongoing expenses include
offering and organizational expenses of the Partnership. No incentive fee shall
be paid until the end of the first full calendar quarter of trading, which fee
shall be based on New Trading Profits earned from the commencement of trading 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), 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 (but the Advisor shall not
be required to disclose the identities of or identifying information with
respect to its customers or the specific details of its trading methodology).
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, 1998. 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, except as provided in Section 10 hereof, (ii) Richard and
Eric Sanborn die, become incapacitated, leave the employ of the Advisor, cease
to control the Advisor or are otherwise not managing the trading programs or
systems of the Advisor, or (iii) the Advisor's registration as a commodity
trading advisor with the CFTC or its membership in the NFA or any other
regulatory authority, is terminated or suspended. This Agreement will
immediately terminate upon dissolution of the Partnership or upon cessation of
trading prior to dissolution.
(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, 1998; 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) Without limiting sub-paragraph (i) above, to the extent
that the Advisor has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subparagraph (i) above, or in
defense of any claim, issue or matter therein, SBFM shall indemnify it against
the expenses (including, without limitation, attorneys' and accountants' fees)
actually and reasonably incurred by it in connection therewith.
(iii) Any indemnification under subparagraph (i) above,
unless ordered by a court or administrative forum, shall be made by SBFM only as
authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that such indemnification is proper in the
circumstances because the Advisor has met the applicable standard of conduct set
forth in subparagraph (i) above. Such independent legal counsel shall be
selected by SBFM in a timely manner, subject to the Advisor's approval, which
approval shall not be unreasonably withheld. The Advisor will be deemed to have
approved SBFM's selection unless the Advisor notifies SBFM in writing, received
by SBFM within five days of SBFM's telecopying to the Advisor of the notice of
SBFM's selection, that the Advisor does not approve the selection.
(iv) In the event the Advisor is made a party to any claim,
dispute or litigation or otherwise incurs any loss or expense as a result of, or
in connection with, the Partnership's or SBFM's activities or claimed activities
unrelated to the Advisor, SBFM shall indemnify, defend and hold harmless the
Advisor against any loss, liability, damage, cost or expense (including, without
limitation, attorneys' and accountants' fees) incurred in connection therewith.
(v) As used in this Paragraph 6(a), the terms "Advisor" shall
include the Advisor, its principals, officers, directors, stockholders and
employees and the term "SBFM" shall include the Partnership.
(b)(i) The Advisor agrees to indemnify, defend and hold
harmless SBFM, the Partnership and their affiliates against any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees), judgments and amounts paid in settlement actually and
reasonably incurred by them (A) as a result of the material breach of any
material representations and warranties made by the Advisor in this Agreement,
or (B) as a result of any act or omission of the Advisor relating to the
Partnership if there has been a final judicial or regulatory determination or,
in the event of a settlement of any action or proceeding with the prior written
consent of the Advisor, a written opinion of an arbitrator pursuant to Paragraph
14 hereof, to the effect that such acts or omissions violated the terms of this
Agreement in any material respect or involved negligence, bad faith,
recklessness or intentional misconduct on the part of the Advisor (except as
otherwise provided in Section 1(g)).
(ii) In the event SBFM, the Partnership or any of their
affiliates is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of, or in connection with, the activities
or claimed activities of the Advisor or its principals, officers, directors,
shareholder(s) or employees unrelated to SBFM's or the Partnership's business,
the Advisor shall indemnify, defend and hold harmless SBFM, the Partnership or
any of their affiliates against any loss, liability, damage, cost or expense
(including, without limitation, attorneys' and accountants' fees) incurred in
connection therewith.
(c) In the event that a person entitled to indemnification
under this Paragraph 6 is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Paragraph
6 shall be applicable with respect to default judgments, confessions of judgment
or settlements entered into by the party claiming indemnification without the
prior written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the
termination of this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the
Advisor's Disclosure Document are accurate in all material respects and as to
them the Disclosure Document does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading.
(ii) The performance information in the Disclosure Document
is based on all of the customer accounts managed on a discretionary basis by the
Advisor's principals and/or the Advisor during the period covered by such tables
and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading
advisor with respect to the Partnership and not as a securities investment
adviser and is duly registered with the CFTC as a commodity trading advisor, is
a member of the NFA, and is in compliance with such other registration and
licensing requirements as shall be necessary to enable it to perform its
obligations hereunder, and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
full power and authority to enter into this Agreement and to provide the
services required of it hereunder.
(v) The Advisor will not, by acting as a commodity trading
advisor to the Partnership, breach or cause to be breached any undertaking,
agreement, contract, statute, rule or regulation to which it is a party or by
which it is bound.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by the Advisor and is a valid and binding agreement
enforceable in accordance with its terms.
(vii) At any time during the term of this Agreement that a
prospectus relating to the Units is required to be delivered in connection with
the offer and sale thereof, the Advisor agrees upon the request of SBFM to
provide the Partnership with such information as shall be necessary so that, as
to the Advisor and its principals, such prospectus is accurate.
(b) SBFM represents and warrants for itself and the
Partnership that:
(i) It is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full corporate
power and authority to perform its obligations under this Agreement.
(ii) SBFM and the Partnership have the capacity and authority
to enter into this Agreement on behalf of the Partnership.
(iii) 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.
(iv) 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.
(v) 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.
(vi) The Partnership is a limited partnership duly organized
and validly existing under the laws of the State of New York and has full power
and authority to enter into this Agreement and to perform its obligations under
this Agreement.
8. COVENANTS OF THE ADVISOR, SBFM AND THE PARTNERSHIP. (a) The
Advisor agrees -------------------------------------------------- as follows:
(i) In connection with its activities on behalf of the
Partnership, the Advisor will comply with all applicable rules and regulations
of the CFTC and/or the commodity exchange on which any particular transaction is
executed.
(ii) The Advisor will promptly notify SBFM of the
commencement of any material suit, action or proceeding involving it, whether or
not any such suit, action or proceeding also involves SBFM.
(iii) In the placement of orders for the Partnership's
account and for the accounts of any other client, the Advisor will utilize a
pre-determined, systematic, fair and reasonable order entry system, which shall,
on an overall basis, be no less favorable to the Partnership than to any other
account managed by the Advisor. The Advisor acknowledges its obligation to
review the Partnership's positions, prices and equity in the account managed by
the Advisor daily and within two business days to notify, in writing, the broker
and SBFM and the Partnership's brokers of (i) any error committed by the Advisor
or its principals or employees; (ii) any trade which the Advisor believes was
not executed in accordance with its instructions; and (iii) any discrepancy with
a value of $10,000 or more (due to differences in the positions, prices or
equity in the account) between its records and the information reported on the
account's daily and monthly broker statements.
(iv) The Advisor will maintain a net worth of not less than
$300,000 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 Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: David J. Vogel
If to the Advisor:
Telesis Management Inc.
1525 State Street
Suite 100
Santa Barbara, California 93101
Attention: Eric Sanborn
with a copy to:
Patricia Gillman, Esq.
Schiff Hardin & White
7200 Sears Tower
Chicago, Illinois 60606
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement or the interpretation
thereof, shall be settled by arbitration in accordance with the rules, then in
effect, of the National Futures Association or, if the National Futures
Association shall refuse jurisdiction, then in accordance with the rules, then
in effect, of the American Arbitration Association; provided, however, that the
power of the arbitrator shall be limited to interpreting this Agreement as
written and the arbitrator shall state in writing his reasons for his award.
Judgment upon any award made by the arbitrator may be entered in any court of
competent jurisdiction.
15. NO THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By________________________
David J. Vogel
President and Director
SMITH BARNEY DIVERSIFIED
FUTURES FUND L.P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By________________________
David J. Vogel
President and Director
TELESIS MANAGEMENT INC.
By_________________________
Name:
Title:
<PAGE>
Appendix A
Net Assets. NET ASSETS of the Partnership shall mean the total
assets of the Partnership including all cash, plus Treasury Bills at market,
accrued interest, and the market value of all open commodity positions
maintained by the Partnership, less brokerage charges accrued and less all other
liabilities of the Partnership, determined in accordance with generally accepted
accounting principles under the accrual basis of accounting.
<PAGE>
0309369.02
-1-
ABC
TO: Eric Sanborn
FROM: Rita M. Molesworth
RE: Smith Barney Diversified Futures Fund L.P. (the "Fund")
DATED: July 31, 1997
- -------------------------------------------------------------------
Enclosed please find three execution copies of the management
agreement between the Fund and Telesis Management Inc. Please sign each
agreement and forward them to Dan Dantuono at Smith Barney. A fully executed
original will be returned to you for your files.
Please telephone me at 212-821-8727 with any comments or
questions.
R.M.M.
cc: Daniel A. Dantuono
Emily M. Zeigler
Patricia Gillman
MANAGEMENT AGREEMENT
AGREEMENT made as of the 29th day of January, 1998 among SMITH
BARNEY FUTURES MANAGEMENT INC., a Delaware corporation ("SBFM"), SMITH BARNEY
DIVERSIFIED FUTURES FUND L.P., a New York limited partnership (the
"Partnership") and TRENDVIEW MANAGEMENT INC., a corporation organized under the
laws of California (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 and the Advisor wish to enter into this
Agreement in order to set forth the terms and conditions upon which the Advisor
will render and implement advisory services in connection with the conduct by
the Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. DUTIES OF THE ADVISOR. (a) For the period and on the terms
and conditions of this Agreement, the Advisor shall have sole authority and
responsibility, as one of the Partnership's agents and attorneys-in-fact, for
directing the investment and reinvestment of the assets and funds of the
Partnership allocated to it by the General Partner in commodity interests,
including commodity futures contracts, options and forward contracts. All such
trading on behalf of the Partnership shall be in accordance with the trading
strategies and trading policies set forth in the Prospectus and Disclosure
Document dated as of February 17, 1994, as supplemented (the "Prospectus"), and
as such trading policies may be changed from time to time upon receipt by the
Advisor of prior written notice of such change and pursuant to the trading
strategy selected by SBFM to be utilized by the Advisor in managing the
Partnership's assets. SBFM has initially selected the Advisor's World
Diversified Portfolio 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 September 17, 1997 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 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 World Diversified Portfolio. In the event
the Advisor wishes to use a trading system or methodology other than or in
addition to the system or methodology outlined in the Disclosure Document in
connection with its trading for the Partnership, either in whole or in part, it
may not do so unless the Advisor gives SBFM prior written notice of its
intention to utilize such different trading system or methodology and SBFM
consents thereto in writing. In addition, the Advisor will provide five days'
prior written notice to SBFM of any change in the trading system or methodology
to be utilized for the Partnership which the Advisor deems material. If the
Advisor deems such change in system or methodology or in markets traded to be
material, the changed system or methodology or markets traded will not be
utilized for the Partnership without the prior written consent of SBFM. In
addition, the Advisor will notify SBFM of any changes to the trading system or
methodology that would require a change in the description of the trading
strategy or methods described in 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.
(d) The Advisor agrees to make all material disclosures to the
Partnership regarding itself and its principals as defined in Part 4 of the
CFTC's regulations ("principals"), shareholders, directors, officers and
employees, their trading performance and general trading methods, its customer
accounts (but not the identities of or identifying information with respect to
its customers) and otherwise as are required in the reasonable judgment of SBFM
to be made in any filings required by Federal or state law or NFA rule or order.
Notwithstanding Sections 1(d) and 4(d) of this Agreement, the Advisor is not
required to disclose the actual trading results of proprietary accounts of the
Advisor or its principals 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. The Advisor may refuse to accept any additional allocations to its
management.
(g) The Advisor will not be liable for trading losses in the
Partnership's account including losses caused by errors committed by any
commodity broker/dealer selected by SBFM; provided, however, that (i) the
Advisor will be liable to the Partnership with respect to losses incurred due to
errors committed or caused by it or any of its principals or employees in
communicating improper trading instructions or orders to any broker on behalf of
the Partnership and (ii) the Advisor will be liable to the Partnership with
respect to losses incurred due to errors committed or caused by any executing
broker (other than any SBFM affiliate) selected by the Advisor, (it also being
understood that SBFM, with the assistance of the Advisor, will first attempt to
recover such losses from the executing broker).
2. INDEPENDENCE OF THE ADVISOR. For all purposes herein, the
Advisor shall be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent the Partnership in any way and shall not be deemed an agent, promoter
or sponsor of the Partnership, SBFM, or any other trading advisor. The Advisor
shall not be responsible to the Partnership, the General Partner, any trading
advisor or any limited partners for any acts or omissions of any other trading
advisor, whether or not they are still acting as an advisor to the Partnership.
3. COMPENSATION. (a) In consideration of and as compensation
for all of the services to be rendered by the Advisor to the Partnership under
this Agreement, the Partnership shall pay the Advisor (i) an incentive fee
payable quarterly equal to 20% of New Trading Profits (as such term is defined
below) earned by the Advisor for the Partnership and (ii) a monthly fee for
professional management services equal to 1/6 of 1% (2% per year) of the
month-end Net Assets of the Partnership allocated to the Advisor.
(b) "Net Assets" shall have the meaning set forth in Paragraph
7(d)(1) of the Limited Partnership Agreement dated as of 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 expenses of litigation not involving the
activities of the Advisor on behalf of the Partnership. Ongoing expenses include
offering and organizational expenses of the Partnership. No incentive fee shall
be paid until the end of the first full calendar quarter of trading, which fee
shall be based on New Trading Profits earned from the commencement of trading
operations by the Partnership through the end of the first full calendar
quarter. Interest income earned, if any, will not be taken into account in
computing New Trading Profits earned by the Advisor. If Net Assets allocated to
the Advisor are reduced due to redemptions, distributions or reallocations (net
of additions), there will be a corresponding proportional reduction in the
related loss carryforward amount that must be recouped before the Advisor is
eligible to receive another incentive fee.
(d) Quarterly incentive fees and monthly management fees shall
be paid within twenty (20) business days following the end of the period, as the
case may be, for which such fee is payable. In the event of the termination of
this Agreement as of any date which shall not be the end of a fiscal quarter or
a calendar month, as the case may be, the quarterly incentive fee shall be
computed as if the effective date of termination were the last day of the then
current quarter and the monthly management fee shall be prorated to the
effective date of termination. 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 it being acknowledged that under the Advisor's trading strategies,
there may be periods when no open positions will be maintained for the
Partnership. No incentive fee shall be paid to the Advisor until the end of the
first full calendar quarter of the Advisor's trading for the Partnership, which
incentive fee shall be based on New Trading Profits (if any) from the
commencement of trading for the Partnership by the Advisor through the end of
the first full calendar quarter.
(e) The provisions of this Paragraph 3 shall survive the
termination of this Agreement.
4. RIGHT TO ENGAGE IN OTHER ACTIVITIES. (a) The services
provided by the Advisor hereunder are not to be deemed exclusive. SBFM on its
own behalf and on behalf of the Partnership acknowledges that, subject to the
terms of this Agreement, the Advisor and its officers, directors, employees,
shareholder(s) and affiliates, may render advisory, consulting and management
services to other clients and accounts. The Advisor and its principals,
officers, directors, employees, shareholder(s) and affiliates 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 or
different information, computer programs and trading strategies, programs or
formulas which they obtain, produce or utilize in the performance of services to
SBFM for the Partnership. 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 principals,
officers, employees, directors, shareholder(s) and affiliates presently act, and
it is agreed that they may continue to act, as advisor and broker 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 on a confidential basis 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 in
writing. 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, 1998. 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, except as provided in Section 10 hereof, (ii) Clark D.
Smith dies, becomes incapacitated, leaves the employ of the Advisor, ceases to
control the Advisor or is otherwise not managing the trading programs or systems
of the Advisor, or (iii) the Advisor's registration as a commodity trading
advisor with the CFTC or its membership in the NFA or any other regulatory
authority, is terminated or suspended. This Agreement will immediately terminate
upon dissolution of the Partnership or upon cessation of trading prior to
dissolution.
<PAGE>
(b) The Advisor may terminate this Agreement by giving not
less than 30 days' notice to SBFM in the event that (i) the trading policies of
the Partnership as set forth in the Prospectus are changed in such manner that
the Advisor reasonably believes will adversely affect the performance of its
trading strategies; (ii) after June 30, 1998; or (iii) in the event that the
General Partner or Partnership fails to comply with the terms of this Agreement,
(iv) SBFM fails to consent to a change in trading system pursuant to Paragraph
1(c), or (v) SBFM requires the Advisor to liquidate its positions other than in
order that SBFM may reallocate the Partnership's assets, meet margin calls on
the Partnership's account or fund redemptions and the Advisor believes that such
liquidation would adversely affect its performance. 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) Without limiting sub-paragraph (i) above, to the extent
that the Advisor has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subparagraph (i) above, or in
defense of any claim, issue or matter therein, SBFM shall indemnify it against
the expenses (including, without limitation, attorneys' and accountants' fees)
actually and reasonably incurred by it in connection therewith.
(iii) Any indemnification under subparagraph (i) above, unless
ordered by a court 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,
employees and affiliates and the term "SBFM" shall include the Partnership
jointly and severally.
(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.
(iii) Clark D. Smith shall have no liability to the
Partnership or SBFM or any of their respective officers, directors, employees,
partners or affiliates under this Agreement or in connection with the
transactions contemplated by this Agreement except in the case of fraud or
willful misconduct by Clark D. Smith.
(c) In the event that a person entitled to indemnification
under this Paragraph 6 is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Paragraph 6
shall be applicable with respect to default judgments, confessions of judgment
or settlements entered into by the party claiming indemnification without the
prior written consent, which shall not be unreasonably withheld, of the party
obligated to indemnify such party.
(e) The provisions of this Paragraph 6 shall survive the
termination of this Agreement.
7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The Advisor represents and warrants that:
(i) All references to the Advisor and its principals in the
Advisor's Disclosure Document are accurate in all material respects and as to
them the Disclosure Document does not contain any untrue statement of a material
fact or omit to state a material fact which is necessary to make the statements
therein not misleading.
(ii) The performance information in the Disclosure Document is
based on all of the customer accounts managed on a discretionary basis by the
Advisor's principals and/or the Advisor during the period covered by such tables
and required to be disclosed therein.
(iii) The Advisor will be acting as a commodity trading
advisor with respect to the Partnership and not as a securities investment
adviser and is duly registered with the CFTC as a commodity trading advisor, is
a member of the NFA, and is in compliance with such other registration and
licensing requirements as shall be necessary to enable it to perform its
obligations hereunder, and agrees to maintain and renew such registrations and
licenses during the term of this Agreement.
(iv) The Advisor is a corporation duly organized, validly
existing and in good standing under the laws of the State of California 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 corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has full corporate
power and authority to perform its obligations under this Agreement.
(iii) SBFM and the Partnership have the capacity and authority
to enter into this Agreement on behalf of the Partnership.
(iv) This Agreement has been duly and validly authorized,
executed and delivered on SBFM's and the Partnership's behalf and is a valid and
binding agreement of SBFM and the Partnership enforceable in accordance with its
terms.
(v) SBFM will not, by acting as General Partner to the
Partnership and the Partnership will not, breach or cause to be breached any
undertaking, agreement, contract, statute, rule or regulation to which it is a
party or by which it is bound which would materially limit or affect the
performance of its duties under this Agreement.
(vi) It is registered as a commodity pool operator and is a
member of the NFA, and it will maintain and renew such registration and
membership during the term of this Agreement.
(vii) The Partnership is a limited partnership duly organized
and validly existing under the laws of the State of New York and has full power
and authority to enter into this Agreement and to perform its obligations under
this Agreement.
(viii) SBFM and its affiliates will comply with all laws,
rules and regulations applicable to the offer and sale of Units.
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 or (ii) any trade which the Advisor believes was
not executed in accordance with its instructions.
(iv) The Advisor will maintain a net worth of at least $200,000
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 Inc.
390 Greenwich Street
1st Floor
New York, New York 10013
Attention: Mr. David J. Vogel
If to the Advisor:
Mr. Clark D. Smith
Trendview Management Inc.
591 Camino de la Reina, Suite 316
San Diego, California 92108-8433
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. ARBITRATION. The parties agree that any dispute or
controversy arising out of or relating to this Agreement or the interpretation
thereof, shall be settled by arbitration in accordance with the rules, then in
effect, of the National Futures Association or, if the National Futures
Association shall refuse jurisdiction, then in accordance with the rules, then
in effect, of the American Arbitration Association; provided, however, that the
power of the arbitrator shall be limited to interpreting this Agreement as
written and the arbitrator shall state in writing his reasons for his award.
Judgment upon any award made by the arbitrator may be entered in any court of
competent jurisdiction.
<PAGE>
0390672.01
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15. NO THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries to this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first above written.
SMITH BARNEY FUTURES
MANAGEMENT INC.
By
David J. Vogel
President and Director
SMITH BARNEY DIVERSIFIED
FUTURES FUND L.P.
By: Smith Barney
Futures Management Inc.
(General Partner)
By
David J. Vogel
President and Director
TRENDVIEW MANAGEMENT INC.
By
Clark D. Smith
President
