Exhibit 10.1
ADVISORY AGREEMENT
AGREEMENT made as of the 1st day of June,
2009 among CITIGROUP MANAGED
FUTURES LLC, a Delaware limited liability company ("CMF" or the
"General
Partner"), SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II, a New
York limited
partnership (the "Partnership") and SANDRIDGE CAPITAL, LP, a Texas
limited
partnership ("SandRidge" or the "Advisor").
W I T N E S S E T H :
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WHEREAS, CMF is the general partner of the
Partnership, 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, such
trading to be
conducted directly or through an investment in CMF SandRidge Master
Fund L.P., a
New York limited partnership (the "Master Fund") of which CMF is
the general
partner and SandRidge is the advisor; and
WHEREAS, the Limited Partnership Agreement
establishing the Partnership
(the "Limited Partnership Agreement") permits CMF to delegate to
one or more
commodity trading advisors CMF'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, CMF is registered as a commodity
pool operator with the CFTC and
is a member of the NFA; and
WHEREAS, CMF, 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 from time to time by the General
Partner in
commodity interests, including commodity futures contracts, options
and forward
contracts. All such trading on behalf of the Partnership, whether
directly or
indirectly through the Master Fund, shall be in accordance with the
trading
policies set forth in the Partnership's Prospectus dated as of May
31, 1996, as
supplemented from time to time (the "Prospectus"), 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 CMF
to be
utilized by the Advisor in managing the Partnership's assets. CMF
has initially
selected the Advisor's Energy Program
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(the "Program") to manage the Partnership's assets allocated to it.
Any open
positions or other investments at the time of receipt of such
notice of a change
in trading policy shall not be deemed to violate the changed policy
and shall be
closed or sold in the ordinary course of trading. The Advisor may
not deviate
from the trading policies set forth in the Prospectus without the
prior written
consent of the Partnership given by CMF. 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) CMF acknowledges receipt of the
Advisor's Disclosure Document dated
March 20, 2009, as filed with the NFA (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 CMF 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 CMF, may direct any and all trades in commodity futures and
options to a
futures commission merchant or independent floor broker it chooses
for execution
with instructions to give-up the trades to the broker designated by
CMF,
provided that the futures commission merchant or independent floor
broker and
any give-up or floor brokerage fees are approved in advance by CMF.
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 Program as described in the Disclosure Document. 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 CMF prior written notice of its
intention to utilize
such different trading system or methodology and CMF consents
thereto in
writing. In addition, the Advisor will provide five days' prior
written notice
to CMF 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 CMF. In addition, 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 CMF and
receiving CMF's
written approval. The Advisor also agrees to provide CMF, 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 CMF.
(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"), partners, 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 CMF
to be made in any filings required by Federal or state law or NFA
rule or order.
Notwithstanding
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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 CMF 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 CMF 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, CMF
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 CMF 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 such term is
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) CMF 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. CMF 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 CMF's
sole discretion so that CMF may reallocate the Partnership's
assets, meet margin
calls on the Partnership's account, fund redemptions, or for any
other reason,
except that CMF will not require the liquidation of specific
positions by the
Advisor. CMF 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 CMF affiliate) selected by the Advisor, (it
also being
understood that CMF, 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, CMF, or any other trading advisor. The Advisor
shall not be
responsible to the Partnership, the General Partner, any trading
advisor or any
limited partners for any acts or omissions of any other trading
advisor to the
Partnership.
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
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Trading Profits (as such term is defined below) earned by the
Advisor for the
Partnership and (ii) a monthly fee for professional advisory
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 Section 7(d)(1) of the
Limited Partnership Agreement dated as of May 19, 1994 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 by the Advisor on
behalf of the
Partnership commences, whichever is higher, and as further adjusted
to eliminate
the effect on Net Assets resulting from new capital contributions,
redemptions,
reallocations or capital distributions, if any, made during the
fiscal period,
decreased by interest or other income, not directly related to
trading activity,
earned on the Partnership's assets during the fiscal period,
whether the assets
are held separately or in margin accounts. Ongoing expenses shall
be attributed
to the Advisor based on the Advisor's proportionate share of Net
Assets. Ongoing
expenses shall not include expenses of litigation not involving the
activities
of the Advisor on behalf of the Partnership, and will also not
include initial
offering and organizational expenses of the Partnership. No
incentive fee shall
be paid until the end of the first full calendar quarter of
trading, which fee
shall be based on New Trading Profits earned from the commencement
of trading
operations by the 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
advisory fees shall be paid within
twenty (20) business days following the end of the period for which
such fee is
payable. In the event of the termination of this Agreement as of
any date which
shall not be the end of a calendar month or quarter, as the case
may be, the
quarterly incentive fee shall be computed as if the effective date
of the
termination were the last day of the then current quarter and the
monthly
advisory fee shall be prorated to the effective date of the
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 advisory fee shall be
prorated by the
ratio which the number of business days during which CMF 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 Section 3 shall
survive the termination of this
Agreement.
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4. RIGHT TO ENGAGE IN OTHER ACTIVITIES.
(a) The services provided by the
Advisor hereunder are not to be deemed exclusive. CMF 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 CMF 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
