As filed with the Securities and Exchange Commission on January 24, 2001
Registration No. 333-46550
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHAFFER DIVERSIFIED FUND, LP
(Exact name of registrant as specified in its charter)
Delaware 6799 13-4132934
(State or other jurisdiction (Primary Standard (IRS employer
of incorporation Industrial Classification identification number)
or organization) Code Number)
70 West Red Oak Lane
White Plains, NY 10604
(800) 352-5265
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Daniel S. Shaffer
Shaffer Asset Management, Inc.
70 West Red Oak Lane
White Plains, NY 10604
(800) 352-5265
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy of communications to:
Kevin J. Lake, Esq.
Lee D. Unterman, Esq.
Kurzman Karelsen & Frank, LLP
230 Park Avenue
New York, NY 10169
(212) 867-9500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ] __________________
CALCULATION OF REGISTRATION FEE
====================================================================================================
Proposed maximum aggregate Amount of
Title of each class of securities to be registered offering price (1) registration fee
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Units of limited partner interest ................ $25,000,000 $6,600.00
====================================================================================================
(1) Estimated, pursuant to Rule 457(o) under the Securities Act, solely for
purposes of calculating the registration fee. Of this fee, $3,960.00 was
paid in connection with the initial filing of this registration statement
on September 25, 2000.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
-2-
SHAFFER DIVERSIFIED FUND, L.P.
CROSS REFERENCE SHEET
Item No. Item Prospectus Heading
- -------- ---- ------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.............. Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus....................................... Inside Cover Page; Table of Contents
3. Summary Information, Risk Factors and Commodity Futures Trading Commission
Ratio of Earnings to Fixed Charges.................. Risk Disclosure Statement; Summary;
Financial Information; Risk Factors; Fees,
Compensation and Expenses
4. Use of Proceeds..................................... Summary - The Offering - Use of
Proceeds; Use of Proceeds
5. Determination of Offering Price..................... Cover Page; Inside Cover Page; Summary -
The Offering - Securities Offered; Plan of
Distribution - The Offering
6. Dilution............................................ Not Applicable
7. Selling Security Holders............................ Not Applicable
8. Plan of Distribution................................ Cover Page; Inside Cover Page; Summary - The
Offering - Plan of Distribution; Plan of
Distribution
9. Description of Securities to be Registered.......... Cover Page; Summary - Possible Advantages of
Investment in the Fund - Liquidity; - Limited
Liability; Summary - The Fund - Distributions;
- Redemption of Units; Summary - The Offering -
Securities Offered; Distributions and Redemptions;
Summary of the Limited Partnership Agreement
10. Interests of Named Experts and Counsel.............. Legal Matters; Experts
11. Information with Respect to the Registrant.......... Cover Page; Organizational Chart; Summary - The
Fund - The Fund; - Location and Telephone
Number; - Termination of the Fund; - Business; -
Administration; Financial Information; Risk
Factors; Conflicts of Interest/Fiduciary
Responsibility of the General Partner; Fees,
Compensation and Expenses; The General
Partner/Advisor; Distributions and Redemptions;
Trading Policies; Summary of the Limited
Partnership Agreement; Selected Financial
Data/Capitalization; Index to Financial
Statements
12. Disclosure of Commission Position on Summary of the Limited Partnership Agreement -
Indemnification for Securities Act Liabilities...... Indemnification
-3-
The information contained in this Prospectus and the accompanying Statement of
Additional Information is not complete and may be changed. The Fund may not sell
these securities until the registration statement filed with the Securities and
Exchange Commission is declared effective. This Prospectus and the accompanying
Statement of Additional Information is not an offer to sell these securities,
and it is not soliciting an offer to buy these securities, in any state in which
the offer or sale of these securities is not permitted.
SUBJECT TO COMPLETION, DATED __________, 2001
PROSPECTUS
SHAFFER DIVERSIFIED FUND, LP
(A Delaware limited partnership)
25,000 UNITS OF LIMITED PARTNERSHIP INTEREST
THESE UNITS ARE SPECULATIVE SECURITIES AND
INVOLVE A HIGH DEGREE OF RISK
Shaffer Diversified Fund, L.P. (the "Fund") is a Delaware limited
partnership organized in August 2000 to seek medium- and long-term capital
appreciation through speculative trading in a diversified portfolio of commodity
futures contracts and other commodity interests in the United States commodity
futures markets. Trading decisions for the Fund will be made by Shaffer Asset
Management, Inc. (the "General Partner / Advisor"), which will serve as the
Fund's general partner and commodity trading advisor. There can, of course, be
no assurance that the Fund's investment objectives will be achieved or that
losses will not be sustained.
A DESCRIPTION OF THE MATERIAL RISK FACTORS
RELATING TO AN INVESTMENT IN THE FUND APPEARS IN THIS PROSPECTUS
UNDER THE HEADING "RISK FACTORS" ON PAGE 16 OF THIS PROSPECTUS
This offering consists of up to 25,000 units (the "Units") of limited
partnership interest of the Fund. During the initial offering period, the Units
will be offered at an initial offering price of $1,000 per Unit ($950 per Unit,
plus an initial sales charge of $50 per Unit). Subsequent to the closing of the
initial offering period, unsold Units (if any) may be offered and sold by the
Fund at the then current Net Asset Value per Unit (as hereinafter defined), plus
a sales charge of 5% of the Net Asset Value per Unit for each Unit purchased.
Each investor in the Fund is required to purchase a minimum of $10,000 in
Units ($5,000 in Units in the case of any pension, profit-sharing or other
employee benefit plan qualified under Section 401 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), IRAs, Education IRAs, Roth
IRAs, SIMPLE IRAs, Simplified Employee Pension - IRA plans and retirement and
deferred compensation and annuity plans and trusts used to fund those plans,
including but not limited to, those defined in Sections 401(a), 403(b) or 457 of
the Internal Revenue Code). In some states, however, greater minimum purchase
requirements may be applicable. Purchases by investors and their spouses and by
entities (including retirement and deferred compensation and annuity plans and
trusts) which are legally or beneficially owned in their entirety by investors
and/or their spouses shall be aggregated for purposes of meeting the minimum
purchase requirements. No public market for the Units exists, and none is likely
to develop. Units may be redeemed as of the last business day of each calendar
month at the then current Net Asset Value per Unit on ten days' prior written
notice to the General Partner, subject to certain restrictions. Units redeemed
as of or before the end of the first three full calendar months after their
purchase will be charged a 4% early redemption fee, which fee shall decrease by
one percentage point for every three months thereafter.
The Units are being offered for sale through Berthel Fisher & Company
Financial Services, Inc., the Fund's selling agent (the "Selling Agent"), on a
best efforts basis. The Selling Agent may
select other firms that are members of the National Association of Securities
Dealers, Inc. ("NASD") and certain foreign dealers and institutions that are not
members of the NASD ("selected dealers") to participate in this offering. There
can be no assurance that any or all of the Units being offered will be sold.
Information about the Fund and this offering is contained in two
parts--this Prospectus and a separate Statement of Additional Information. Both
this Prospectus and the Statement of Additional Information must be provided to
investors prior to investment in the Fund. Investors should carefully read both
this Prospectus and the accompanying Statement of Additional Information prior
to making an investment in the Fund. In addition, each investor is encouraged to
discuss investment in the Fund with his or her own legal, tax and financial
advisors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
- ------------------------------------------------------------------------------------------------
Price to Public Selling Commissions Proceeds to Fund
(1) (1)(4) (1)(2)(3)
- ------------------------------------------------------------------------------------------------
Per Initial Unit (Minimum Purchase:
$10,000 - see Note 1) $ 1,000 $ 50 $ 950
- ------------------------------------------------------------------------------------------------
Total Minimum (1,000 Initial
Units) 1,000,000 50,000 950,000
- ------------------------------------------------------------------------------------------------
Total Maximum (25,000 Initial
Units) 25,000,000 1,250,000 23,750,000
- ------------------------------------------------------------------------------------------------
(Notes are on Page 2)
_______________, 2001
-2-
NOTES:
(1) The public offering price of the Units has been determined arbitrarily by
the General Partner. The Units are being offered through the Selling Agent
on a best efforts basis, and the Selling Agent may select other firms that
are members of the NASD and certain foreign dealers and institutions which
are not members of the NASD (the "Selected Dealers") to participate in this
offering. There can be no assurance that any or all of the Units being
offered will be sold. The minimum purchase by each investor is $10,000
(initially 10 Units), except that in the case of purchases by pension,
profit-sharing or other employee benefit plan qualified under Section 401
of the Internal Revenue Code, IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs,
Simplified Employee Pension - IRA plans and retirement and deferred
compensation and annuity plans and trusts used to fund those plans,
including but not limited to, those defined in Sections 401(a), 403(b) or
457 of the Internal Revenue Code, the minimum purchase is $5,000 (initially
5 Units). In some states, however, greater minimum purchase requirements
may be applicable. Subsequent to the initial offering period, the Fund may
sell unsold Units (if any) subject to the minimum purchase requirements
described above, as of the last business day of each calendar month at a
purchase price equal to the then current Net Asset Value per Unit, plus a
sales charge of 5% of the Net Asset Value per Unit for each Unit purchased.
If at least 1,000 Units are sold and accepted by the General Partner during
the initial offering period, approximately 20% of all sales charges shall
be paid to the General Partner to reimburse the General Partner for the
payment of the Fund's organizational and initial offering and the Fund's
operating expenses that are payable by the General Partner and
approximately 80% of all sales charges shall be paid as syndication fees to
the Selling Agent and as selling commissions to the Selected Dealers. The
Selling Agent and the Selected Dealers may in turn pay a portion of such
syndication fees and selling commissions to their respective employees who
are NASD registered representatives for each Unit sold by them. (See "Fees,
Compensation and Expenses" and "Plan of Distribution".)
(2) The Fund's organizational and initial offering expenses (exclusive of
selling commissions) are currently estimated at $200,000, and the amount of
such expenses will be borne and paid by the General Partner. The Fund will
not be obligated to reimburse the General Partner for any organizational
and initial offering expenses paid by it; instead, approximately 20% of all
sales charges imposed by the Fund on Units sold and 100% of all early
redemption fees charged by the Fund upon redemptions of Units will be paid
to the General Partner to reimburse the General Partner for the payment of
such organizational and initial offering expenses, as well as the operating
expenses of the Fund for which the General Partner has agreed to pay. (See
"Summary - Fees and Expenses Payable by the General Partner", "Fees,
Compensation and Expenses", "Plan of Distribution" and "Distributions and
Redemptions".)
(3) The proceeds from the sale of the Units will be deposited in an escrow
account with The Chase Manhattan Bank, 1214 Mamaroneck Avenue, White
Plains, NY 10605. The escrow deposits will be terminated upon the
conclusion of the initial offering period. If at least 1,000 Units have
been sold and accepted by the General Partner, the proceeds will be
contributed to the capital of the Fund, and all interest earned on the
proceeds of the subscriptions during the initial offering period will be
distributed to the subscribers on a pro rata basis (taking into account
both the time and the amount of the deposit). In the event that 1,000 Units
have not been sold or accepted by the General Partner within sixty days
from the date of this Prospectus (subject to a possible extension for up to
an additional sixty days at the discretion of the General Partner),
subscribers for Units will be refunded 100% of the purchase price and sales
charges paid, plus their respective pro rata share (as defined above) of
any interest
-3-
earned thereon, within fifteen days following the expiration of the escrow
period. (See "Plan of Distribution").
(4) See "Plan of Distribution" concerning indemnification arrangements entered
into by the Fund with respect to the Selling Agent and the Selected
Dealers. The Fund has agreed to indemnify the Selling Agent and the
Selected Dealers against certain liabilities, including only with respect
to the Selected Dealers liabilities under the Securities Act of 1933, as
amended (the "Securities Act of 1933").
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS
NOT CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF ITS ISSUE.
THIS PROSPECTUS AND THE ACCOMPANYING STATEMENT OF ADDITIONAL INFORMATION
DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE FUND'S REGISTRATION
STATEMENT. YOU CAN READ THE ENTIRE REGISTRATION STATEMENT AT THE PUBLIC
REFERENCE FACILITIES MAINTAINED BY THE SECURITIES AND EXCHANGE COMMISSION IN
WASHINGTON, D.C.
Until __________, 2001 (ninety days after the date hereof), all dealers
effecting transactions in the Units, whether or not participating in this
distribution, are required to deliver a current copy of this Prospectus and the
accompanying Statement of Additional Information. This is in addition to the
obligation of dealers to deliver a Prospectus and accompanying Statement of
Additional Information when acting as underwriters and with respect to their
unsold allotments or subscriptions.
-4-
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTION MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT AND FOR ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS
A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 28 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 33.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGE 16.
-5-
SHAFFER DIVERSIFIED FUND, L.P.
ORGANIZATIONAL CHART
The following organizational chart illustrates the relationships among the
various service providers of this offering. Shaffer Asset Management, Inc. is
both the general partner of, and the commodity trading advisor to, the Fund. The
Selling Agent, the Selected Dealers and ADM Investor Services, the Fund's
initial commodity broker (the "Commodity Broker"), are not affiliated with the
General Partner / Advisor or the Fund, except that Daniel S. Shaffer, the sole
officer, director and shareholder of the General Partner / Advisor is a
registered representative of the Selling Agent.
------------------------
Selling Agent:
Berthel Fisher & Company
Financial Services, Inc.
------------------------
Selling Agent Agreement
------------------------
Selected Dealers
------------------------
Selected Dealers Agreement
- ---------------- --------------
General Partner/ Commodity
Advisor: Advisory ------------------- Customer Broker:
Shaffer Asset Agreement Shaffer Diversified Agreement ADM Investor
Management, Fund, L.P. Services, Inc.
Inc. ------------------- --------------
- ----------------
Individual Managed Account
Agreements
- ----------------
Individual
Managed Account
Program
- ----------------
-6-
PART ONE - PROSPECTUS
TABLE OF CONTENTS
Page
Certain Terms and Definitions................................................ 9
Investment Requirements...................................................... 9
Summary...................................................................... 10
Potential Advantages of Investment......................................... 10
The Fund................................................................... 11
The Offering............................................................... 14
Financial Information........................................................ 16
Risk Factors................................................................. 16
Conflicts of Interest / Fiduciary Responsibility of the General Partner...... 24
Use of Proceeds.............................................................. 28
Fees, Compensation and Expenses.............................................. 28
Summary.................................................................... 28
Description of Fees, Compensation and Expenses............................. 30
Estimate of Break-Even Threshhold.......................................... 33
Certain Definitions........................................................ 35
The General Partner / Advisor................................................ 36
Description of the General Partner / Advisor............................... 36
Duties of the General Partner / Advisor.................................... 37
Minimum Investment and Net Worth Requirements Imposed
on the General Partner................................................... 38
Trading Philosophy and Methods of the Advisor.............................. 39
Past Performance of the Advisor............................................ 40
Commodity Brokerage Arrangements............................................. 48
General.................................................................... 48
Description of the Commodity Broker........................................ 48
Civil, Criminal and Administrative Actions................................. 48
Description of Brokerage Arrangements...................................... 49
Plan of Distribution......................................................... 50
The Offering............................................................... 50
Subscriptions / Investment Requirements.................................... 52
Investments by ERISA Accounts................................................ 53
General ................................................................... 53
Special Investment Considerations ......................................... 53
The Fund Should Not Be Deemed To Hold "Plan Assets" ....................... 54
Ineligible Purchasers ......................................................55
Distributions and Redemptions................................................ 55
Trading Policies............................................................. 56
Summary of the Advisory Agreement............................................ 58
Summary of the Limited Partnership Agreement................................. 60
Additional Limited Partners ............................................... 60
Amendments; Meetings ...................................................... 60
Certificates for Units .................................................... 61
Election, Removal and Withdrawal of the General Partner ................... 61
Indemnification............................................................ 61
Liabilities................................................................ 62
Limited Partners' Rights................................................... 62
Profit and Loss; Distributions............................................. 62
Redemptions................................................................ 62
Reports and Accounting..................................................... 63
Termination................................................................ 64
Transfer of Units.......................................................... 64
Capitalization / Selected Financial Data..................................... 65
Federal Income Tax Considerations............................................ 66
Forward-Looking Statements................................................... 69
Legal Matters................................................................ 69
Experts...................................................................... 69
Additional Information....................................................... 69
Index to Financial Statements................................................F-1
-7-
PART TWO - STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
Glossary and Definitions of Commodity Futures Trading........................ 3
Description of Commodity Futures Trading..................................... 7
General.................................................................... 7
Mechanics of Commodity Futures Trading..................................... 8
Margins.................................................................... 9
Regulation.................................................................10
Exhibits -
Limited Partnership Agreement..............................................A-1
Subscription Requirements..................................................B-1
Subscription Instructions; Subscription Agreement / Power of Attorney......C-1
Request for Redemption.....................................................D-1
-8-
CERTAIN TERMS AND DEFINITIONS
Knowledge of various terms and concepts relating to trading in commodity
futures contracts and this offering is necessary for a potential investor to
determine whether to invest in the Fund. Definitions and/or descriptions of
relevant terms and concepts are included in the "Glossary and Definitions of
Commodity Futures Trading" which is included in the Statement of Additional
Information that accompanies this Prospectus.
INVESTMENT REQUIREMENTS
The minimum investment in the Fund is $10,000 (initially 10 Units), except
that in the case of investments by pension, profit-sharing or other employee
benefit plan qualified under Section 401 of the Internal Revenue Code, IRAs,
Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee Pension - IRA plans
and retirement and deferred compensation and annuity plans and trusts used to
fund those plans, including but not limited to, those defined in Sections
401(a), 403(b) or 457 of the Internal Revenue Code, the minimum investment is
$5,000 (initially 5 Units). Purchases by investors and their spouses and by
entities (including retirement and deferred compensation and annuity plans and
trusts) which are legally or beneficially owned in their entirety by investors
and/or their spouses shall be aggregated for purposes of meeting the minimum
purchase requirements. (See "Plan of Distribution".)
In the Subscription Agreement / Power of Attorney, a copy of which is
attached as Exhibit C to the Statement of Additional Information that
accompanies this Prospectus, each subscriber must represent and warrant that:
(i) he or she has either (A) a net worth (exclusive of home, furnishings and
automobiles) of at least $150,000, or (B) a net worth (similarly
calculated) of at least $45,000 and an annual gross income of at least
$45,000, and his or her investment in the Fund will not constitute more
than 10% of his or her net worth, exclusive of home, furnishings and
automobiles; and
(ii) he or she has received this Prospectus and the accompanying Statement of
Additional Information and is aware of and can afford the risks of an
investment in the Fund, including the risk of losing his or her entire
investment.
The administrators of the securities laws of certain states have imposed
greater minimum investment and/or additional suitability requirements on the
residents of such states. (See "Subscription Requirements" attached as Exhibit B
to the Statement of Additional Information that accompanies this Prospectus.)
These standards, however, are only regulatory minimums. Even if a subscriber
meets the minimum investment and/or suitability requirements described above, an
investment in the Units may not be suitable for him or her. Only the subscriber
can make that determination.
All subscriptions, once made, are irrevocable by the subscriber but may be
rejected in whole or in part by the General Partner. Subscribers should read
this Prospectus, the accompanying Statement of Additional Information and the
Subscription Agreement / Power of Attorney carefully before investing in the
Fund.
-9-
SUMMARY
The following summary is intended to highlight certain information
contained in the body of this Prospectus and the accompanying Statement of
Additional Information. More detailed information is found in the remainder of
this Prospectus and the accompanying Statement of Additional Information. This
summary is qualified in its entirety by the information appearing elsewhere in
this Prospectus and the accompanying Statement of Additional Information, and
the description of any document is qualified in its entirety by reference to
such document.
POSSIBLE ADVANTAGES
OF INVESTMENT IN THE FUND
Investment The Fund allows investors to include commodity futures
Diversification contracts in their portfolios in the same way that they
include mutual funds, money market funds and limited
partnerships in other areas, e.g., oil gas and real estate.
A commodity futures investment is an especially attractive
diversification because it can be profitable during both
favorable and unfavorable economic conditions.
Commodity The Fund will be large enough to enable the Advisor to trade
Futures Market in as many different commodity futures markets as it
Diversification chooses, thereby reducing risk and increasing the
probability of success. Each limited partner of the Fund
("Limited Partner") will obtain greater diversification in
the variety of contracts and markets traded than would be
possible trading individually, unless substantially more
than the minimum investment in the Fund was committed to the
commodity futures markets.
Liquidity Although an investor in the Fund should consider his or her
investment to be long-term, Limited Partners can redeem
their Units as of the last business day of each month,
provided, however, that no redemption which applies to less
than all of a Limited Partner's interest in the Fund can
result in the Limited Partner's capital account being
reduced below $10,000 ($5,000 in the case of investments by
pension, profit-sharing or other employee benefit plan
qualified under Section 401 of the Internal Revenue Code,
IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified
Employee Pension - IRA plans and retirement and deferred
compensation and annuity plans and trusts used to fund those
plans, including but not limited to, those defined in
Sections 401(a), 403(b) or 457 of the Internal Revenue Code)
after the redemption is effected. A redemption fee will be
charged for Units redeemed (except for any redemptions to
provide funds for payment of taxes on profits) during the
first full twelve calendar months after their purchase. (See
"Plan of Distribution" and "Distributions and Redemptions".)
Limited Liability Because of the highly leveraged nature of commodity futures
trading, an individual who invests directly in commodity
futures contracts may lose substantially more than his or
her investment. A Limited Partner in the Fund, however,
cannot be individually subjected to margin calls
-10-
or lose more than his or her investment in the Fund and his
or her share of profits, if any, whether or not distributed.
Professional Trading decisions for the Fund will be made by the Advisor
Commodity Trading pursuant to its trend-following, technical trading
Management strategies. The Fund, therefore, enables investors to take
advantage of the trading expertise of a professional
commodity trading advisor which would not otherwise be
available unless substantially more than the minimum
investment in the Fund were committed to trading - in this
case, generally a minimum investment of $100,000 per
account.
Favorable A significant portion of substantially all of the Fund's
Tax Treatment commodity futures trading will receive a favorable, maximum
potential Federal income tax rate of 27.84% for individuals
with no holding period requirement. Because the Fund is a
limited partnership, all tax effects flow through to its
Limited Partners.
Leverage The Fund's portfolio will be highly leveraged providing an
extraordinary profit potential as well as risk of loss.
Interest Income The Fund will earn interest on approximately 90% of its
assets, even while such assets are committed to trading.
Risk Management The Fund will close out all open positions and suspend
trading, and may terminate, if the Net Asset Value per Unit
(increased by the amount of distributions per Unit, if any)
on any business day during any given fiscal year decreases
to or below 50% of the Net Asset Value per Unit as of the
beginning of the fiscal year, provided that such 50%
decrease results in a Net Asset Value per Unit of less than
$1,000, or if the Net Asset Value per Unit (increased by the
amount of distributions per Unit, if any) decreases on any
business day to or below $350. (See "Trading Policies").
Administrative The Fund provides to or obtains for the Limited Partners
Convenience many services designed to alleviate the administrative
details involved in engaging directly in futures
transactions, including maintenance of the books and
accounts of trading activities, preparing monthly and annual
account statements for the Limited Partners, and supplying
the Limited Partners with information necessary for
individual Federal tax returns.
THE FUND
The Fund Shaffer Diversified Fund, L.P. (the "Fund") is a limited
partnership organized on August 29, 2000 under the Delaware
Revised Uniform Limited Partnership Act as an investment
vehicle that allows investors to include commodity futures
contracts traded on the United States commodity futures
markets in their portfolios in the same way that they
include mutual funds, money market funds and limited
partnerships in other areas.
-11-
Location and The principal executive offices of the Fund and the General
Telephone Number Partner / Advisor are located at 70 West Red Oak Lane, White
Plains, New York 10604, and their telephone number at such
address is (800) 352-5265 (toll-free).
Termination The Fund will terminate its existence on December 31, 2025,
of the Fund or upon an earlier date in certain circumstances. (See
"Summary of the Limited Partnership Agreement -
Termination".)
Business The business of the Fund is to seek medium- and long-term
capital appreciation through speculative trading in a
diversified portfolio of commodity futures contracts and
other related interests in the United States commodity
futures markets pursuant to the trading instructions of the
Advisor.
Administration The General Partner / Advisor, in its capacity as the
general partner of and commodity trading advisor to the
Fund, will administer the business and affairs of the Fund
and have sole and exclusive authority over its trading
decisions. Berthel Fisher & Company Financial Services, Inc.
(the "Selling Agent") will act as the Fund's selling agent
and ADM Investor Services, Inc. (the "Commodity Broker")
will act as the Fund's initial commodity broker. (See
"Conflicts of Interest and Fiduciary Responsibility of the
General Partner", "The General Partner / Advisor",
"Commodity Brokerage Arrangements", and "Plan of
Distribution").
Distributions Distributions of profits, if any, will be made at the
General Partner's discretion. Investors should be aware,
however, that the General Partner does not intend to make
any distributions of any profits. (See "Risk Factors -
Partners' Tax Liability May Exceed Distributions",
"Conflicts of Interest and Fiduciary Responsibility of the
General Partner", "Distributions and Redemptions", "Summary
of the Limited Partnership Agreement - Profits and Losses; -
Distributions" and "Federal Income Tax Consequences".)
Fees and Expenses The Fund will be required to pay substantial charges, such
Payable by the as continuing services fees; management fees and possible
Fund; Break-even incentive allocations; brokerage commissions; legal,
Threshold accounting, auditing, printing, recording, filing and other
periodic fees and expenses; and extraordinary expenses. The
General Partner has agreed, however, to pay all such
expenses (other than continuing services fees, management
fees, incentive allocations, brokerage commissions and
extraordinary expenses) that are in excess of 0.5% of the
average monthly Net Asset Value of the Fund per annum. A
complete description of these charges is set forth under the
caption "Fees, Compensation and Expenses". Charges that are
not offset by trading gains and interest income will deplete
the assets of the Fund. In order for an investor to "break
even" on his or her investment in the first year of trading,
therefore, the Fund will have to earn $750 per Unit, or
7.5%, assuming an initial investment of $10,000. (See "Fees,
Compensation and Expenses" and "Distributions and
Redemptions")
-12-
Fees and Expenses The General Partner will pay all organizational and initial
Payable by the offering expenses (exclusive of selling commissions) of the
General Partner Fund. In addition, the General Partner will pay all
operating and other administrative expenses attributable to
the Fund which are in excess of 0.5% of the average monthly
Net Asset Value of the Fund per annum, except for continuing
services fees, management fees, incentive allocations,
brokerage commissions and extraordinary expenses, which
expenses will be paid by the Fund.
Redemption Although an investor in the Fund should consider his
of Units investment to be long-term, Limited Partners can redeem some
or all of their Units as of the last business day of each
month at the then current Net Asset Value per Unit on ten
days' prior written notice to the General Partner, provided,
however, that no redemption which applies to less than all
of a partner's interest in the Fund can result in the
partner's capital account being reduced below $10,000
($5,000 in the case of investments by pension,
profit-sharing or other employee benefit plan qualified
under Section 401 of the Internal Revenue Code, IRAs,
Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee
Pension - IRA plans and retirement and deferred compensation
and annuity plans and trusts used to fund those plans,
including but not limited to, those defined in Sections
401(a), 403(b) or 457 of the Internal Revenue Code) after
the redemption is effected.
The Fund will charge an early redemption fee (except for any
redemptions to provide funds for payment of taxes on
profits) equal to 4% of the Net Asset Value of the Units
redeemed as of or before the end of the third full calendar
month after their purchase. This fee will decrease by one
percentage point for every three subsequent calendar months
so that there will be no early redemption fee charged on
redemptions effected after the end of the twelfth full
calendar month after their purchase. Accordingly, Units
redeemed as of the end of or during the tenth, eleventh and
twelfth full calendar months after their purchase will be
subject to a redemption fee equal to 1% of the Net Asset
Value of the Unit(s) redeemed. In addition and in order to
assure each Limited Partner the availability of funds to pay
taxes on each year's profits, if any, the redemption fee
will be waived on redemptions of Units to the extent, if
any, distributions in the first quarter of a calendar year
are less than 35% of the profits reportable to a Limited
Partner for the prior year.
All early redemption fees charged by the Fund upon
redemptions of Units will be paid to the General Partner to
reimburse the General Partner for the payment of the Fund's
organizational and initial offering and the Fund's operating
expenses that are payable by the General Partner. (See
"Distributions and Redemptions".)
The early redemption fees, while in effect, and the
reduction of the Fund's Net Asset Value due to operating
expenses payable by the
-13-
Fund, will reduce the redemption value of each Unit
significantly below its purchase price unless the Fund
achieves significant trading profits from its trading
activities. Accordingly, the initial redemption value of a
Unit as of the end of and during the first, second and third
calendar months of trading (after deducting the 4% early
redemption fee but without adjusting for operating expenses
payable, trading profits which might be achieved or interest
income earned during such periods) would be approximately
$8,959.
Federal Tax For Federal income tax purposes, the Fund will be treated as
Treatment a partnership and not as an association taxable as a
corporation as long as the Fund operates in the manner
described in this Prospectus and the accompanying Statement
of Additional Information and 90% or more of the gross
income of the Fund in each taxable year consists of
"qualifying income" for federal income tax purposes. The
Fund has not obtained a ruling from the Internal Revenue
Service (the "IRS") confirming this tax treatment, and the
General Partner / Advisor does not intend to request any
such a ruling. If the Fund is treated as a partnership for
Federal income tax purposes, United States taxpayers will be
taxed each year on interest income earned and any gains
recognized by the Fund, whether or not the taxpayer redeems
any Units or receives any distributions. In addition, United
States taxpayers who are individuals may deduct capital
losses only to the extent of their capital gains plus
$3,000. Such taxpayers may, however, carry forward capital
losses that cannot be deducted in the current taxable year.
THE OFFERING
Securities Offered 25,000 units of limited partnership interest ("Units").
During the initial offering period, the Units will be
offered at an initial offering price of $1,000 per Unit
($950 per Unit, plus an initial sales charge of $50 per
Unit). The initial offering of the Units will extend from
the date of this Prospectus until sixty days thereafter
(subject to the General Partner's right to extend this
offering for up to an additional sixty days). Thereafter,
unsold Units (if any) may be sold as of the last business
day of each calendar month at a purchase price equal to the
then current Net Asset Value per Unit, plus a sales charge
of 5% of the Net Asset Value per Unit for each Unit
purchased. (See "Plan of Distribution".)
Minimum The minimum purchase by any one investor is $10,000
Investment Amounts (initially 10 Units), except that in the case of investments
by pension, profit-sharing or other employee benefit plan
qualified under Section 401 of the Internal Revenue Code,
IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified
Employee Pension - IRA plans and retirement and deferred
compensation and annuity plans and trusts used to fund those
plans, including but not limited to, those defined in
Sections 401(a), 403(b) or 457 of the Internal Revenue Code,
the minimum investment is $5,000 (initially 5 Units). In
some states, however, greater
-14-
minimum purchase requirements may be applicable. Purchases
by investors and their spouses and by entities (including
retirement and deferred compensation and annuity plans and
trusts) which are legally or beneficially owned in their
entirety by investors and/or their spouses shall be
aggregated for purposes of meeting the minimum purchase
requirements. (See "Plan of Distribution").
Plan of The Units are being offered through the Selling Agent on a
Distribution best efforts basis. Before trading can commence, the initial
offering hereunder must have concluded, and at least 1,000
Units must have been sold and accepted by the General
Partner. All subscriptions received and accepted by the
General Partner will be deposited in an escrow account with
The Chase Manhattan Bank, 1214 Mamaroneck Avenue, White
Plains, NY 10605 until the conclusion of the initial
offering period. If the minimum number of Units is not sold
and accepted by the General Partner prior to the expiration
of the initial offering period, plus any extensions, all
subscription monies and sales charges will be returned to
the subscribers. Each subscriber will receive the interest
earned on his or her subscription while held in escrow
whether or not the minimum number of Units is sold and
accepted. (See "Plan of Distribution".) Any subscription may
be rejected by the General Partner in whole or in part for
any reason, but no subscription may be revoked by the
subscriber.
Use of Proceeds The proceeds of this offering ($950,000 if the minimum
number of Units is sold and $23,750,000 if the maximum
number of Units is sold) will be deposited in a bank account
with The Chase Manhattan Bank, a trading account with the
Commodity Broker and/or other banks and commodity brokers
and used to trade in commodity futures contracts and other
related interests pursuant to the instructions of the
Advisor. The Advisor believes that approximately 10% to 40%
of the assets of the Fund will normally be committed as
margin for trading. The actual percentage of assets
committed as margin, however, may be more or less than such
range from time to time. (See "Use of Proceeds" and "The
General Partner / Advisor - Trading Policies".)
Risks and An investment in the Fund involves substantial risks. The
Conflicts of risks of investing in the Fund include, but are not limited
Interest to, the highly speculative nature of trading in commodity
futures contracts and the substantial charges that the Fund
will incur regardless of whether any profits are realized. A
Limited Partner may lose his or her entire investment in the
Fund, including any profits earned thereon, whether or not
distributed. (See "Risk Factors".) In addition, reference is
made to the existence of various conflicts of interest. (See
"Conflicts of Interest and Fiduciary Responsibility of the
General Partner".)
Suitability Each investor must represent in the Subscription Agreement /
Standards Power of Attorney (attached as Exhibit C to the Statement of
Additional Information that accompanies this Prospectus)
that his or her net worth and/or annual gross income satisfy
certain requirements, that he or she has received a copy of
this Prospectus and the accompanying
-15-
Statement of Additional Information, and that he or she is
able to assume the risks inherent in an investment in the
Fund. (See "Investment Requirements").
FINANCIAL INFORMATION
Balance Sheet of the Fund at August 31, 2000. (1)
Total Assets (cash)........................ $2,000
Partnership Capital........................ $2,000
(1) The Fund has not commenced trading activities. The only transactions to
date have been the organization of the Fund, the preparation of the
offering and the capital contributions of $1,000 by the General Partner /
Advisor and $1,000 by Daniel S. Shaffer, the initial limited partner and
the sole officer, director and shareholder of the General Partner /
Advisor. See "Financial Statements".
RISK FACTORS
The Fund is a new venture in a high risk business. Investors should (i) read
this Prospectus and the accompanying Statement of Additional Information
carefully, and (ii) consult with independent, qualified sources of legal, tax
and financial advice, before deciding whether to invest in the Fund.
Possibility of Losing Entire Investment. Futures contracts have a high
degree of price variability and are subject to occasional rapid and substantial
changes. The Fund may not achieve its objectives or avoid substantial losses.
For every gain in futures trading, there is an equal and offsetting loss. The
Advisor has, from time to time, incurred substantial losses in trading on behalf
of its customers. An investor in the Fund may lose all or substantially all of
his or her investment in the Fund.
Commodity Futures Trading is Speculative. Commodity futures prices are
highly volatile. Price movements for commodity futures contracts and other
related interests are influenced by, among other things: government trade,
fiscal, monetary and exchange control programs and policies; weather and climate
conditions; changing supply and demand relationships; national and international
political and economic events; changes in interest rates; and the psychological
emotions of the market place. In addition, governments may intervene
periodically in certain markets, either directly or by regulation, often with
the intent of influencing prices directly. The effects of governmental
intervention may be particularly significant at certain times in financial
instrument markets, and such intervention (as well as other factors) may cause
these markets to move rapidly in the same direction at certain times. (See
"Description of Commodity Futures Trading" in the Statement of Additional
Information that accompanies this Prospectus.) The trading techniques utilized
by the Advisor are primarily technical in nature, and the Advisor does not
ordinarily consider "fundamental" factors except to the extent that such factors
are reflected in the technical input data analyzed by the Advisor. (See "The
General Partner / Advisor - Trading Methods".)
Commodity Futures Trading is Highly Leveraged. Commodity futures contracts
are traded on margins that typically range from about 4% to 20% to the value of
the contract, but may range from 10% to 40%. The average margin is less than 10%
of the value of the contract. Low margin provides a large amount of leverage -
that is, commodity futures contracts for a large number of units of a commodity
interest (bushels, pounds, etc.) having a value substantially greater than the
required margin may be
-16-
traded for a relatively small amount of money. Hence, a relatively small change
in the market price of a commodity interest produces a corresponding large
profit or loss in relation to the amount of money invested. Thus, if the Fund
has invested a substantial portion of its Net Asset Value in such a commodity
interest, a substantial change, up or down, in the value of a Unit would result.
The Fund may lose more than its initial margin on a trade, up to the entire
amount at risk, but a Limited Partner cannot incur net losses greater than the
amount of his investment. (See "Limited Partnership Agreement - Liabilities".)
Automatic Termination. The Fund will close out all open positions and
suspend trading, and may terminate, if the Net Asset Value per Unit (increased
by the amount of distributions per Unit, if any) on any business day during any
given fiscal year decreases to or below 50% of the Net Asset Value per Unit as
of the beginning of the fiscal year, provided that such 50% decrease results in
a Net Asset Value per Unit of less than $1,000, or if the Net Asset Value per
Unit (increased by the amount of distributions per Unit, if any) decreases on
any business day to or below $350. However, no assurance can be given that the
investor will receive at least one-half of any year's beginning Net Asset Value
per Unit or $350 per Unit, since the impossibility of executing trades under all
conditions, together with the expenses of liquidation, may deplete the Fund's
assets below such amounts. (See "Trading Policies".)
Substantial Fees, Commissions and Expenses. The Fund is obligated to pay
substantial fees, commissions and expenses without regard to profitability. Such
fees, commissions and expenses include continuing services fees; management fees
and possible incentive allocations; brokerage commissions; legal, accounting,
auditing, recording, filing and other periodic fees and expenses; and
extraordinary expenses. Therefore, the Fund will have to make substantial gross
gains from commodity trading each year, probably in an amount equal to
approximately 7.5% of the Fund's Net Asset Value, in order for the Limited
Partners to realize any appreciation in the value of their Units.
In addition, the Fund will allocate to the Advisor, on a quarterly basis,
an amount equal to 15% of the Advisory Profits generated by the Advisor for such
calendar quarter, including unrealized appreciation on open commodity interest
positions. Such appreciation may never be realized by the Fund due to adverse
market conditions occurring between the date such allocation is made and the
date the open position is closed out. For example, if at the end of a quarter
the Advisor has achieved aggregate Advisory Profits composed of realized profits
of $100,000 and unrealized profits on open positions of $100,000, the amount
allocable to the Advisor would be $30,000. Immediately following such
allocation, those open positions might, due to adverse market conditions, be
closed at no profit or even a loss; nevertheless, the Advisor would retain the
entire amount of such allocation.
In addition, the Fund will initially pay the Commodity Broker brokerage
commissions at the rate of $17.00 per "round-turn" trade for trades executed on
domestic exchanges. Investors should note that the brokerage commission rates at
which the Fund will pay the Commodity Broker may be higher than rates charged by
the Commodity Broker to certain of its other customer accounts (including the
accounts of its employees), and the rates charged by other brokerage firms. This
brokerage arrangement may result, therefore, in the Fund paying brokerage
commissions for its trading at rates which exceed the lowest rates which might
otherwise be available. (See "Conflicts of Interest and Fiduciary Responsibility
of the General Partner", "Fees, Compensation and Expenses" and "Commodity
Brokerage Arrangements".)
In addition, the Fund will close out all open positions and suspend
trading, and may terminate, if the Net Asset Value per Unit (increased by the
amount of distributions per Unit, if any) on any business day during any given
fiscal year decreases to or below 50% of the Net Asset Value per Unit as of the
beginning of the fiscal year, provided that such 50% decrease results in a Net
Asset Value per Unit of less than $1,000, or if the Net Asset Value per Unit
(increased by the amount of distributions per Unit, if any) decreases on any
business day to or below $350. As a result, amounts paid by the Fund for
continuing
-17-
services fees; management fees and possible incentive allocations; brokerage
commissions; legal, accounting, auditing, recording, filing and other periodic
fees and expenses; and extraordinary expenses could cause the Fund to close out
all open positions, suspend trading and possibly terminate. (See "Summary of the
Limited Partnership Agreement - Termination").
Distortions Produced by Incentive Allocation Arrangement. As more fully
described under the caption "Plan of Distribution", the purchase price of Units
sold after trading operations commence will vary with the Net Asset Value per
Unit. Incentive allocations allocable to the Advisor are contingent on
cumulative Advisory Profits, and all Advisory Losses (as defined) incurred by
the Advisor following the allocation of any incentive allocations to it must be
recovered by the Advisor before any additional incentive allocations are
allocable to it. The combination of this arrangement with the withdrawal of
existing partners or the admission of new partners will distort the results
experienced by the Fund's Units. A decline in the Fund's cumulative profits
creates, in effect, a "credit" against future incentive allocations. A partner
who withdraws from the Fund while such a "credit" remains outstanding forfeits
his share thereof. A partner who is admitted to the Fund while such a "credit"
remains outstanding acquires a share therein (thereby diluting the existing
partners' share therein) even though he has not personally suffered the loss
that gave rise to it.
Limitations of Trend-Following, Technical Trading Strategies. Pursuant to
the terms of the advisory agreement entered into between the Fund and the
Advisor (the "Advisory Agreement") and subject to rights of termination, all
trading decisions for the first twelve months of the Fund's trading operations
will be made by the Advisor. The Advisor uses technical, trend-following methods
based on mathematical analyses of certain technical data regarding past market
performance. This kind of trading strategy does not ordinarily consider
fundamental factors such as weather, supply, demand and political or economic
events except to the extent reflected in technical input data analyzed by the
Advisor. Thus, such technical methods may be unable to respond to fundamental
causative events until after their impact has ceased to influence the market,
and commodity interest positions dictated by such methods may be incorrect in
light of the fundamental factors then affecting the market. A further limitation
inherent in such trading strategies is the need for price movements that can be
interpreted by the techniques utilized and the need for price trends sufficient
to dictate entry or exit decisions. If there is no substantial price movements,
or if a price movement is erratic or ill-defined, the trading method may not
identify a trend on which it can act, or it may react to a minor price movement
in establishing a position contrary to the overall price trend. In the past,
there have been periods when certain commodities have not experienced major
price movements, and instead, price movement have been erratic or ill-defined;
such periods may recur in the future. The Net Asset Value of the Units may
decrease materially during periods in which events external to the markets
themselves have an important impact on prices. During these periods, the
historic price analysis used by the Advisor may cause the Fund to establish
positions on the wrong side of the price movements caused by external events.
Finally, trend-following, technical techniques may, for inexplicable reasons,
produce profitable results for a period of time, after which further application
of such techniques fails to forecast correctly any future price movement. For
this reason, commodity trading advisors utilizing such methods may modify and
alter their techniques on a periodic basis. Hence, as a result of continued
modification, it is possible that the trading methods and strategies used by the
Advisor may be different in the future from those presently in use.
Limited Operating History. The Fund is a newly formed entity with no
operating history, and the General Partner / Advisor has only a limited
operating history.
THE COMMODITY FUTURES TRADING COMMISSION REQUIRES A COMMODITY POOL
OPERATORS TO DISCLOSE TO PROSPECTIVE POOL PARTICIPANTS THE ACTUAL PERFORMANCE
RECORD OF THE POOL FOR WHICH THE OPERATOR IS SOLICITING
-18-
PARTICIPANTS. YOU SHOULD NOTE THAT THIS POOL HAS NOT YET BEGUN TRADING AND DOES
NOT HAVE ANY PERFORMANCE HISTORY.
The General Partner / Advisor has been registered with the Commodity
Futures Trading Commission (the "CFTC") as a commodity trading advisor since
October 2, 1998, and as a commodity pool operator since July 7, 2000. In
addition, the General Partner /Advisor has been a member of the National Futures
Association (the "NFA") as a commodity trading advisor since October 1998 and as
a commodity pool operator since July 2000. The General Partner / Advisor has
managed commodity accounts for others since March 1999.
The General Partner / Advisor and its sole officer, director and
shareholder, Daniel S. Shaffer, do, however, currently manage commodity accounts
for others and have done so since March 1999. The trading results of such other
accounts are separately set forth in Tables A and B under the caption "Past
Performance of the General Partner / Advisor" at page 40 of this Prospectus.
Although the General Partner / Advisor is not currently organizing or sponsoring
any other commodity pools, it does plan to sponsor other commodity pools in the
future, both publicly and privately offered.
Special Characteristics of the Start-Up Period. The Fund will encounter a
start-up period during which it will incur certain risks relating to the initial
investing of its assets. First, the Fund may commence trading at an unpropitious
time, such as after sustained price moves in a number of commodity interests.
Second, the start-up period represents a special risk in that diversification
may be substantially lower than in a fully committed portfolio. Although the
Advisor has established procedures for preserving capital while moving to a
fully invested position, these procedures are based on market judgment, and no
assurance is given that they are optimal or will be successful.
No Assurance That Units Will Be Sold. Since there is no firm commitment for
the purchase of the Units which are being offered to the public, there can be no
assurance that the Fund will sell 1,000 of the Units offered by this Prospectus
and the accompanying Statement of Additional Information, which are required as
a minimum at the conclusion of the initial offering period to commence operation
of the Fund. Subscribers' funds may thus be retained in escrow for up to
approximately four months following the date of this Prospectus and the
accompanying Statement of Additional Information and then returned. (See "Plan
of Distribution".)
Liquidity Restrictions / Limited Ability to Liquidate Investment in the
Units. An investor in the Fund may not be able immediately to liquidate an
investment in the Units. There is no public market for the Units, nor is one
likely to develop. In addition, a transferee of a Unit may become a substituted
Limited Partner only with the consent of the General Partner, which consent may
be withheld in the its sole discretion. However, a Limited Partner may require
the Fund to redeem any or all of his Units at the then current Net Asset Value
as of the close of business on the last business day of any calendar month upon
ten days' prior written notice to the General Partner, subject to a 4% early
redemption fee (except for any redemptions to provide funds for payment of taxes
on profits) for redemptions of Units effected as of or before the end of the
third full calendar month after their purchase and certain other restrictions.
The early redemption fee shall decrease by one percentage point for every three
calendar months thereafter so that there is no early redemption fee on
redemptions of Units effected after the twelfth full calendar month after their
purchase. In addition and in order to assure each Limited Partner the
availability of funds to pay taxes on each year's profits, the redemption fee
will be waived on redemptions of Units to the extent, if any, distributions in
the first quarter of a calendar year are less than 35% of the profits reportable
to a Limited Partner for the prior year. (See "Distributions and Redemptions"
and "Summary of the Limited Partnership Agreement - Redemptions".)
-19-
Possible Effect of Redemptions on Unit Values. Substantial redemptions of
Units could require the Fund to liquidate positions more rapidly than otherwise
desirable to raise the necessary cash to fund redemptions and achieve a market
position appropriately reflecting a smaller asset base. These factors could
adversely affect the value of the Units redeemed and of the Units remaining
outstanding.
Limited Rights of Investors / Limited Partners Will Not Participate in
Management. Purchasers of the Units will become Limited Partners in the Fund
and, as such, will be unable to exercise any management functions with respect
to its operations. The rights and obligations of the Limited Partners are
governed by the provisions of the Delaware Revised Uniform Limited Partnership
Act and by the Limited Partnership Agreement, which provides, in part, that a
majority in interest of the Limited Partners may (a) adopt amendments to the
Limited Partnership Agreement proposed by the General Partner or by Limited
Partners owning at least 10% of the outstanding Units, (b) dissolve the Fund,
(c) remove the General Partner as the Fund's general partner, (d) elect a new
general partner if the General Partner withdraws or is removed, or (e) cancel
any contract for services with the General Partner or its affiliates for any
reason on sixty days' prior written notice. (See "Summary of the Limited
Partnership Agreement" and Exhibit A to the Statement of Additional Information
that accompanies this Prospectus.)
Absence of Regulation Applicable to Securities Mutual Funds and Their
Advisers. The Fund is not registered as a securities investment company, or
"mutual fund", subject to the extensive regulation imposed by the Securities and
Exchange Commission (the "SEC") upon such entities under the Investment Company
Act of 1940, as amended. In addition, the Advisor is not registered as an
investment adviser, subject to the extensive regulation by the SEC upon such
entities under the Investment Advisers Act of 1940, as amended (or any similar
state law). Therefore, investors may not be afforded the protective measures
provided by such legislation. The General Partner / Advisor is, however, a
commodity pool operator and commodity trading advisor registered as such with
the CFTC. Such registrations do not imply, however, that the CFTC has reviewed
or approved the accuracy of the information contained in the General Partner /
Advisor's application for registration or its qualifications to act as described
in this Prospectus and the accompanying Statement of Additional Information or
that the CFTC supervises the business activities engaged in by the General
Partner / Advisor.
Unpredictability of Regulatory Changes. The futures markets are subject to
comprehensive statutes, regulations and margin requirements. In addition, the
CFTC and the exchanges on which commodity futures contracts are traded are
authorized to take extraordinary actions in the event of a market emergency,
including the retroactive implementation of speculative position limits or
higher margin requirements, the establishment of daily price limits and the
suspension of trading. The regulation of commodity futures transactions in the
United States is a rapidly changing area of law and is subject to modification
by government and judicial action at any time and from time to time.
Partners' Tax Liability May Exceed Distributions. The distribution of cash
to partners will be in the sole discretion of the General Partner, and the
General Partner may determine, and in fact intends, not to make any
distributions. However, the Fund's taxable income for a fiscal year, if any,
will be taxable to the partners in accordance with their distributive shares of
Fund income whether or not any cash has been distributed to the partners. As a
result, distributions to the Limited Partners may not equal taxes payable by
partners with respect to Fund income. Subject to certain restrictions, however,
partners have the right to redeem some or all of their Units as of the last
business day of any calendar month upon ten days' prior written notice to the
General Partner and may be able to exercise such right in order to provide funds
for the payment of taxes and other purposes. (See "Redemptions".) In addition,
the Fund might sustain losses offsetting such profits after the end of the
Fund's fiscal year, so a partner might never receive the profits on which he has
paid taxes. In addition, due to the complex requirements relating to partnership
tax accounting, it is possible that under certain conditions partners may be
allocated gains or losses for tax
-20-
purposes which are greater or less than any actual increase or decrease in the
value of their Units. (See "Federal Income Tax Consequences".)
Possibility of Taxation as a Corporation. While Morrison Cohen Singer &
Weinstein, LLP, special tax counsel to the Fund, has indicated to the Fund that,
in such counsel's opinion, the Fund will be classified as a partnership for
Federal income tax purposes, no ruling has been obtained from the IRS regarding
whether the Fund will be classified as a partnership rather than as an
association taxable as a corporation, and the Fund does not intend to apply for
any such ruling. If the Fund should be treated as a corporation for Federal
income tax purposes, income or loss of the Fund would not be passed through to
the partners, and the Fund would be subject to tax on its income at the rate of
tax applicable to corporations. In addition, all or a portion of the
distributions of Fund income, if any, would generally be taxable to the partners
as corporate dividends, and the partners' tax on such distributions would be in
addition to the corporate tax paid by the Fund on the same income.
Tax Could Be Due From Investors On Their Share Of The Fund's Ordinary
Income Despite Overall Losses. Investors may be required to pay tax on their
allocable share of the Fund's ordinary income, which in the case of the Fund is
primarily the Fund's interest income, even though the Fund incurs overall
losses. Capital losses of individuals can be used only to offset capital gains
and $3,000 of ordinary income each year. Consequently, if an investor having no
other items of capital gain or loss in a particular year were allocated $5,000
of ordinary income and $10,000 of capital losses from the Fund, the investor
would owe tax on $2,000 of ordinary income even though the investor would have
economically incurred a $5,000 overall loss for the year. The remaining $7,000
undeducted capital loss could be used in subsequent years to offset capital gain
and ordinary income, but subject to the same annual limitation on its
deductibility against ordinary income.
There Could Be A Limit On The Deductibility Of Brokerage And Performance
Fees. Although the General Partner expects to treat the management fees paid to
it, and brokerage fees paid to ADM Investor Services, Inc., and certain other
expenses of the Fund, as ordinary and necessary business expenses, upon audit
the Fund may be required to treat such fees as "investment advisory fees" if the
Fund's trading activities did not constitute a trade or business for tax
purposes. If the expenses were investment advisory expenses, a Limited Partner's
tax liability would likely increase. In addition, upon audit, a portion of the
brokerage fees might be treated as a non-deductible syndication cost or might be
treated as a reduction in the Fund's capital gain or as an increase in the
Fund's capital loss. If the brokerage fees were so treated, a Limited Partner's
tax liability would likely increase.
Conflicts of Interest. There exist inherent and potential conflicts of
interest in the operation of the Fund's business. These include the possible
competition with the Fund by the General Partner / Advisor, the Selling Agent,
the Commodity Broker and their respective shareholders, directors, officers,
employees, customers and affiliates. (See "Conflicts of Interest / Fiduciary
Responsibility of the General Partner".)
Other Clients of the Advisor. The Advisor and its sole officer, director
and shareholder, Daniel S. Shaffer, currently manage other trading accounts and
trade for their own account, and they and their principals, employees and
affiliates will remain free to manage additional accounts, including their own
accounts, in the future subject to certain limitations. It is possible that such
accounts and any additional accounts managed by the Advisor or its principals,
employees or affiliates in the future may be in competition with the Fund for
the same or similar positions in the futures markets. In addition, the Advisor
may vary the trading strategies applicable to the Fund from those used for its
other managed
-21-
accounts. No assurance is given that the results of the Fund's trading will be
similar to that of other accounts concurrently managed by the Advisor or its
principals, employees and affiliates. However, in its trading for the Fund's
account and such other accounts, the Advisor has agreed to use its good faith,
best efforts to achieve an equitable treatment of all accounts, including with
respect to priorities of order entry and changes in trading strategies or
recommendations resulting from the application of speculative position limits.
(See "Risk Factors - Changes in Trading Strategies" and " - Possible Effects of
Speculative Position Limits".)
Expiration of the Advisory Agreement with the Advisor. The Advisory
Agreement is for a one year term, subject to earlier termination by the Fund or
the Advisor and subject to automatic renewal (unless the General Partner /
Advisor elects against renewal) on the same terms and conditions for an
additional one year term. Upon the expiration of the Advisory Agreement, the
General Partner, on behalf of the Fund, must either attempt to renegotiate the
Advisory Agreement or make other arrangements for providing advisory services to
the Fund if the Fund intends to continue trading. No assurance is given that the
sole principal of the Advisor will continue his association with the Advisor
during the term of the Advisory Agreement or that the services of the Advisor or
any of its principal(s) will then be available on the terms contained in the
current Advisory Agreement or on any other terms. (See "Summary of the Advisory
Agreement").
Possible Effects of Speculative Position Limits. The CFTC and certain
exchanges have established speculative position limits on the maximum net long
or short futures position which any person, or group of persons acting in
concert, may hold or control in particular commodities. In addition, the CFTC
requires each domestic exchange to set speculative position limits, subject to
CFTC approval, for all commodity futures contracts traded on such exchange which
are not already subject to speculative position limits established by the CFTC
or such exchange. The CFTC has jurisdiction to establish speculative position
limits with respect to all commodity futures contracts traded on exchanges
located in the United States, and any exchange may impose additional limits on
positions on the exchange. All commodity accounts controlled by the Advisor and
its principal(s) will be aggregated for these speculative position limit
purposes. With respect to trading in commodity futures contracts subject to such
limits, the Advisor may thus reduce the size of the positions that would
otherwise be taken for the Fund in such commodity futures contracts and not
trade commodity futures contracts on certain commodities in order to avoid
exceeding such limits. Such modifications of the Fund's trades, if required,
could adversely affect the operations and profitability of the Fund. However, in
its trading for the Fund's account and such other accounts, the Advisor has
agreed to use its good faith, best efforts to achieve an equitable treatment of
all accounts, including with respect to priorities of order entry and changes in
trading strategies or recommendation resulting from the application of
speculative position limits. (See "Conflicts of Interest / Fiduciary
Responsibility of the General Partner" and "Summary of the Advisory Agreement".)
Possible Effects of Market Limits. It is not always possible to execute a
buy or sell order at the desired price or to close out an open position, either
due to market conditions or to limits on open positions and/or daily price
fluctuation limits imposed by exchanges and approved by the CFTC. When the
market price of a commodity futures contract reaches its daily price fluctuation
limit, no trades can be executed unless traders are willing to effect trades at
or within the limit, which may be unlikely due to movements in the market price
of the underlying cash commodity. The holder of a commodity futures contract
(including the Fund) may therefore be locked into an adverse price movement for
several days or more and lose considerably more than the margin committed to
trading the contract. In certain commodities, the daily price fluctuation limits
apply throughout the life of the contract, and hence the holder of a futures
contract who cannot liquidate his position by the end of trading on the last
trading day may be required to make or take delivery of the underlying
commodity. Another instance of difficult or impossible execution occurs in
thinly traded markets or markets which lack sufficient trading liquidity.
-22-
Although the Fund intends to purchase and sell actively traded commodities, no
assurance can be given that this will always be the case or that the Fund's
orders will be executed at or near the desired price.
Limitation on Portfolio Diversification. Historically, managed commodity
futures contracts have generally not correlated with the performance of other
asset classes, such as stocks and bonds. Non-correlation means that there is no
statistically valid relationship between the past performance of commodity
futures contracts, on the one hand, and stocks or bonds, on the other hand.
Non-correlation should not be confused with negative correlation, where the
performance of two asset classes is exactly opposite. For example,
non-correlation means that the Fund may not necessarily be profitable or
unprofitable during unfavorable periods for the stock market. The commodity
futures markets are fundamentally different from the securities markets because,
for every gain in futures trading, there is an equal and offsetting loss. If the
Fund does not perform in a manner that is not correlated with the general
financial markets or does not perform successfully, an investor will obtain no
diversification benefits by investing in the Units. In addition, an investor may
have no gains from the Fund to offset losses in the rest of his or her
portfolio.
Restrictions on Investment by Benefit Plan Investors. A Benefit Plan
Investor means an entity that is (i) an "Employee Benefit Plan," as defined in
Section 3(3) of the Employee Retirement Security Act of 1974, as amended
("ERISA"); (ii) a plan described in Section 4975(e)(1) of the Internal Revenue
Code; or (iii) a partnership, the general partner of which has been appointed
"investment manager," as defined in Section 3(38) of ERISA, over the assets used
by one or more Employee Benefit Plans to purchase limited partnership interests
in such partnership. When considering an investment in the Fund, a fiduciary
with respect to a benefit plan should consider among other things (i) the
definition of "plan assets" under ERISA, (ii) whether the investment satisfies
the diversification requirements of Section 404(a)(1) of ERISA, (iii) whether
the investment satisfies the prudence requirements of Section 404(a)(1) of
ERISA, (iv) whether income derived from the Fund could constitute "unrelated
business income" subject to Federal income taxation in the ERISA Account, and
(v) that there may be no market in which such fiduciary can sell or otherwise
dispose of the Units. The General Partner / Advisor recommends that any purchase
of Units be considered accordingly by each investor and his legal, tax and
financial advisers.
Lack of Independent Experts. The General Partner / Advisor has consulted
with independent counsel, accountants and other experts regarding the formation
and operation of the Fund. The Fund has not, however, engaged separate counsel,
accountants or experts to represent investors in connection with this offering.
Each investor should, therefore, consult with his or her own legal, tax and
financial advisors regarding the desirability of an investment in the Fund.
The foregoing list of Risk Factors, although considered by the General
Partner / Advisor to be representative of the most significant risks related to
an investment in the Fund, does not purport to be a complete list or explanation
of the risks involved in this offering. Prospective investors should read
-23-
this Prospectus and the accompanying Statement of Additional Information in
their entirety before determining whether to invest in the Fund.
CONFLICTS OF INTEREST/
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The following inherent or potential conflicts of interest should be
considered by potential subscribers before investing in the Fund. In addition,
potential subscribers should consider the fiduciary responsibilities of the
General Partner / Advisor to the Fund and the Limited Partners as explained
below.
Conflicts of Interest
Distribution of Profits. Under the terms of the Limited Partnership
Agreement, the General Partner has discretion as to the distribution of profits,
if any, to the Limited Partners. At present, the General Partner does not intend
to make any distributions of any profits. To the extent that profits are
retained by the Fund rather than distributed, the Net Asset Value of the Fund,
which is the basis for determining the management fee payable to the Advisor and
the continuing services fees payable to the Selling Agent, the Selected Dealers
and their respective registered representatives (including Daniel S. Shaffer,
the sole officer, director and shareholder of the General Partner / Advisor who
is also a registered representative of the Selling Agent), will be increased
thereby increasing the amount of the management fee and continuing services
fees.
Independent Review. In connection with this offering, the Fund and the
General Partner / Advisor have been represented by single counsel. Therefore, to
the extent that the Fund and this offering could benefit by further independent
review, such benefit will not be available in this offering.
Other Trading Accounts of the Advisor, Selling Agent, Commodity Broker and
their Principals and Affiliates. The Advisor and its sole officer, director and
shareholder, Daniel S. Shaffer, currently trade for accounts other than the
Fund, and they will remain free to trade for such other accounts and to utilize
the same trading strategies and formulas in trading for such other accounts
which the Advisor will utilize in making trading decisions for the Fund; and the
Selling Agent, the Commodity Broker and their respective shareholders,
directors, officers, employees and affiliates may and will be free to trade for
their own accounts from time to time. The records of any such trading will not
be available for inspection by Limited Partners except to the extent required by
law. In addition, the Commodity Broker is a futures commission merchant and
effects transactions for customers in addition to the Fund. Since the identities
of the purchaser and seller are not disclosed until after the trade, it is
possible that transactions could be effected for the Fund in which the other
parties to the transactions are shareholders, officers, directors, employees,
customers or affiliates of the Commodity Broker. Such persons might also compete
with the Fund in making purchases or sales of commodity futures contracts
without knowing that the Fund is also bidding on such commodity futures
contracts. Since similar orders (e.g., market orders for the same commodity
futures contracts) are filled in the order they are received by a particular
floor broker, transactions for any of such persons might be effected at less
favorable prices. Regulations of the CFTC prohibit futures commission merchants
from utilizing their knowledge of Fund trades for their own or their other
customers' benefit. Furthermore, all of the positions held by accounts managed
by the Advisor and its principals and affiliates will be aggregated for purposes
of applying speculative position limits. As a result, the Fund might not be able
to enter into or maintain certain positions if such positions, when added to the
positions already held by the Fund and such other accounts, would exceed the
applicable limits.
-24-
Relationship between the General Partner / Advisor and the Fund's Commodity
Broker(s). Under the terms of the Limited Partnership Agreement, the General
Partner has the authority to designate commodity broker(s) to execute trades on
behalf of the Fund and, at present, the General Partner has selected ADM
Investor Services, Inc. to act as the initial commodity broker for the Fund. The
Fund will initially pay the Commodity Broker brokerage commissions at the rate
of $17.00 per "round-turn" trade for trades executed on domestic exchanges,
which amount represents a substantial discount from its standard public customer
rates and from the standard published rates currently being charged by many
major brokerage firms to their individual public customers, although such
commission rates and therefore the applicable discount rate may change in the
future. Potential investors should note that the brokerage commission rates at
which the Fund will pay the Commodity Broker may be higher than rates charged by
the Commodity Broker to certain of its other customer accounts (including the
accounts of its employees), and the rates charged by other brokerage firms. This
brokerage arrangement may result, therefore, in the Fund paying brokerage
commissions for its trading at rates which exceed the lowest rates which might
otherwise be available.
Although the Fund's brokerage arrangement with the Commodity Broker is
non-exclusive so that the Fund will have the right to seek lower commission
rates from other brokers at any time, the General Partner believes that the
arrangements between the Fund and the Commodity Broker are fair and reasonable
in view of the nature and quality of the services to be provided by the
Commodity Broker with respect to the execution of transactions. The General
Partner intends to seek high quality execution services and financial
responsibility and does not generally intend to seek lower commission rates from
other brokers or to negotiation with the Commodity Broker for lower commission
rates. The General Partner intends to cause the Fund to pay a commission which
it believes to be fair and reasonable in view of the nature and quality of the
services rendered as well as the advantage of an ongoing relationship with a
particular broker or brokers who execute trades on behalf of the Fund. In
directing transactions to brokers for execution, the General Partner considers
such factors as commission rates which will be charged to the Fund, the
reputation and financial stability of the broker, the ability of the broker to
obtain fast quality and accurate executions for the Fund at a fair price, the
quality and accuracy of the broker's reporting paperwork, confirmations, and
monthly statements, and other services which may be beneficial to the Fund. The
Fund, therefore, may pay commission rates that exceed the lowest commission
rates available from brokers. However, the General Partner will review, at least
annually, the commission rates charged to other comparable commodity pools and
other relevant factors to determine that the commission rates being paid by the
Fund continue to be fair and reasonable.
Neither the General Partner / Advisor not any of its principals directly or
indirectly share in the brokerage commissions paid by the Fund for brokerage
services. Since the General Partner / Advisor and its principals also have no
affiliations or business arrangements, direct or indirect, with any broker or
any principal thereof whereby the General Partner / Advisor or its principals
may benefit, directly or indirectly, from the maintenance of the Fund's account
with such broker, there is no actual or potential conflict of interest between
the General Partner / Advisor or any of its principals and any of the brokers
with which the Fund may carry its account, including ADM Investor Services,
Inc., the Fund's present commodity broker.
Selection of the Trading Advisor(s). Under the terms of the Limited
Partnership Agreement, the General Partner selects the trading advisor(s) to
direct the Fund's trading. The Fund has entered into an Advisory Agreement with
Shaffer Asset Management, Inc., the Fund's general partner, to manage the Fund's
commodity transactions. Since the General Partner / Advisor acts as both the
general partner of, and the trading advisor to, the Fund, the General Partner /
Advisor has a conflict of interest with respect to its responsibility to prevent
the trading advisor from violating the trading policies of the Fund and from
engaging in excessive trading which could cause the Fund to pay substantial
brokerage commissions. However, neither the General Partner / Advisor nor any of
its principal(s) will directly or indirectly
-25-
receive any portion of the brokerage commissions paid by the Fund for brokerage
services or otherwise benefit from the maintenance of the Fund's trading
accounts with any particular broker or brokers. The General Partner may be
deemed to have a conflict of interest with respect to its responsibility to
review the trading performance of the Advisor and to determine whether to
terminate the Advisory Agreement with the Advisor on behalf of the Fund. There
may also be deemed to be an absence of arm's-length negotiations with respect to
the terms of the Advisory Agreement entered into with the Advisor by the Fund.
Syndication Fees, Sales Commissions and Continuing Service Fees.
Prospective investors should note that if the minimum number of Units is sold
and accepted during the initial offering period, the Fund will pay the General
Partner / Advisor, the Selling Agent, certain Selected Dealers and their
respective registered representatives an amount equal to approximately 5% of the
then current Net Asset Value per Unit of each Unit sold by them and accepted by
the General Partner. Approximately 20% of all sales charges shall be paid to the
General Partner to reimburse the General Partner for the payment of the Fund's
organizational and initial offering and the Fund's operating expenses that are
payable by the General Partner and approximately 80% of all sales charges shall
be paid as syndication fees to the Selling Agent and as selling commissions to
the Selected Dealers. The Selling Agent and the Selected Dealers may in turn pay
a portion of such syndication fees and selling commissions to their respective
employees who are NASD registered representatives for each Unit sold by them. In
addition and subject to the limitations described herein under "Plan of
Distribution", the Fund will pay a monthly continuing services fee to the
Selling Agent and, through the Selling Agent, certain Selected Dealers who are
appropriately registered with the CFTC and/or the NFA and their respective
registered representatives equal to, in the aggregate, 1/12 of 1.25% of the Net
Asset Value per Unit (as defined in "Fees, Compensation and Expense - Certain
Definitions: 2. Net Asset Value per Unit", below) of the Fund's assets under
management at month's end (without reduction for distributions or redemptions
effected as of such date or management fees payable or incentive allocations
allocable as of such date) with respect to Units purchased within the prior
12-month period and 1/12 of 4% of the Net Asset Value per Unit of the Fund's
assets under management at month's end (without reduction for distributions or
redemptions effected as of such date or management fees payable or incentive
allocations allocable as of such date) with respect to Units purchased more than
12 months prior thereto. In advising customers whether to purchase or redeem
Units, the General Partner / Advisor, the Selling Agent, the Selected Dealers
and their respective registered representatives may have a conflict of interest
between maximizing their current and on-going compensation, on the one hand, and
providing financial advice that is in the best interests of their customers, on
the other hand. In addition, investors should note that Daniel S. Shaffer, the
sole officer, director and shareholder of the General Partner / Advisor, is also
a registered representative of the Selling Agent, and in that capacity, may
receive a portion of the syndication fees and continuing service fees referred
to herein. A conflict of interest may exist, therefore, between Mr. Shaffer's
interest in the General Partner / Advisor; his interest in maximizing his
current and on-going compensation; and the interests of his customers in making
an investment decision, such as a decision to purchase and/or redeem Units.
There may also be deemed to be an absence of arm's-length negotiations with
respect to the terms of the Selling Agent Agreement entered into between the
Fund and the Selling Agent.
Fiduciary Responsibility of the General Partner
In evaluating these conflicts of interest, prospective investors should be
aware that the General Partner has a fiduciary responsibility to the Limited
Partners to exercise good faith and fairness in all dealings affecting the Fund.
In the event that a Limited Partner believes that the General Partner has
violated its duty to the Limited Partners, he may seek legal relief on his
behalf or on behalf of the Fund under applicable laws to recover damages from or
require an accounting by the General Partner. Limited Partners should be aware
that the performance by the General Partner of its responsibilities to the Fund
-26-
will be measured by the terms of the Limited Partnership Agreement, including
the authority of the General Partner to enter into the advisory and brokerage
agreements, as well as applicable law. Limited Partners are afforded certain
rights to institute reparations proceedings under the Commodity Exchange Act, as
amended (the "CE Act"), for violations of such act or of any rule, regulation or
order of the CFTC by the General Partner. Excessive trading of the Fund's
account may constitute a violation of the CE Act . A Limited Partner is also
entitled by statute to bring suit for certain violations of the CE Act. Limited
Partners should be aware that it may be difficult to establish that the Fund's
trading has been excessive due to the broad trading discretion given to the
Advisor under the Advisory Agreement, the authority of the General Partner to
enter into such contract under the Limited Partnership Agreement and the
Subscription Agreement / Power of Attorney, the exculpatory provisions in the
Advisory Agreement and the Limited Partnership Agreement, and the absence of
judicial or administrative standards defining excessive trading. Although the
Commodity Broker provides various services to the Fund, it accepts no
responsibility for verifying that any instructions received from the General
Partner / Advisor or any of their employees or agents are in conformance with
the General Partner / Advisor's authority and the Commodity Broker accepts no
responsibility for monitoring the actions of the General Partner / Advisor in
this regard, to ensure that such actions are not contrary to the provisions of
this Prospectus or any amendments thereto.
The Limited Partnership Agreement provides that the General Partner shall
not be liable to the Fund or to any of the partners except by reason of
misconduct or negligence or for not having acted in good faith in the reasonable
belief that its actions were taken in, or not opposed to, the best interests of
the Fund.
The Limited Partnership Agreement provides that with respect to any action
in which the General Partner or any of its shareholders, directors, officers,
employees, affiliates or any person who controls the General Partner is made a
party (including an action brought by or in the right of the Fund), the Fund
shall indemnify and hold harmless such person, subject to receipt of an
independent legal opinion regarding the applicable standard of conduct, against
any loss, liability, damage, cost, expense (including, without limitation,
attorneys' and accountants' fees and disbursements), judgments and amounts paid
in settlement incurred in connection with the investigation, defense or
settlement of such action, if the indemnified party acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Fund and if such actions did not involve negligence, misconduct or breach of
fiduciary obligations on the part of the person seeking indemnification (unless
the court in which such action is brought determines that, in view of all of the
circumstances of the case, the indemnified party is fairly and reasonably
entitled to indemnification for such amounts as the court shall deem proper). To
the extent that the indemnified party has been successful in the defense of any
action, no independent legal opinion is necessary. Expenses may be paid by the
Fund in advance of the final disposition of any such action if the indemnified
person agrees to reimburse the Fund in the event that indemnification is not
permitted.
The Limited Partnership Agreement prohibits the Fund from making any loans.
The Limited Partnership Agreement also provides that no person who shares or
participates in the brokerage commissions paid by the Fund may receive, directly
or indirectly, any advisory, management or incentive fees for trading advice or
management; that no broker may pay, directly or indirectly, rebates or give ups
to the General Partner or any trading advisors; and that such prohibitions may
not be circumvented by any reciprocal business arrangements.
-27-
USE OF PROCEEDS
The gross proceeds of this offering will depend upon the prices at which
the Fund's Units are sold. During the initial offering period of sixty days
(which may be extended for up to an additional sixty days at the General
Partner's discretion), the Units will be sold for $950 each, plus an initial
sales charge of $50 per Unit; thereafter, unsold Units (if any) may be sold as
of the last business day of each month at a purchase price equal to the then
current Net Asset Value per Unit, plus a sales charge of 5% of the Net Asset
Value per Unit for each Unit purchased.
If at least the minimum number of Units is sold during the initial offering
period at an initial purchase price of $950 per Unit, the net proceeds to the
Fund will be $950,000. The net proceeds will be $23,750,000 in the event that
the maximum number of Units is sold during the initial offering period. This is
without giving effect to the contributions of the General Partner and the
initial limited partner. (See "Capitalization/Selected Financial Data".)
The net proceeds from the sale of the Units will be used to trade in
commodity futures contracts and other commodity interests in the United States
commodity futures markets. While the Advisor generally intends to commit between
10% and 40% of the Fund's net assets as margin for commodity trading, the
Advisor is limited in the amount of the Fund's net assets that may be used to
margin commodity futures contracts to 40% of such assets under normal
circumstances. (See "Trading Policies".) The Fund's net assets will be deposited
in bank account(s) with The Chase Manhattan Bank and trading account(s) with the
Commodity Broker and/or other banks or commodity brokers. The Commodity Broker
will deposit the assets received from the Fund in segregated accounts as
required by the regulations promulgated by the CFTC. Under the CFTC's
regulations, the assets of other customers of the Commodity Broker, including
other commodity pools, may also be deposited in such segregated accounts and
thus be commingled with the assets of the Fund. The Fund's assets, both those
which are deposited to meet margin requirements and those which are held in
reserve, may be held in cash, United States Treasury Bills or in any other form
permissible under applicable laws and regulations. The General Partner / Advisor
currently intends to cause the Fund to hold not less than 90% of such assets in
United States Treasury Bills; interest, if any, earned on such assets,
therefore, will inure to the benefit of the Fund.
FEES, COMPENSATION AND EXPENSES
Summary
The following entities will receive the following compensation, which is
described in more detail below:
Entity Form of Fee, Compensation or Amount of Fee, Compensation or
Expense Expense
Shaffer Asset Management, Inc., Reimbursement of organizational, (i) 1% of the Net Asset Value per Unit of Units
in its capacity as the Fund's initial offering and operating sold and (ii) all early redemption fees charged by
general partner expenses the Fund upon redemptions of Units, will be paid
by the Fund to the General Partner to reimburse
the General Partner for the payment by the
-28-
General Partner of the Fund's organizational,
initial offering and operating expenses payable
by the General Partner.
Other In addition, the General Partner will share to the
same extent as the Limited Partners in the Fund's
profits and losses with respect to any units of
limited and/or general partnership interest in the
Fund that are purchased by the General Partner.
Shaffer Asset Management, Inc., Monthly management fees based on 1/12 of 3.75% of the Net Asset Value per Unit
in its capacity as the Fund's the Net Asset Value of assets (as defined below) of the Fund's asset under
commodity trading advisor under management management at month's end with respect to
Units purchased within the prior 12-month period
and 1/12 of 1% of the Net Asset Value per Unit (as
defined below) of the Fund's assets under
management at month's end with respect to Units
purchased more than 12 months prior thereto
Quarterly incentive allocation 15% of the Fund's Advisory Profits (as
on Advisory Profits (as defined defined below) achieved on the Fund's
below) achieved on assets under assets based under management
management
Berthel Fisher & Company Syndication fees 1% of the Net Asset Value per Unit of
Financial Services, Inc., in its Units sold
capacity as the Fund's selling
agent
Monthly continuing service fee 1/12 0f .25% of the Net Asset Value per Unit
based on Net Asset Value under (as defined below) with respect to Units
management purchased within the prior 12-month period
and 1/12 of 1% of the Net Asset Value per
Unit (as defined below) with respect to Units
purchased more than 12 months prior thereto
Selected dealers and their Selling commissions 3% of the Net Asset Value per Unit of Units
respective registered sold
representatives
Monthly continuing service fee 1/12 of 1% of the Net Asset Value per Unit
based on Net Asset Value under (as defined below) of the Fund's assets under
management management at month's end with respect to
Units purchased within the prior 12-month
period and 1/12 of 3% of the Net Asset Value
per Unit (as defined below) with respect to
Units purchased
-29-
more than 12 months prior thereto
ADM Investor Services, Inc., in Commodity brokerage commissions Brokerage commissions at an initial rate of
its capacity as the Fund's $17 per "round-turn" trade on domestic
commodity broker exchanges; the Commodity Broker is
responsible for all other charges relating to
the Fund's trading, such as exchange,
clearing, transfer and NFA fees
Others Legal, accounting, auditing, Estimated at $95,000 at current price levels,
printing, recording, filing and ranging from about 0.4% of the proceeds of
other periodic fees and the offering if the maximum number of 25,000
expenses; and extraordinary Units is sold during the initial offering
expenses. period to about 10% thereof if only the
minimum number of 1,000 Units is sold; the
General Partner has agreed to supply and pay
for such services as are deemed by the
General Partner to be necessary or desirable
and proper for the continuous operations of
the Fund (excluding sales charges, continuing
services fees, management fees, incentive
allocations, brokerage commissions and
extraordinary expenses) which are in excess
of 0.5% of the average monthly Net Asset
Value of the Fund per annum. One percent of
the Net Asset Value per Unit of Units sold
and all early redemption fees charged by the
Fund upon redemptions of Units will be paid
to the General Partner to reimburse the
General Partner for the payment by the
General Partner of the Fund's organizational
and initial offering and the Fund's operating
expenses that are payable by the General
Partner.
Description of Fees, Compensation and Expenses
1. Management Fees and Incentive Allocations. Pursuant to the terms of the
Advisory Agreement, the Fund has agreed (i) to pay to the Advisor a monthly
management fee equal to 1/12 of 3.75% of the Net Asset Value per Unit (see
"Certain Definitions: 2. Net Asset Value per Unit", below) of the Fund's assets
under management at month's end with respect to Units purchased within the prior
twelve-month period and 1/12 of 1% of the Net Asset Value per Unit (as defined
below) of the Fund's assets under management at month's end with respect to
Units purchased more than twelve months prior thereto, and (ii) to allocate to
the Advisor, on a quarterly basis, an amount equal to 15% of the Fund's Advisory
Profits (exclusive of any interest earned by the Fund) achieved by the Advisor
for such quarter on the Fund's assets under management by the Advisor (see
"Certain Definitions: 3. Advisory Profits", below). The monthly management fees
will be paid, and the quarterly incentive allocation will be
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allocated, whether or not the Fund earns profits. However, the quarterly
incentive allocation is allocable only on cumulative profits achieved on assets
under management by the Advisor.
2. Syndication Fees / Selling Commissions / Sales Charges. During the
initial offering period, the Units will be offered at an initial offering price
of $1,000 ($950 per Unit, plus an initial sales charge of $50 per Unit).
Subsequent to the closing of the initial offering period, unsold Units (if any)
may be offered and sold by the Fund at the then current Net Asset Value per Unit
(as hereinafter defined), plus a sales charge of 5% of the Net Asset Value per
Unit for each Unit purchased. If at least 1,000 Units are sold and accepted by
the General Partner during the initial offering period, approximately 20% of all
sales charges shall be paid to the General Partner to reimburse the General
Partner for the payment by the General Partner of the Fund's organizational,
initial offering and operating expenses payable by the General Partner and
approximately 80% of all sales charges shall be paid as syndication fees to the
Selling Agent and as selling commissions to the Selected Dealers. The Selling
Agent and the Selected Dealers may in turn pay a portion of such syndication
fees and selling commissions to their respective employees who are NASD
registered representatives for each Unit sold by them. The sales charge may be
increased at any time and from time to time by the General Partner upon sixty
days' prior written notice to the Limited Partners. (See "Plan of
Distribution").
3. Continuing Services Fees. The Fund will pay a monthly continuing
services fee to the Selling Agent and, through the Selling Agent, certain
Selected Dealers who are appropriately registered with the CFTC and/or the NFA
and their respective registered representatives equal to, in the aggregate, 1/12
of 1.25% of the Net Asset Value per Unit (see "Certain Definitions: 2. Net Asset
Value per Unit", below) of the Fund's assets under management at month's end
(without reduction for distributions or redemptions effected as of such date or
management fees or incentive fees payable as of such date) with respect to Units
purchased within the prior twelve-month period and 1/12 of 4% of the Net Asset
Value per Unit of the Fund's assets under management at month's end (without
reduction for distributions or redemptions effected as of such date or
management fees or incentive fees payable as of such date) with respect to Units
purchased more than twelve months prior thereto. Such continuing services fee
shall be paid to the Selling Agent and such Selected Dealers and their
respective registered representatives in return for their continuing services to
the Fund and the Limited Partners solicited by them. Such services include,
without limitation, keeping the Limited Partners apprised of developments
affecting the Fund, responding to specific inquiries received from Limited
Partners relating to the Fund and the commodity markets, communicating current
valuations of the Fund's Net Asset Value per Unit to the Limited Partners,
assisting in redemptions, transfers and distributions, assisting Limited
Partners in interpreting the Fund's monthly and annual reports, financial
statements and the tax information provided to Limited Partners, and providing
such other services as the Limited Partners from time to time may reasonably
request. The continuing services fee may be increased at any time and from time
to time by the General Partner upon sixty days' prior written notice to the
Limited Partners. (See "Plan of Distribution".)
The continuing services fee will be allocated between the Selling Agent and
the Selected Dealers and their respective registered representatives based upon
the amount of time that each Unit has been outstanding. The continuing services
fee attributable to a Unit which has been outstanding for twelve or fewer month
shall be allocated between the Selling Agent and the Selected Dealers and their
respective registered representatives as follows:
o 20% to the Selling Agent; and
o 80% to the Selected Dealers and their respective registered
representatives that solicited the subscription;
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and all other continuing services fees shall be allocated as follows:
o 25% to the Selling Agent; and
o 75% to the Selected Dealers and their respective registered
representative that solicited the subscription.
For this purpose, commissions are deemed to be attributable to Units sold
by a Selected Dealer in the proportion which the number of such Units bears to
the number of all Units outstanding at any time. For example, if a Selected
Dealer were responsible for the sale of 1,000 Units, and there were 100,000
Units outstanding, 1% (1,000 divided by 100,000) of the continuing services fees
paid by the Fund would be deemed to be attributable to the Units sold by that
Selected Dealer, and such Selected Dealer would receive 1% of the commissions
paid by the Fund to the Selected Dealers and their respective registered
representatives for so long as the Units remain outstanding and the Selected
Dealer and its registered representative agreed to provide the services
described above to the holders of such Units.
4. Commodity Brokerage Commissions. The Fund will pay the Commodity Broker
brokerage commissions initially at the rate of $17.00 per "round-turn" trade
executed on domestic exchanges. (See "Glossary".) Based upon the historical
trading patterns of the Advisor, the Fund may expect to pay brokerage
commissions which may approximate 1% or more of its average yearly Net Asset
Value. There is no agreement to limit such commission charges to any particular
level. Brokerage commissions will be charged only when an open position is
closed (i.e., on a "round-turn" basis). The Commodity Broker may change their
aggregate commission rates at any time, and a Limited Partner may obtain the
current Fund commission rate schedule from the General Partner upon request. The
General Partner, however, must ensure that such charges remain reasonable in
light of the nature and quality of services rendered (including, among others,
execution services) and the other standards applicable thereto. The General
Partner will periodically review brokerage commission rates charged to public
commodity pools of comparable size and management structure as a factor in
determining whether the rates paid by the Fund are comparable and remain
reasonable. The Fund, nonetheless, may pay brokerage commission rates exceeding
the lowest such rates otherwise available. (See "Conflicts of Interest and
Fiduciary Responsibility of the General Partner" and "Commodity Brokerage
Arrangements".)
5. Early Redemption Fees. The Fund will charge an early redemption fee
equal to 4% of the Net Asset Value per Unit of the Units redeemed as of or
before the end of the third full calendar month after their purchase. This fee
will decrease by one percentage point for every three subsequent calendar
months. Accordingly, Units redeemed as of the end of or during the tenth,
eleventh and twelfth full calendar months after their purchase will be subject
to a redemption fee equal to 1% of the Net Asset Value of the Unit(s) redeemed.
Thereafter, no redemption fee will be charged. In addition and in order to
assure each Limited Partner the availability of funds to pay taxes on each
year's profits, if any, the redemption fee will be waived on redemptions of
Units to the extent, if any, distributions in the first quarter of a calendar
year are less than 35% of the profits reportable to a Limited Partner for the
prior year. All early redemption fees charged by the Fund upon redemptions of
Units will be paid to the General Partner to reimburse the General Partner for
the payment by the General Partner of the Fund's organizational, initial
offering and operating expenses payable by the General Partner.
6. Organizational and Initial Offering Expenses. The General Partner will
pay all expenses (estimated at $200,000) associated with the organization of the
Fund and the initial offering of the Units (other than selling commissions).
Approximately 20% of all sales charges imposed by the Fund on Units sold and
100% of all early redemption fees charged by the Fund upon redemptions of Units
will be paid to the General Partner to reimburse the General Partner for the
payment by the General Partner of the
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Fund's organizational and initial offering expenses and the Fund's operating
expenses that are payable by the General Partner.
7. Other Expenses. After trading operations commence, the Fund shall be
obligated to pay various periodic fees and expenses which are estimated at
approximately $30,000 per year for accounting services and auditing charges,
$15,000 for legal fees, $15,000 for printing, $20,000 for technical services and
$15,000 for filing fees, postage and extraordinary expenses, or, in the
aggregate, $95,000 per year (at current price levels). This would amount to
approximately 0.4% of the proceeds of the offering if the maximum number of
25,000 Units was sold during the initial offering period, and about 10% thereof
if the minimum number of 1,000 Units was sold. The General Partner has agreed to
supply and pay for such services as are deemed by the General Partner to be
necessary or desirable and proper for the continuous operations of the Fund
(excluding sales charges, continuing services fees, management fees, incentive
allocations, brokerage commissions and extraordinary expenses) which are in
excess of 0.5% of the average monthly Net Asset Value of the Fund per annum.
The General Partner will furnish each Limited Partner with monthly
statements and an annual report covering the Fund's operations and expenses,
including its advisory fees, brokerage commissions and other expenses. (See
"Summary of the Limited Partnership Agreement - Reports and Accounting".)
Estimate of Break-even Threshold
Assuming an initial investment of $10,000, the Fund must earn gross trading
profits of $750 or 7.50% per Unit on an annualized basis in order for an
investor to "break even" on his or her investment in the first year of trading.
The foregoing statement is based upon the following assumptions (any one of
which may vary depending upon the actuality of the Fund's size and trading): (i)
the initial sales charge per Unit is $50; (ii) the historical trading patterns
of the Advisor and its principal(s) should generate annual brokerage commissions
of approximately 1% of the average annual Net Asset Value of the assets under
management by the Advisor; (iii) the continuing services fees should equal
approximately 4% of average Net Asset Value annually; (iv) the management fees
payable to the Advisor should equal approximately 1% of average Net Asset Value
annually; (v) Units redeemed as of the end of or during the twelfth full
calendar months after their purchase will be subject to a redemption fee equal
to 1% of the Net Asset Value of the Unit(s) redeemed; and (vi) the foregoing
fixed expenses should be partially or completely offset by the interest received
on the Fund's assets on deposit with The Chase Manhattan Bank, the Commodity
Broker and/or other banks and commodity brokers. The effect of the incentive
allocation, if any, allocable to the Advisor is not included in the calculation
of the break-even threshold because, by definition, no advisory profits are
generated at the "break-even"point upon which an incentive allocation would be
allocable to the Advisor. The break-even threshold is calculated as shown in the
following table:
"BREAK EVEN" ANALYSIS
Initial purchase price (1)........................... $10,000
Less: Sales charges (1).............................. 500
Management fees (2)................................ 375
Continuing service fees (3) ....................... 125
Brokerage fees (4) ................................ 100
Operating expenses (5)............................. 50
Redemption fees (6)................................ 100
Plus: Interest income (7)............................ (500)
Amount of trading income required for the Net Asset
Value per Unit at the end of one year to equal the
initial offering price............................... $ 750
Percentage of assumed initial offering price......... 7.50%
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(1) During the initial offering period, the Units will be offered at an initial
offering price of $1,000 ($950 per Unit, plus an initial sales charge of
$50 per Unit). Subsequent to the closing of the initial offering period,
unsold Units (if any) may be offered and sold by the Fund at the then
current Net Asset Value per Unit (as hereinafter defined), plus a sales
charge of 5% of the Net Asset Value per Unit for each Unit purchased. This
illustration assumes that an investor purchases 10 Units during the initial
offering period.
(2) The Fund has agreed to pay to the Advisor (i) a monthly management fee
equal 1/12 of 3.75% of the Net Asset Value per Unit (see "Certain
Definitions: 2. Net Asset Value per Unit", below) of the Fund's asset under
management at month's end with respect to Units purchased within the prior
twelve-month period and 1/12 of 1% of the Net Asset Value per Unit (as
defined below) of the Fund's assets under management at month's end with
respect to Units purchased more than twelve months prior thereto.
(3) The Fund will pay a monthly continuing services fee to the Selling Agent
and, through the Selling Agent, certain Selected Dealers who are
appropriately registered with the CFTC and/or the NFA and their respective
registered representatives equal to, in the aggregate, 1/12 of 1.25% of the
Net Asset Value per Unit (see "Certain Definitions: 2. Net Asset Value per
Unit", below) of the Fund's assets under management at month's end (without
reduction for distributions or redemptions effected as of such date or
management fees or incentive fees payable as of such date) with respect to
Units purchased within the prior twelve-month period and 1/12 of 4% of the
Net Asset Value per Unit of the Fund's assets under management at month's
end (without reduction for distributions or redemptions effected as of such
date or management fees or incentive fees payable as of such date) with
respect to Units purchased more than twelve months prior thereto.
(4) Estimated at approximately 1% of the average daily Net Asset Value of the
Fund per year based upon the historical trading patterns of the Advisor and
its principal(s).
(5) After trading operations commence, the Fund shall be obligated to pay
various periodic fees and expenses that are estimated at approximately
$95,000 per year (at current price levels). This would amount to
approximately 0.4% of the proceeds of the offering if the maximum number of
25,000 Units was sold during the initial offering period, and about 10%
thereof if the minimum number of 1,000 Units was sold. The General Partner
has agreed to supply and pay for such services as are deemed by the General
Partner to be necessary or desirable and proper for the continuous
operations of the Fund (excluding sales charges, continuing services fees,
management fees, incentive allocations, brokerage commissions and
extraordinary expenses) which are in excess of 0.5% of the average monthly
Net Asset Value of the Fund per annum. This illustration assumes operating
expenses in an amount equal to 0.5% of the average daily Net Asset Value of
the Fund per year.
-34-
(6) The Fund will charge an early redemption fee equal to 4% of the Net Asset
Value per Unit of the Units redeemed as of or before the end of the third
full calendar month after their purchase. This fee will decrease by one
percentage point for every three subsequent calendar months. Accordingly,
Units redeemed as of the end of or during the tenth, eleventh and twelfth
full calendar months after their purchase will be subject to a redemption
fee equal to 1% of the Net Asset Value of the Unit(s) redeemed. Thereafter,
no redemption fee will be charged. This illustration assumes a redemption
fee, therefore, of 1%.
(7) The Fund's assets, both those that are deposited to meet margin
requirements and those that are held in reserve, may be held in cash,
United States Treasury Bills or in any other form permissible under
applicable laws and regulations. The General Partner / Advisor currently
intends to cause the Fund to hold not less than 90% of such assets in
United States Treasury Bills; interest, if any, earned on such assets,
therefore, will inure to the benefit of the Fund. This illustration assumes
that the Fund will receive interest at the rate of 5% on the Fund's average
daily assets on deposit with The Chase Manhattan Bank, the Commodity Broker
and/or other banks and commodity brokers.
Certain Definitions
1. Net Asset Value. Net Asset Value means the Fund's total assets less
total liabilities determined, except as set forth below, on the basis of
generally accepted accounting principles for partnership accounting,
consistently applied. Net Asset Value will be calculated daily. For purposes of
this calculation:
(a) Net Asset Value shall include any unrealized profit or loss on
open securities and commodity interest positions.
(b) All open securities and commodity interest positions shall be
calculated at their then market value which means, with respect to open
commodity interest positions, the settlement price as determined by the
exchange on which the transaction is effected or the most recent
appropriate quotation as supplied by the clearing broker or banks through
which the transaction is effected, except that United States Treasury Bills
(but not futures contracts therefor) shall be carried at cost plus accrued
interest. If there are no trades on the date of the calculation due to the
operation of the daily price fluctuation limits or due to a closing of the
exchange on which the transaction is executed, the contract will be valued
at fair market value as determined by the General Partner. Interest, if
any, shall be accrued at least monthly.
(c) Brokerage commissions on open positions shall be considered
accrued in full (i.e., on a "round-turn" basis) as a liability of the Fund.
Management fees and incentive fees shall be accrued daily even though not
paid until month's end.
2. Net Asset Value per Unit. Net Asset Value per Unit means the Net Asset
Value divided by the number of units of general partnership interest and limited
partnership interest outstanding.
3. Advisory Profits. Advisory Profits (for purposes of calculating the
Advisor's incentive allocation only) during a calendar quarter means (i) the net
of profits and losses resulting from all commodity interest trades closed out by
the Advisor during such quarter, plus (ii) the net of any profits and losses on
commodity interest trades initiated by the Advisor and open as of the end of
such quarter (after deduction for accrued round-turn brokerage commissions),
minus (iii) the net of any profits and losses carried forward on open commodity
interest trades initiated by the Advisor and carried forward from the preceding
quarter
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(after deduction for accrued round-turn brokerage commissions), minus (iv) the
Advisor's "Carryforward Loss" (as defined in the following sentence), if any, as
of the beginning of the quarter. If the total of items (i) to (iv), above, is
negative at the end of a calendar quarter, such amount (reduced by the trading
loss attributable to redeemed Units, distributions and reallocations of assets
away from the General Partner, if any) shall be the Advisor's "Carryforward
Loss" for the next quarter.
In accordance with the foregoing formula, the Fund will allocate to the
Advisor an incentive allocation whenever it experiences Advisory Profits. If the
Advisor experiences Carryforward Losses thereafter, the Advisor will retain all
incentive allocations previously allocated, but no further incentive allocations
will be allocable until the Advisor recoups the Carryforward Losses (except
losses attributable to redeemed Units, distributions and reallocations of assets
away from the Advisor, if any) and incurs additional Advisory Profits. Thus, the
incentive allocation is allocable to the Advisor only on cumulative profits
earned by the Advisor. Upon termination or expiration of the Advisor's contract,
the Fund may employ other advisory services, the compensation for which may be
calculated without regard to any losses incurred by the Advisor, or the Fund may
renew its relationship with the Advisor on the same or different terms. In
addition, since the incentive allocation on Advisory Profits is calculated and
paid on a quarterly basis, the Fund may pay substantial incentive fees during
the year even though subsequent losses result in a yearly net loss for the Fund.
THE GENERAL PARTNER / ADVISOR
Description of the General Partner / Advisor
Shaffer Asset Management, Inc., a New York corporation organized on March
16, 1998, will act as the general partner and commodity trading advisor of the
Fund. The General Partner / Advisor is registered with the CFTC as a commodity
pool operator and commodity trading advisor, but such registrations do not imply
that the CFTC has reviewed or approved the accuracy of the information contained
in its application for registration or its qualifications to act as described in
this Prospectus and the accompanying Statement of Additional Information or that
the CFTC supervises the business activities engaged in by the General Partner /
Advisor. In addition, the General Partner / Advisor is a member of the NFA in
its capacities as a commodity pool operator and commodity trading adviser.
The General Partner / Advisor began managing commodity accounts for others
in March 1999. The General Partner / Advisor currently offers trading advice to
customers with respect to futures contracts that are traded on United States
agricultural, currency, energy, metals, United States Treasury and other
markets. As of September 30, 2000, the General Partner / Advisor had
approximately $2.6 million in assets under management. The trading results of
these individual accounts are separately set forth in Tables A and B under the
caption "Past Performance of the General Partner / Advisor". Although the
General Partner / Advisor is not currently organizing, and does not currently
sponsor, any other commodity pools, it does plan to organize and sponsor other
commodity pools in the future, both publicly and privately offered.
The offices of the General Partner / Advisor are located at 70 West Red Oak
Lane, White Plains, New York, New York 10604, and its telephone number is (800)
352-5265.
The background of the sole principal of the General Partner / Advisor is as
follows:
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Daniel S. Shaffer, age 39. Mr. Shaffer graduated from Syracuse University
in December 1982 with a Bachelor of Science in Speech Communications (major) and
Finance/Accounting (minor); he received a Master of Science in Accounting degree
from New York University in Accounting in June 1986. Mr. Shaffer currently is,
and have been the sole officer, director and shareholder of the General Partner
/ Advisor and Shaffer Consulting Group, Inc. (a life, disability and long-term
care insurance broker) since March 1998 and March 1997, respectively, and
currently is, and has been, a registered representative with the Selling Agent
since May 2000. Prior to that, Mr. Shaffer was a Manager with Metropolitan Life
Insurance Co. from July 1998 through March 2000; a registered representative
with Nathan & Lewis Securities, Inc. from July 1998 through May 2000; an agent
with Northwestern Mutual Financial Network and a registered representative with
Robert W. Baird & Co., Inc. from April 1989 through July 1998; a registered
representative with Hambrecht & Quist from March 1988 through April 1989; a
registered representative with Bear, Stearns & Co., Inc. from October 1987
through March 1988; a Senior Accountant with Aaron Gottesman, Public Accountants
from October 1986 through October 1987; a representative with Citicorp
Investment Services, Inc. from June 1986 through October 1986; an Internal
Auditor - Special Project with Dean Witter Reynolds from January 1986 through
June 1986; an Accountant / Auditor with Coopers & Lybrand from June 1984 through
January 1986; a registered representative and commodity broker with Bear,
Stearns & Company from February 1983 through June 1984; and an independent floor
trader on the New York Futures Exchange from January 1983 through February 1983.
Mr. Shaffer currently invests in commodity interests for his own account,
and he may continue to do so in the future.
There has never been any material civil, criminal or administrative action
pending, on appeal or concluded against the General Partner / Advisor or its
sole principal.
Duties of the General Partner
Under the terms of the Limited Partnership Agreement, the General Partner
is vested with exclusive responsibility for managing the business and affairs of
the Fund. Limited Partners will not participate in management decisions
affecting the Fund, and they will have no voice in the operation of the Fund. In
addition, the General Partner is responsible for the preparation and
distribution of monthly and annual reports to the Limited Partners; filing
reports required by the CFTC, the SEC and any other Federal or state agencies;
the calculation of the Net Asset Value of the Fund and the advisory fees;
determining whether the Fund will make distributions to the partners; selecting
an accountant and causing an annual audit of the Fund's business affairs;
executing documents on behalf of the Fund and on behalf of the Limited Partners
pursuant to the powers of attorney granted by the Limited Partners upon
execution of the Limited Partnership Agreement; and supervising the liquidation
of the Fund.
The General Partner will provide suitable facilities and procedures for
handling redemptions, transfers, distributions of profits (if any) and orderly
liquidation of the Fund. In addition, the General Partner will pay all operating
and other administrative expenses attributable to the Fund which are in excess
of 0.5% of the average monthly Net Asset Value of the Fund per annum, except for
sales charges, continuing services fees, management fees, incentive allocations,
brokerage commissions and extraordinary expenses, which expenses will be paid by
the Fund.
The General Partner shall cause the Advisor to close out all open positions
and suspend trading if the Net Asset Value per Unit (increased by the amount of
distribution, if any) on any business day during any given fiscal year decreases
to or below 50% of the Net Asset Value per Unit as of the beginning of the
fiscal year, provided that such 50% decrease results in a Net Asset Value per
Unit of less than $1,000,
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or if the Net Asset Value per Unit decreases on any business day to or below
$350. (See "Trading Policies"). In addition, the General Partner shall give
notice of the occurrence of such event within ten business days thereof.
Included in such notification shall be a description of the Limited Partners'
rights. (See "Limited Partnership Agreement - Reports and Accounting".)
Minimum Investment and Net Worth Requirements Imposed on the General Partner
The Limited Partnership Agreement provides that the General Partner must
make a capital contribution to the Fund equal to at least the greater of: (i) 1%
of the aggregate amount of capital contributions made to the Fund by the
partners (including the General Partner's capital contribution), or (ii)
$25,000. The application of this formula would require the General Partner to
purchase, in the aggregate, approximately 26.21 units of general partnership
interest in the event that the minimum number of 1,000 Units is sold and
accepted by the General Partner during the initial offering period and
approximately 249.63 units of general partnership interest in the event that the
maximum number of 25,000 Units is sold and accepted by the General Partner
during the initial offering period. The General Partner will pay $950 for each
unit of general partnership interest purchased by it during the initial offering
period (other than the initial unit of general partnership interest which was
purchased by the General Partner for $1,000), and thereafter a purchase price
equal to the Fund's then current Net Asset Value per Unit. The General Partner
will share Fund losses and profits with the Limited Partners pro rata to the
extent of its investment and will maintain its interest in the Fund so long as
it is acting as general partner of the Fund. However, the General Partner may
withdraw or receive a distribution of any portion of its interest in the Fund
that is in excess of its minimum investment requirement upon thirty days' prior
written notice to the Limited Partners.
Except as state above, neither the General Partner / Advisor, the Selling
Agent or the Commodity Broker nor any of their respective principals have
arranged or committed to purchase any Units but any of them may do so in the
future.
Under the Limited Partnership Agreement, the General Partner is obligated,
for so long as it continues to serve as the general partner of the Fund, to
maintain a net worth of at least the greater of (i) $50,000, or (ii) 5% of the
aggregate capital contributions made to the Fund by all the partners including
the General Partner's capital contributions. In addition, to the extent that the
General Partner serves as the general partner of any other limited partnership
in addition to the Fund, the Limited Partnership Agreement would require the
General Partner to maintain a net worth at least equal to the net worth required
by the preceding sentence plus, for each such additional limited partnership, an
amount equal to 5% of the total capital contributions made to such other limited
partnership by all partners including the General Partner. Notwithstanding the
foregoing, the General Partner's net worth need not exceed $1,000,000. The
calculation of the General Partner's net worth shall be based upon fair market
values from time to time, shall exclude its interest in the Fund or any other
limited partnership of which it is a general partner, and shall otherwise be
determined in accordance with generally accepted accounting principles. (See the
Limited Partnership Agreement attached as Exhibit A to the Statement of
Additional Information that accompanies this Prospectus.)
Daniel S. Shaffer, the sole officer, director and shareholder of the
General Partner / Advisor, and Bruce B. Greenberg, an employee of the General
Partner, have undertaken, jointly and severally, to provide the General Partner
with capitalization sufficient to meet such net worth requirements at the time
of the closing of the initial and any subsequent offering of Units and the
closing of the offering of interests in any other limited partnerships for which
the General Partner acts as general partner. In addition, each of them has
agreed not to make any withdrawal of capital from the General Partner that would
cause the General Partner to have an aggregate net worth less than that which
they have agreed, jointly and severally, to provide at the time of such
closings.
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Trading Philosophy and Methods of the Advisor
Commodity traders generally rely on either fundamental or technical
analysis or a combination thereof in making trading decisions and attempting to
identify price trends. Fundamental analysis looks at factors external to the
trading market that affect the supply and demand of a particular commodity in
order to predict future prices. As an example, some of the fundamental factors
that affect the supply of a commodity such as corn include the acreage planted,
crop conditions such as drought, flood and disease, strikes affecting the
planting, harvesting and distribution of the commodity, and the previous year's
crop carryover. The demand for commodities such as corn consists of domestic
consumption and exports and is a product of many things, including general world
economic conditions, as well as the cost of corn in relation to the cost of
competing products such as soybean meal. Technical analysis is not based on the
anticipated supply and demand of the cash (actual) commodity; instead, it is
based on the theory that a study of the markets themselves will provide a means
of anticipating future prices. Technical analysis of the markets often includes
a study of the actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest utilizing charts and/or computers for
analysis of these items and other technical market data.
The Advisor will make commodity trading decisions for the Fund pursuant to
trading strategies that include technical trend analysis and technical trading
principles as described below. The principal objective of the trading strategies
is to participate in major, sustained price movements in the commodities traded.
The principal technical trading strategies used by the Advisor to generate
signals for buy and sell points for the various commodities traded have been
developed through actual trading experience, and through computer testing
against historical commodity futures trading data. Given trends in price of
sufficient duration and magnitude, the trading methods employing such strategies
may be profitable even though more than half of all individual trades are
unprofitable; however, a period of time without such trends may result in
substantial losses.
The theoretical buy and sell points generated by technical analysis are
approximate levels, and as such will require the judgment of the Advisor to
translate the information in actual orders. Furthermore, decisions whether to
trade a particular commodity futures contract are based upon various factors,
including liquidity, significance in terms of desired degrees of concentration
and diversification and profit potential, both historical and at a given time.
These decisions will also require the exercise of judgment by the Advisor. The
decision not to trade certain commodities for certain periods, or to reduce the
number of contracts traded in a particular commodity, may result at times in
missing significant profit opportunities which otherwise would be captured by
technical strategies.
The Advisor's analyses are based generally on technical systems that
attempt to detect trends in price movements. All successful speculative
commodity trading depends upon establishing a position and then maintaining that
position while the market moves in favor of the commodity trader. The trading
system of the Advisor, like all technical systems, seeks to establish such
positions and to exit the market when the favorable trend either reverse or does
not materialize. No such system will be successful if the price trend is adverse
to the direction detected by each of the systems or if the market is moving in
an erratic and non-trending manner. Since turning points and reverses in price
movements in the commodity futures markets are generally not predictable and
since commodity futures price trends may be short lived, market position entry
point signals may be given by the systems at or near the end of a price trend.
If the market reverses itself shortly after the trader establishes a position,
sizeable losses may be incurred before the exit price signal is reached. The
possibility exists that a brief market reversal, which is only a temporary
deviation from a long-term price trend, may trigger an exit signal that would
prevent the trader
-39-
from realizing any profits from the long-term price movement. Additionally, such
an interim reversal of price trend could conceivably generate a system entry
signal to establish an opposite market position, which means that the system
would be completely misinterpreting the trend of the market. System
misinterpretations of brief changes and reversals in market price trends may
cause the Fund to incur trading losses and to pay brokerage commissions on
numerous trades that, in retrospect, may appear to have been unnecessary.
Subject to the limitations on commodities to be traded and the Fund's
trading policies, the Advisor may refine or alter its trading methods from time
to time, including, without limitation, trading systems, commodity futures
contracts and markets traded, and trading principles, without approval by the
Limited Partners, if the Advisor determines that such change in methods is in
the best interests of the Fund.
No assurance is given that trades of the Fund implemented in reliance upon
the Advisor's trading methods will result in profits to the Fund or that such
methods will in fact accomplish their intended objectives or reduce the Fund's
risk of loss.
Past Performance of the Advisor
Table A, below, sets forth the unaudited composite trading results of all
accounts managed by the Advisor from March 1999 to September 30, 2000. The
number of accounts managed by the Adviser totaled 1, 11 and 19 in March 1999,
December 1999 and as at September 30, 2000, respectively. Through September 30,
2000, 18 of such accounts showed net gains and 2 showed net losses. The profit
made by these accounts showing net gains amounted to approximately $567,223, and
the losses incurred by those account showing net losses amounted to
approximately $5,929. As of September 30, 2000, one account had been closed with
a net gain of approximately $7,918.
Applicable CFTC regulations require disclosure of the "rate of return" for
each month of all accounts managed by the Advisor or its principal(s). The
method of calculation mandated by the CFTC is necessarily subject to potential
distortions due to the fact that such method does not account for additions and
withdrawals that may occur during the month for which the calculation is made.
It should be noted that there are other methods of calculating rate of return
and, because of the differences among such methods, the percentage results may
vary. The rates of return indicated should not be taken as representative of any
rate actually earned by any of the accounts included in Table A or as being
indicative of any return the Fund may earn in the future.
Table B, below, presents a comparison of the actual brokerage commissions
and advisory fees charged to the accounts whose performance is set forth in
Table A to the "pro forma" amounts of such charges which would have been imposed
on these accounts if they had been charged the commissions, fees and allocations
proposed to be charged to the Fund. The bases upon which the pro forma amounts
were computed are discussed in the notes to Table B.
The information included in Tables A and B, below, has not been audited
but, in the opinion of the Advisor, such information, other than the pro forma
results, fairly presents the performance of the accounts managed by the Advisor
for the periods shown.
The results set forth in Table A, below, are not indicative of the results
that may be achieved by the Advisor since past results are not determinative of
future results. No representation is being made that the Fund will or is likely
to achieve profits similar to those shown. The composite results set forth in
Table A are based upon individual accounts and commodity pool accounts managed
by the Advisor during the periods shown. Table A does not reflect the actual
performance of any one account.
-40-
Accordingly, investors in specific accounts included in the composite figures
may have had more or less favorable results than Table A indicates. All accounts
advised by the Advisor do not in all instances, have parallel performance due to
different times of market entry and varying amounts of capital. For example,
larger account size may have effects on particular trading decisions, such as
the relative size of positions taken, degree of diversification and particular
commodity interests traded. In addition, the performance of each account
included in the composite figures has varied depending upon the size of the
investment, the date the account started trading and the length of time the
account was open. Such results are presented on a composite basis rather than
account-by-account, and each account's experience may differ from the composite
figures shown. The fees and brokerage commissions charged to the Fund may differ
from the fees and brokerage commissions actually charged to these accounts, and
the commission rate charged to the Fund may also change in the future. In
addition, because the Advisor has modified its trading methods in the past and
will continue to modify its trading methods in the future, the results shown in
Table A do not necessarily reflect the trading methods which will be used by the
Advisor on behalf of the Fund. It should also be noted that the aggregate value
of the Fund's account will constitute a significant increase in the assets under
the Advisor's control if all or a substantial number of the Units being offered
are sold. Apart from the effects of a large account size on particular trading
decisions, such as the time of entry of orders, the relative size of positions
taken, degree of diversification and particular commodities traded, the size of
the Fund's assets may affect generally the design and execution of the Advisor's
trading methods. Past results are no guarantee of future results, and no
representation is made that the Fund will, or is likely to, achieve results
similar to those shown.
THE DATA SET FORTH BELOW IS NOT INDICATIVE OF AND HAS NO BEARING ON ANY
RESULTS WHICH MAY BE ATTAINED BY THE FUND OR THE ADVISOR IN THE FUTURE. THE
ADVISOR'S SYSTEM HAS EVOLVED OVER THE YEARS BASED ON ACCUMULATED EXPERIENCE AND
FURTHER TESTING OF DATA. AN ACCOUNT TRADED PURSUANT TO THE ADVISOR'S CURRENT
TRADING SYSTEM WOULD NOT HAVE EXPERIENCED THE SAME RESULTS REFLECTED IN THE
TABLE DUE TO DIFFERENCES IN BROKERAGE COMMISSIONS AND MANAGEMENT AND INCENTIVE
FEES AND CHANGES IN SAM'S TRADING SYSTEM, INCLUDING THE SIZE OF POSITIONS TAKEN
IN RELATION TO ACCOUNT SIZE AND THE DEGREE OF DIVERSIFICATION IN TERMS OF THE
NUMBER OF COMMODITY INTERESTS TRADED AT A PARTICULAR TIME AND DIFFERENCES IN
COMMODITY INTERESTS TRADED.
-41-
TABLE A
COMPOSITE PERFORMANCE RECORD OF ACCOUNTS
MANAGED BY SHAFFER ASSET MANAGEMENT, INC.
BASED UPON NOMINAL CLIENT ACCOUNTS
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross Net Change in
Beginning Beginning Realized Realized Unrealized Change in Trading
Equity Equity Additions Withdrawals Profit Brokerage Profit Interest Profit Accrued Advisor's
Actual Nominal Nominal Nominal (Loss) Commissions (Loss) Income (Loss) Commission Fees
(1a) (1b) (2) (3) (4) (5) (6) (7) (8) (9) (10)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Mar 0 0 50,000 0 (457) 687 (1,144) 0 7,859 (269) 1,289
Apr 55,156 55,156 100,000 0 3,539 818 2,720 138 23,011 (1,139) 4,918
May 174,969 174.969 50,096 0 20,170 2,531 17,639 317 (15,741) 86 396
Jun 226,970 226,970 300,000 0 (31,771) 4,148 (35,919) 696 35,020 (383) 391
Jul 525,992 525,992 0 0 80,573 4,829 75,743 1,515 (2,308) 38 14,047
Aug 586,935 586,935 150,176 0 (7,240) 5,670 (12,910) 1,692 (77,523) (1,756) (12,202)
Sep 658,816 658,816 100,000 0 (141,163) 6,939 (148,102) 1,833 352,312 (862) 34,433
Oct 929,563 929,563 0 0 237,117 7,754 229,363 2,511 (336,406) 3,252 0
Nov 828,285 828,285 100,360 0 33,138 10,200 22,937 2,195 161,278 (4,193) 15,246
Dec 1,095,616 1,095,616 160,000 0 (38,950) 10,173 (49,124) 2,857 11,661 605 (7,173)
2000
Jan 1,228,789 1,228,789 69,315 0 43,202 6,456 36,745 3,000 52,298 221 17,655
Feb 1,372,714 1,372,714 90,000 58,094 109,649 6,059 103,590 4,569 (47,633) 563 11,428
Mar 1,454,282 1,454,282 200,000 0 31,032 10,674 20,358 5,150 (151,837) 50 (21,368)
Apr 1,549,373 1,549,373 120,000 14,651 (47,630) 6,703 (54,334) 5,436 136,061 (1,373) 12,437
May 1,728,073 1,728,073 450,000 0 111,704 12,350 99,353 6,908 (10,093) 595 17,454
Jun 2,157,382 2,257,382 0 0 72,829 9,201 63,628 7,122 49,488 494 21,903
Jul 2,256,213 2,356,213 0 0 (27,036) 4,989 (32,025) 7,503 (34,379) (371) 0
Aug 2,196,941 2,296,941 167,451 0 211,841 14,228 197,612 7,980 41,652 1,157 34,832
Sep 2,577,964 2,677,964 0 0 66,394 11,338 55,055 10,792 (171,810) 2,387 (21,558)
Oct 2,495,948 2,595,948 0 102,732 (414,029) 11,769 (425,798) 8,932 59,380 (2,554) 0
Nov 2,033,175 2,133,175 0 50,716 (43,911) 9,425 (53,337) 7,722 17,912 (1,813) 0
Dec 1,952,942 2,052,942 75,000 0 239,837 9,908 229,929 6,314 231,069 690 15,984
- ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------
Monthly
Other Net Ending Rate of
Expenses Performance Equity Return Index
(11) (12) (13) (14) (15)
- -------------------------------------------------------
1,000
0 5,156 55,156 10.31% 1,103
0 19,812 174,969 12.77% 1,244
0 1,904 226,970 0.85% 1,255
0 (977) 525,992 (0.19)% 1,252
0 60,942 586,935 11.59% 1,397
0 (78,295) 658,816 (10.62)% 1,249
0 170,747 929,563 22.50% 1,530
0 (101,278) 828,285 (10.90)% 1,363
0 166,971 1,095,616 19.21% 1,625
0 (28,826) 1,228,789 (2.41)% 1,586
1999 Compounded Rate of Return (16) 58.59%
0 74,610 1,372,714 5.92% 1,680
0 49,661 1,454,282 3.54% 1,739
0 (104,908) 1,549,373 (6.47)% 1,627
0 73,351 1,728,073 4.45% 1,699
0 79,309 2,257,382 3.21% 1,754
0 98,830 2,356,213 4.30% 1,829
0 (59,272) 2,296,941 (2.64)% 1,781
0 213,571 2,677,964 8.64% 1,935
0 (82,015) 2,595,948 (2.97)% 1,877
0 (360,040) 2,133,175 (14.43)% 1,606
0 (29,516) 2,052,942 (0.98)% 1,591
0 452,018 2,579,912 22.10% 1,942
2000 Compounded Rate of Return (16) 22.46%
- -------------------------------------------------------
-42-
Notes to Table A
A summary of the significant accounting policies, which have been followed
in preparing the accompanying Table A, above, is set forth below. The
performance represents the actual performance of accounts managed by the
Advisor.
The Advisor uses a method of computing rate of return and performance
disclosure, referred to as the "Fully-Funded Subset" method, pursuant to an
advisory entitled "Computation and Presentation of Rate-of-Return Information
and Other Disclosures Regarding Partially Funded Accounts Managed by Commodity
Trading Advisors" dated February 8, 1993 published by the CFTC (the "CFTC
Advisory"). To qualify for use of the Fully-Funded Subset method, the CFTC
Advisory requires that certain computations be made in order to arrive at the
Fully-Funded Subset and that the accounts for which the performance is so
reported meet two tests which are designed to provide assurance that the
Fully-Funded Subset method and the resultant rates of return are representative
of the trading program.
(1a) "Beginning Equity - Actual" equals the "Ending Equity" of the prior
period (except for the first period shown (March 1999) which
represents the total equity of all accounts managed by the Advisor on
that date), excluding notional amounts (i.e., amounts that exceed the
amount of actual funds traded).
(1b) "Beginning Equity - Nominal" equals "Ending Equity" (except for the
first period shown (March 1999) which represents the total equity of
all accounts managed by the Advisor on that date).
(2) "Additions - Nominal" equals the amount of all additions to the
account(s) each month, other than through sources of income, and are
comprised of cash and committed and notional funds.
(3) "Withdrawals - Nominal" equals the amount of all withdrawals,
redemptions, distributions and account terminations each month, other
than through sources of expense, and are comprised of cash, committed
and notional funds.
(4) "Gross Realized Profit (Loss)" is the gross realized gain (loss),
before brokerage commissions and Other Expenses, on all commodity
futures transactions closed out during the month.
(5) "Brokerage Commissions" are recognized on an accrual basis and
represent the total amount of all commissions charged per "round-turn"
trade by the applicable futures commission merchant(s) on all
commodity futures transactions closed out during the month, plus
certain other charges, including exchange fees and the fees and
charges of certain self-regulatory organizations.
(6) "Net Realized Profit (Loss)" equals "Gross Realized Profit (Loss)"
minus "Brokerage Commissions".
(7) "Interest Income" is recognized on an accrual basis and represents
interest earned on U.S. Government obligations, if any, held as margin
in the trading account(s), and/or interest earned, if any, on balances
at the futures commission merchant.
(8) "Increase (Decrease) in Unrealized Profit (Loss)" represents the total
increase (decrease) in the unrealized profit or loss on open commodity
positions at the end
-43-
of the month as compared with the end of the previous month.
Unrealized gains (losses) on futures contracts are calculated at the
end of each month based on contract sizes and the differences between
the commodity futures contract closing price and the price at which
the contract was initially purchased or sold.
(9) "Change in Accrued Commission" represents the total increase
(decrease) from open commodity positions brokerage commissions
recognized on an accrual basis and represent the commissions charged
per round-turn by the futures commission merchant plus charges by
certain exchanges and self-regulatory organizations.
(10) "Trading Advisor's Fee" represents the amount of all paid and accrued
asset based management and performance based incentive fees charged to
the account(s) in accordance with the applicable advisory
agreement(s).
(11) "Other Expenses" represents other charges to the account(s) presented
on an accrual basis.
(12) "Net Performance" equals "Net Realized Profit (Loss)" plus "Increase
(Decrease) in Unrealized Profit (Loss)" plus "Interest Income" minus
"Trading Advisor's Fee" and "Other Expenses".
(13) "Ending Equity" equals "Beginning Equity - Nominal" plus "Additions -
Nominal" minus "Withdrawals - Nominal" plus or minus "Net
Performance".
(14) "Monthly Rate of Return" for each period is computed by dividing "Net
Performance" of the Fully-Funded Subset by the "Beginning Equity" of
the Fully-Funded Subset, except in periods of significant "Additions -
Nominal" or Withdrawals - Nominal" to the account(s) in the
Fully-Funded Subset. In such instances, the Fully-Funded Subset is
adjusted to exclude accounts with significant "Additions - Nominal" or
"Withdrawals - Nominal" which would materially change the rate of
return pursuant to the Fully-Funded Subset method.
The period rates of return for accounts excluded from the Fully-Funded
Subset will often be different from the rate of return for the
Fully-Funded Subset. Accounts not included in the Fully-Funded Subset
for any particular period may include: accounts opened or closed
during the period or accounts which are being phased into the program
and, consequently, do not have a complete set of positions that the
other accounts in the program have. The rates of return for these
excluded accounts may be significantly higher or lower than the rate
of return for the Fully-Funded Subset.
(15) "Index" represents the estimated change in Net Asset Value of an
initial $1,000 deposit at the end of each period shown assuming that
such deposit remained invested without additions, withdrawals or
distributions through the periods covered by Table A. The calculations
were derived by multiplying the "Rate of Return" (carried out to two
decimal places) by $1,000 initially, and continuing month by month.
The performance of this initial $1,000 deposit does not represent the
actual performance of any particular account and is included for
informational purposes only. In addition, "Index" may not be an
accurate
-44-
indicator of performance since it assumes a continuous investment
throughout the period with no subsequent additions, withdrawals or
distributions.
(16) "Compounded Rate of Return" is listed below the final Monthly Rate of
Return for each calendar period presented. It represents the
compounded rate of return for each year or portion of the year
presented. It is computed by applying successively the respective
Monthly Rate of Return for each month beginning with the first month
of that calendar period. Compounded Rate of Return may not be an
accurate indicator of performance since it assumes a continuous
investment throughout the period with no subsequent additions,
withdrawals or distributions of accumulated profits.
-45-
TABLE B
PRO FORMA BROKERAGE COMMISSIONS AND ADVISORY FEES
Brokerage Commissions Management and Incentive Fees / Allocations
- -------------------------------------------------------------------------------------------------------------------
Actual Over Actual Over
(Under) Pro (Under) Pro
Period Actual (1) Pro Forma (2) Forma (3) Actual (4) Pro Forma (5) Forma (6)
- -------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------
Mar 956 621 335 1,289 783 506
- -------------------------------------------------------------------------------------------------------------------
Apr 1,957 1,272 685 4,918 3,551 1,367
- -------------------------------------------------------------------------------------------------------------------
May 2,445 1,589 856 396 697 (301)
- -------------------------------------------------------------------------------------------------------------------
Jun 4,531 2,945 1,586 391 (665) 1,056
- -------------------------------------------------------------------------------------------------------------------
Jul 4,791 3.114 1,677 14,047 13,061 986
- -------------------------------------------------------------------------------------------------------------------
Aug 7,426 4,827 2,599 (12,202) (12,782) 580
- -------------------------------------------------------------------------------------------------------------------
Sep 7,801 5,071 2,730 34,433 33,026 1,407
- -------------------------------------------------------------------------------------------------------------------
Oct 4,502 2,926 1,576 0 (12,779) 12,779
- -------------------------------------------------------------------------------------------------------------------
Nov 14,393 9,355 5,038 15,246 30,061 (14,815)
- -------------------------------------------------------------------------------------------------------------------
Dec 9,568 6,219 3,349 (7,173) (2,617) (4,556)
- -------------------------------------------------------------------------------------------------------------------
Total 58,370 37,941 20,430 51,345 52,335 (990)
- -------------------------------------------------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------------------------------------------------
Jan 6,235 4,053 2,182 17,655 17,506 149
- -------------------------------------------------------------------------------------------------------------------
Feb 5,496 3,572 1,924 11,428 12,827 (1,399)
- -------------------------------------------------------------------------------------------------------------------
Mar 10,624 6,906 3,718 (21,368) (16,157) (5,211)
- -------------------------------------------------------------------------------------------------------------------
Apr 8,076 5,249 2,827 12,437 31,800 (19,363)
- -------------------------------------------------------------------------------------------------------------------
May 11,755 7,641 4,114 17,454 17,832 (378)
- -------------------------------------------------------------------------------------------------------------------
Jun 8,707 5,660 3,047 21,903 25,123 (3,220)
- -------------------------------------------------------------------------------------------------------------------
Jul 5,360 3,484 1,876 0 (2,129) 2,129
- -------------------------------------------------------------------------------------------------------------------
Aug 13,071 8,496 4,575 34,832 43,870 (9,038)
- -------------------------------------------------------------------------------------------------------------------
Sep 8,951 5,818 3,133 (21,558) (8,833) (12,725)
- -------------------------------------------------------------------------------------------------------------------
Oct 14,323 9,310 5,013 0 (47,549) 47,549
- -------------------------------------------------------------------------------------------------------------------
Nov 11,238 7,305 3,933 0 1,779 (1,779)
- -------------------------------------------------------------------------------------------------------------------
Dec 9,218 5,992 3,226 15,984 77,379 (61,395)
- -------------------------------------------------------------------------------------------------------------------
Total 113,054 73,485 39,569 88,767 153,448 (64,681)
- -------------------------------------------------------------------------------------------------------------------
Notes to Table B
(1) "Brokerage Commissions (Actual)" represents the actual brokerage
commissions charged to the accounts included in Table A.
(2) "Brokerage Commissions (Pro Forma") represents brokerage commissions which
would have been paid each month if the rates that will initially be charged
to the Fund (see "Commodity Brokerage Arrangements") had actually been
charged to the accounts included in Table A.
(3) "Brokerage Commissions (Actual Over (Under) Pro Forma)" represents the
amounts by which actual brokerage commissions after greater (less) than the
pro forma. When these amounts are positive, the pro forma brokerage
commissions are less than the actual and thus favorable in comparison with
the corresponding amount paid by the accounts included in Table A.
-46-
(4) "Management and Incentive Fees / Allocations (Actual)" represents the
actual management and incentive fees paid by the accounts included in Table
A.
(5) "Management and Incentive Fees / Allocations (Pro Forma)" represents the
total management fees and incentive allocations which would have been
payable and allocable by the accounts if they had been charged the advisory
fees which will be applicable to the Fund. Pro forma management fees are
equal to 1/12 of 3.75% of the Net Asset Value per Unit of the Fund's asset
under management at month's end with respect to Units purchased within the
prior 12-month period and 1/12 of 1% of the Net Asset Value per Unit of the
Fund's assets under management at month's end with respect to Units
purchased more than twelve months prior thereto, and pro forma incentive
allocations are equal to 15% of "Advisory Profits" in each quarter.
"Advisory Profits" for these purposes are deemed to be the "Net Realized
and Unrealized Gain" (if any) for the quarter from Table B minus cumulative
"Net Realized and Unrealized Gain", if any (reduced by any trading losses
attributable to amounts withdrawn), carried forward from all preceding
quarters since the last quarter for which an incentive allocation was
accrued. For purposes of the pro forma computations, cash deposits and
withdrawals were deemed to occur at the end of each month after
computations of the management fee for such month. "Brokerage Commissions
(Pro Forma)" were not taken into account in determining "Pro Forma Advisory
Fees".
(6) "Management and Incentive Fees / Allocations (Actual Over (Under) Pro
Forma)" represents the amount by which actual advisory fees are greater
(less) than the pro forma. When these amounts are positive, the pro forma
advisory fees are less than the actual and thus favorable in comparison to
the corresponding amounts paid by the accounts included in Table A.
-47-
COMMODITY BROKERAGE ARRANGEMENTS
General
Under the Limited Partnership Agreement, the General Partner is responsible
for selecting the Fund's commodity broker(s) and has selected ADM Investor
Services, Inc. (the "Commodity Broker") to act as the Fund's initial commodity
broker. In this regard, the Fund has entered into a non-exclusive brokerage
agreement with ADM that is terminable by the Fund or the Commodity Broker on
sixty days' prior written notice. From time to time, the General Partner may
engage another or one or more additional firms to act as the Fund's commodity
broker, although it has no current intention to do so.
Description of the Commodity Broker
The Commodity Broker is a Delaware corporation and wholly owned subsidiary
of Archer Daniels Midland Company. Through its branch office and introducing
broker network, the Commodity Broker is engaged primarily in providing
individual and institutional clients with services in connection with the
purchase and sale of commodity interests throughout the United States and in
many foreign countries. The Commodity Broker is a clearing member of the Chicago
Board of Trade; the Chicago Merchantile Exchange; the New York Merchantile
Exchange and the Commodity Exchange; the New York Board of Trade; the
Minneapolis Grain Exchange; and the London International Financial Futures
Exchange.
The Commodity Broker is registered with the CFTC as a futures commission
merchant. Such registration does not imply, however, that the CFTC has approved
the accuracy of the information contained in the Commodity Broker's application
for registration or the qualifications of the Commodity Broker to act as a
futures commission merchant, or that the CFTC supervises the business activities
engaged in by the Commodity Broker. The Commodity Broker is also a member of the
NFA.
The Commodity Broker's principal offices are located at 1600A Board of
Trade Building, 141 West Jackson Boulevard, Chicago, Illinois 60604, and its
telephone number is (312) 435-7000.
Civil, Criminal and Administrative Actions
CFTC Notice of Intent to Revoke, Suspend or Restrict Registration. On May
16, 1997, the CFTC filed a notice of intent to revoke, suspend or restrict the
registration of the Commodity Broker as a futures commission merchant based upon
a 1996 conviction of the Commodity Broker's parent company, Archer Daniels
Midland Company ("Archer Daniels Midland"), for violations of the Sherman
Antitrust Act. Specifically, Archer Daniels Midland pled guilty on October 15,
1996 to charges that it participated in a conspiracy to fix the prices of lysine
and citric acid. As part of its guilty plea, Archer Daniel Midland agreed to pay
fines totaling $100 million.
In connection with the CFTC's proceeding against the Commodity Broker, the
Commodity Broker accepted an offer of settlement that placed various
restrictions on the Commodity Broker's registration as a futures commission
merchant. In particular, the Commodity Broker is prohibited from (i) employing
any person who was directly or indirectly involved in the conduct of Archer
Daniels Midland in the alleged conspiracy, and (ii) employing any person who was
employed by Archer Daniels Midland for a period of four years, except for the
current president of the Commodity Broker. In addition, the Commodity Broker is
required to conduct a weekly review of all trading activities conducted by or on
behalf of Archer Daniels Midland for consistency with the CE Act and CFTC
regulations. The Commodity Broker has advised the General Partner / Advisor that
(i) the Commodity Broker was not cited by the CFTC for any alleged or actual
violations of the CE Act or rules and regulations promulgated
-48-
by the CFTC thereunder, (ii) the CFTC's action against the Commodity Broker was
based entirely on the fact that the Commodity Broker was a subsidiary of Archer
Daniels Midland, and (iii) the proceeding has not had, and is not expected to
have, a material adverse effect on the activities of ADM as a futures commission
merchant.
Other Actions. The Commodity Broker is currently a defendant in certain
lawsuits incidental to its commodities business. The Commodity Broker has
advised the General Partner / Advisor that such actions have not had, and are
not expected to have, a material adverse effect on the activities of the
Commodity Broker as a futures commission merchant.
Other than the foregoing actions, there have been no material civil,
criminal or administrative actions pending, on appeal or concluded against the
Commodity Broker or any of its principals during the past five years.
Description of Brokerage Arrangements
Upon the successful completion of the initial offering, the Fund will open
a commodity trading account with the Commodity Broker pursuant to a brokerage
agreement entered into with the Commodity Broker. Under that agreement, all
assets and credits carried for the Fund will be subject to a general lien to
discharge its trading obligations; the margins required to initiate or maintain
open positions may be increased or decreased at any time at the discretion of
the Commodity Broker; open positions may be liquidated or new positions may be
rejected if, in the discretion of the Commodity Broker, the margin is deemed
insufficient or is required by the emergency rules of any exchange; and reports
of trading become conclusive if no written objection thereto is made within
stated times. The brokerage agreement also provides that the Commodity Broker
and its stockholders, directors, officers, employees, and affiliates shall not
be liable to the Fund, its partners, or any of their successors or assigns
except for acts or omissions taken or omitted to be taken by them in their
capacities as brokers for the Fund if such acts or omissions involved gross
negligence or willful, wanton or reckless misconduct. In addition, the brokerage
agreement also provides that the Fund shall indemnify the Commodity Broker and
its stockholders, directors, officers, employees and affiliates against any or
all losses, liabilities, costs, damages, expenses (including, without
limitation, attorneys' and accountants' fees and disbursements), judgments and
amounts paid in settlement (collectively, "Losses") incurred or suffered by any
of them in connection with or relating to their performance of services to the
Fund unless such Losses resulted from the gross negligence or willful, wanton or
reckless misconduct of the Commodity Broker or its stockholders, directors,
officers, employees or affiliates. The Commodity Broker will provide various
services to the Fund with respect to the execution, clearance and confirmation
of transactions on behalf of the Fund, but will receive direction and
instructions in this regard from the Advisor and/or the Advisor's employees or
agents. The brokerage agreement provides that, under no circumstances shall the
Commodity Broker accept any responsibility for verifying that any of such
instructions are in conformance with the Advisor's authority and the Commodity
Broker will not undertake to monitor the actions of the Advisor in this regard
to ensure that such actions are not contrary to the provisions of this
Prospectus, the accompanying Statement of Additional Information or any related
agreements or any subsequent amendments thereto. No indemnification of the
General Partner / Advisor or its affiliates is permitted for Losses resulting
from a violation by the General Partner / Advisor or any of its affiliates of
the Securities Act of 1933 or of any applicable state securities laws in
connection with the Registration Statement or the sale of Units. The Fund (or
the Limited Partners) or the other parties
-49-
thereto may terminate the brokerage agreements and close the Fund's commodity
accounts at any time on sixty days prior notice.
The Fund will initially pay brokerage commissions to the Commodity Broker
at the rate of $17 per "round-turn" for trades executed on domestic exchanges.
Based upon the rate of the brokerage commissions to be charged the Fund and the
anticipated trading patterns of the Advisor, the Fund may pay brokerage
commissions totaling 1% or more of its average annual Net Asset Value. There is
no agreement to limit such commission charges to any particular level. The
Commodity Broker will maintain the Fund's assets in segregated accounts as
required by CFTC regulations.
CFTC regulations permit brokers to retain interest earned on customer
funds. Many brokers permit accounts above a certain size to have a portion of
their funds held in the form of interest-bearing obligations (such as United
States Treasury Bills), thereby enabling such accounts to earn interest on
assets being used for trading. This advantage would not generally be extended to
individuals unless substantially more than the minimum investment required by
the Fund was committed to commodity trading. The Fund's assets, both those that
are deposited to meet margin requirements and those that are held in reserve,
may be held in cash, United States Treasury Bills or in any other form
permissible under applicable laws and regulations. The General Partner / Advisor
currently intends to cause the Fund to hold not less than 90% of such assets in
United States Treasury Bills; interest, if any, earned on such assets,
therefore, will inure to the benefit of the Fund.
The General Partner will review the terms of the brokerage agreement at
least annually and determine to the extent possible the brokerage commission
rates charged by other brokers to other public commodity funds whose size and
management structure is comparable to that of the Fund as a factor in
determining that the commission rates paid by the Fund continue to be fair and
reasonable in light of the services the Fund receives from the Commodity Broker
(and generally from their affiliates) including, among others, execution
services. Investors should note that, notwithstanding the foregoing, the Fund
may pay brokerage commission rates exceeding rates which are otherwise
available. Commission rates proposed for the Fund, as well as those currently
charged to most other public commodity pools by other commodity brokers (to the
best of the General Partner's knowledge), are ultimately based upon the
scheduled retail commission rates charged by most major commodity brokerage
houses to regular public customers. While the rates charged to the Fund
ostensibly represent a discount from those scheduled rates, the rates charged to
the Fund (and other public commodity pools) may exceed the lowest rates
negotiable with the Commodity Broker or certain other brokers by an account as
large as the Fund's account (see "Conflicts of Interest and Fiduciary
Responsibility of the General Partner").
PLAN OF DISTRIBUTION
The Offering
The Units will be offered for sale on a best efforts basis by the Fund
through Berthel Fisher & Company Financial Services, Inc., an Iowa corporation
(the "Selling Agent"). The Selling Agent may select other member firms of the
NASD and certain foreign dealers that agree in making sales of Units to abide by
the NASD Rules of Fair Practice to participate in this offering. This offering
may be terminated at any time by agreement of the General Partner and the
Selling Agent.
The initial offering of Units will be made at a purchase price of $950 per
Unit, plus an initial sales charge of $50 per Unit, for a period of sixty days
after the date of this Prospectus (subject to a possible extension of the
offering period for up to sixty days at the election of the General Partner). At
the end of the initial offering period, if the minimum of 1,000 Units has been
sold and accepted by the General
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Partner, the Fund may commence trading. Subsequent to the initial offering
period, the Fund may continue to sell unsold Units (if any) as of the last
business day of each calendar month. The purchase price for such Units will be
the then current Net Asset Value per Unit as of the close of business on the
last business day of each calendar month, plus a sales charge of 5% of the Net
Asset Value per Unit for each Unit purchased.
At all times, subscribers must purchase a minimum of $10,000 in Units
(initially 10 Units), except that a minimum of $5,000 in Units (initially 5
Units) may be purchased through pension, profit-sharing or other employee
benefit plan qualified under Section 401 of the Internal Revenue Code, IRAs,
Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee Pension - IRA plans
and retirement and deferred compensation and annuity plans and trusts used to
fund those plans, including but not limited to, those defined in Sections
401(a), 403(b) or 457 of the Internal Revenue Code. In some states, greater
minimum purchase requirements may be applicable. Purchases by investors and
their spouses and by entities (including retirement plan trusts) which are
legally or beneficially owned in their entirety by investors and/or their
spouses shall be aggregated for purposes of meeting the minimum purchase
requirements. Fractional Units may be sold by the Fund.
If at least 1,000 Units are sold and accepted by the General Partner during
the initial offering period, approximately 20% of all sales charges shall be
paid to the General Partner to reimburse the General Partner for the payment by
the General Partner of the Fund's organizational, initial offering and operating
expenses payable by the General Partner and approximately 80% of all sales
charges shall be paid as syndication fees to the Selling Agent and as selling
commissions to the Selected Dealers. The Selling Agent and the Selected Dealers
may in turn pay a portion of such syndication fees and selling commissions to
their respective employees who are NASD registered representatives for each Unit
sold by them.
In addition to the syndication fees and selling commissions described
above, the Fund will pay a monthly continuing services fee to the Selling Agent
and, through the Selling Agent, certain Selected Dealers who are appropriately
registered with the CFTC and/or the NFA and their respective registered
representatives equal to, in the aggregate, 1/12 of 1.25% of the Net Asset Value
per Unit of the Fund's assets under management at month's end (without reduction
for distributions or redemptions effected as of such date or management fees
payable or incentive allocations allocable as of such date) with respect to
Units purchased within the prior twelve-month period and 1/12 of 4% of the Net
Asset Value per Unit of the Fund's assets under management at month's end
(without reduction for distributions or redemptions effected as of such date or
management fees payable or incentive allocations allocable as of such date) with
respect to Units purchased more than twelve months prior thereto. Such
continuing services fee shall be paid to the Selling Agent and such Selected
Dealers and their respective registered representatives in return for their
continuing services to the Fund and the Limited Partners solicited by them. Such
services include, without limitation, keeping the Limited Partners apprised of
developments affecting the Fund, responding to specific inquiries received from
Limited Partners relating to the Fund and the commodity markets, communicating
current valuations of the Fund's Net Asset Value per Unit to the Limited
Partners, assisting in redemptions, transfers and distributions, assisting
Limited Partners in interpreting the Fund's monthly and annual reports,
financial statements and the tax information provided to Limited Partners, and
providing such other services as the Limited Partners from time to time may
reasonably request. The continuing services fee may be increased at any time and
from time to time by the General Partner upon sixty days' prior written notice
to the Limited Partners.
The General Partner is responsible for all of the Fund's organizational and
initial offering expenses (exclusive of selling commissions) that are currently
estimated at $200,000. Although the Fund will not be obligated to reimburse the
General Partner for any of such expenses, approximately 20% of all sales charges
imposed by the Fund on Units sold and 100% of all early redemption fees charged
by the
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Fund upon redemptions of Units will be paid to the General Partner to reimburse
the General Partner for the payment by the General Partner of the Fund's
organizational and initial offering expenses and the Fund's operating expenses
that are payable by the General Partner. See "Summary - Fees and Expenses
Payable by the General Partner", "Fees, Compensation and Expenses" and
"Redemptions".
The Selling Agent is, and the General Partner / Advisor may be deemed to
be, an "underwriter" in connection with this offering within the meaning of the
Securities Act of 1933 and the rules and regulations of the SEC promulgated
thereunder.
The Fund has agreed to indemnify the Selling Agent and the selected dealers
against certain liabilities that they may incur in connection with the offering
and sale of the Units, including liabilities under the Securities Act of 1933
(in the case of the Selected Dealers only) and the CE Act. The Fund will not
indemnify the Selling Agent for any loss, liability, damage, cost or expense
(including, without limitation, attorneys' and accountants' fees and
disbursements) resulting from a violation by the General Partner or its
affiliates of the Securities Act of 1933 or any state securities laws in
connection with the Registration Statement or the sale of the Units.
Subscriptions / Investment Requirements
In order to subscribe for Units, a subscriber must (i) complete and execute
a Subscription Agreement / Power of Attorney (attached as Exhibit C to the
Statement of Additional Information that accompanies this Prospectus), and (ii)
deliver or mail such documents to the Fund at the address shown, together with a
check (which should be made out in accordance with the instructions of the
Selected Dealer) for the full purchase price of the Units to be purchased,
together with any and all applicable sales charges. If the subscription is
rejected by the General Partner, in whole or in part (which is in the sole
discretion of the General Partner), the subscription funds or the rejected
portion thereof will be returned to the subscriber without interest. The General
Partner will determine whether to accept or reject a subscription as promptly as
possible following its receipt.
Each subscriber must represent in the Subscription Agreement / Power of
Attorney that (i) he or she has either a net worth (exclusive of home,
furnishings and automobiles) of at least $150,000, or a net worth (similarly
calculated) of at least $45,000 and an annual gross income of at least $45,000;
(ii) he or she has read this Prospectus and the accompanying Statement of
Additional Information; and (iii) he or she is aware of and can afford the risks
of his or her investment in the Fund, including the risk of losing his or her
entire investment. Residents of certain states may be required to meet greater
net income, net worth or minimum purchase requirements. (See Exhibit C attached
to the Statement of Additional Information that accompanies this Prospectus.)
During the initial offering period, all monies remitted by subscribers will
be deposited in an escrow account with The Chase Manhattan Bank, 1214 Mamaroneck
Avenue, White Plains, NY 10605. In the event that 1,000 or more Units are sold
to the public and accepted by the General Partner, all interest earned on the
proceeds of subscriptions during the initial offering period will not be
retained by the Fund but will be distributed to subscribers on a pro rata basis
(taking into account both the time and the amount of the deposit) following the
conclusion of the initial offering period. If 1,000 Units are not so sold and
accepted, the amount of each subscription together with any interest earned
(allocated on the same pro rata basis) will be distributed to the subscribers
within fifteen days after the end of the initial offering period.
-52-
INVESTMENTS BY ERISA ACCOUNTS
General
This section sets forth certain consequences under ERISA and the Internal
Revenue Code which a fiduciary of an "employee benefit plan" as defined in and
subject to ERISA or of a "plan" as defined in and subject to Section 4975 of the
Code who has investment discretion should consider before deciding to invest the
plan's assets in the Fund (such "employee benefit plans" and "plans" being
referred to herein as "Plans," and such fiduciaries with investment discretion
being referred to herein as "Plan Fiduciaries").
Violations of the rules under ERISA and/or Section 4975 of the Code by
fiduciaries can result in various types of liabilities, including civil
penalties and excise taxes. Because of the complexity of these rules, plan
fiduciaries are strongly encouraged to consult with their legal advisors prior
to causing a plan to invest in the Fund.
Special Investment Considerations
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Fund, including the role
that an investment in the Fund plays or would play in the Plan's overall
investment portfolio. Each Plan Fiduciary, before deciding to invest in the
-53-
Fund, must be satisfied that such investment is prudent for the Plan, that the
investments of the Plan, including in the Fund, are diversified so as to
minimize the risk of large losses and that an investment in the Fund complies
with the terms of the Plan and related trust.
The Fund Should Not be Deemed to Hold "Plan Assets"
A regulation issued under ERISA (the "ERISA Regulation") contains rules for
determining when an investment by a Plan in an equity interest of a limited
partnership will result in the underlying assets of the partnership being assets
of the Plan for purposes of ERISA and Section 4975 of the Code (i.e., "plan
assets"). Those rules provide in pertinent part that assets of a limited
partnership will not be plan assets of a Plan which purchases an equity interest
in the partnership if the equity interest purchased is a "publicly-offered
security" (the "Publicly-Offered Security Exception"), or if investment by
benefit plan investors is not "significant". If the underlying assets of a
partnership are considered to be assets of any Plan for purposes of ERISA or
Section 4975 of the Code, the operations of such partnership would be subject to
and, in some cases, limited by, the provisions of ERISA and Section 4975 of the
Code.
The Publicly-Offered Security Exception applies if the equity is a security
that is:
1) "freely transferable" (determined based on the applicable facts and
circumstances);
2) part of a class of securities that is "widely held" (meaning that the
class of securities is owned by 100 or more investors independent of
the issuer and of each other); and
3) either (a) part of a class of securities registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, or
(b) sold to the Plan as part of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, and the class of which such security is a part is registered
under the Securities Exchange Act of 1934, as amended, within 120 days
(or such later time as may be allowed by the SEC) after the end of the
fiscal year of the issuer in which the offering of such security
occurred.
It appears that all of the conditions described above will be satisfied
with respect to the Units and, therefore, the Units should constitute "publicly
offered securities". The underlying assets of the Fund should therefore not be
considered to constitute assets of any Plan that purchases Units.
If, however, the Fund does not qualify for the Publicly Offered Security
Exception, the General Partner may limit investments by benefit plan investors,
in the aggregate, to less than 25% of the total capital of each class of equity
interest of the Fund not owned by its affiliates (the "25% Limitation"). If the
General Partner applies the 25% Limitation, investment by benefit plan investors
will not be considered "significant" under the ERISA Regulation, and the
underlying assets of the Fund will not be considered to constitute assets of any
Plan that purchases Units. This 25% Limitation may restrict additional
investments by benefit plan investors and cause the General Partner to require
that some investors withdraw from the Fund in the event other investors
withdraw. If, in the opinion of the General Partner, a rejection of
subscriptions or mandatory withdrawals are necessary to avoid causing the assets
of the Fund to meet the 25% Limitation, the General Partner will effect the
rejections or withdrawals in a manner determined in the sole discretion of the
General Partner. However, the General Partner will use its best efforts to
effect withdrawals on a pro rata basis among all benefit plan investors.
-54-
Ineligible Purchasers
In general, Units may not be purchased with the assets of a Plan if the
General Partner, the Selling Agent, the Commodity Broker or any of their
respective employees and/or affiliates or any of its affiliates or employees
either:
1) exercise any discretionary authority or discretionary control
respecting management of the Plan;
2) exercise any authority or control respecting management or
disposition of the assets of the Plan;
3) render investment advice for a fee or other compensation, direct or
indirect, with respect to any moneys or other property of the Plan;
4) have any authority or responsibility to render investment advice
with respect to any moneys or other property of the Plan; or
5) have any discretionary authority or discretionary responsibility in
the administration of the Plan.
DISTRIBUTIONS AND REDEMPTIONS
Distributions of profits, if any, will be made at the General Partner's
discretion. Investors should be aware, however, that the General Partner does
not intend to make any distributions of any profits. (See "Risk Factors -
Partners' Tax Liability May Exceed Distributions", "Conflicts of Interest and
Fiduciary Responsibility of the General Partner", "Summary of the Limited
Partnership Agreement - Profits and Losses; - Distributions" and "Federal Income
Tax Consequences".)
A Limited Partner may cause some or all of his Units to be redeemed by the
Fund as of the last business day of any month at the then current Net Asset
Value per Unit (less the early redemption fee described in the following
paragraph for certain redemptions effected during the first twelve full calendar
months after their purchase) on ten days' prior written notice to the General
Partner, provided, however, that no redemption which applies to less than all of
a partner's interest in the Fund can result in the partner's capital account
being reduced below $10,000 ($5,000 in the case of investments by pension,
profit-sharing or other employee benefit plan qualified under Section 401 of the
Internal Revenue Code, IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified
Employee Pension - IRA plans and retirement and deferred compensation and
annuity plans and trusts used to fund those plans, including but not limited to,
those defined in Sections 401(a), 403(b) or 457 of the Internal Revenue Code)
after the redemption is effected. Requests for redemption are irrevocable. The
Net Asset Value per Unit for purposes of redemption equals the Net Asset Value
of the Fund allocated to the capital account of the Fund represented by Units
divided by the number of Units outstanding on the date of redemption. Units are
redeemed at their Net Asset Value determined as of the day on which they are
redeemed, not as of the date on which a request for redemption is made or
received. Accordingly, the redemption price actually received for a Unit may
differ significantly from that which would have been received at the time when
the decision to redeem was made.
The Fund will charge an early redemption fee equal to 4% of the Net Asset
Value per Unit of the Units redeemed as of or before the end of the third full
calendar month after their purchase. This fee will decrease by one percentage
point for every three full calendar months thereafter. Accordingly, Units
-55-
redeemed as of the end of or during the tenth, eleventh and twelfth full
calendar months after their purchase will be subject to a redemption fee equal
to 1% of the Net Asset Value per Unit of the Unit(s) redeemed. Thereafter, no
redemption fee will be charged. In addition and in order to assure each Limited
Partner the availability of funds to pay taxes on each year's profits, if any,
the redemption fee will be waived on redemptions of Units to the extent, if any,
distributions in the first quarter of a calendar year are less than 35% of the
profits reportable to a Limited Partner for the prior year. The Fund will pay
all early redemption fees to the General Partner to reimburse the General
Partner for the payment by the General Partner of the Fund's organizational and
initial offering expenses and the Fund's operating expenses that are payable by
the General Partner. Investors should not that the early redemption fees will
reduce the redemption value of a Unit significantly below its purchase price
unless the Fund achieves significant net new trading profits from its trading
activities.
All requests for redemption in proper form will be honored and payment will
be made within ten business days of the effective date of redemption, except as
described below. The right to redeem is contingent on the Fund having assets
sufficient to discharge its liabilities on the date of redemption. It is also
contingent on receipt by the General Partner of a request for redemption in the
form attached as Exhibit D to the Statement of Additional Information that
accompanies this Prospectus (or any other form approved by the General Partner)
at least ten days (or such shorter period as may be acceptable to the General
Partner) prior to the date on which redemption is requested. Under special
circumstances, including but not limited to default or delay in payments due to
the Fund from banks or other persons, the Fund may in turn delay payment to
partners requesting redemption of Units of the proportionate part of the Net
Asset Value per Unit represented by the sums which are the subject of such
default or delay.
A Limited Partner of the Fund will not be liable by operation of law for
any sum in excess of his or her capital contribution and profits, if any
(including any distributions and amounts received upon redemption of Units and
interest thereon), necessary to discharge the Fund's liabilities to all
creditors who extended credit or whose claims arose before the return of the
cash value of the Limited Partner's interest. The Fund will not make such a
claim with respect to amounts distributed to Limited Partners and amounts paid
upon redemption of Units unless the assets of the Fund are insufficient to
discharge the Fund's liabilities to its creditors.
TRADING POLICIES
The objective of the Fund is to achieve maximum capital appreciation of its
assets through speculative trading in commodity futures contracts and other
commodity interests in the United States commodity futures markets. No assurance
can be given that the Fund's objectives can be met. The Fund will attempt to
accomplish its objectives by following the trading policies set forth below:
1. Fund monies will be invested in futures contracts only of commodities
which are traded in sufficient volume to permit, in the opinion of the
Fund's advisor(s), ease of taking and liquidating positions.
2. The Fund will not allow any advisor to acquire, on behalf of the Fund,
additional positions in any commodity if such additional positions
would result in a net long or short position for any individual
commodity requiring as margin more than 25% of the Fund's Net Asset
Value at the time.
3. The Fund estimates that between 10% and 40% of the Fund's assets will
normally be committed as margin (although the percentage may be
outside such range from time to time). As a result, the Fund will not
generally be as highly
-56-
leveraged as permitted for investments by an individual. Margin
requirements will be met with cash, through deposits of United States
Treasury Bills or in such other manner as may be permitted under
applicable laws and regulations.
4. The Fund will ordinarily avoid entering into an open position during a
delivery month, except with respect to commodity futures contracts on
currencies.
5. The Fund will 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 a related commodity. However, the Fund's
advisor(s) may take into account the Fund's open trade equity on
existing positions in determining generally whether to acquire
additional commodity futures contracts on behalf of the Fund in light
of the policy described in paragraph 3, above.
6. The Fund will not utilize borrowings, except to finance the Fund's
taking delivery of cash commodities. Although the Fund has no current
intention to make or accept delivery of cash commodities, the Fund may
from time to time make or accept delivery of a cash commodity.
Normally, such deliveries will be disposed of promptly by re-tendering
to the appropriate clearing house the warehouse receipt representing
the delivery.
7. Although the Fund has no current intention to employ trading
techniques such as spreads or straddles, the Fund may from time to
time employ trading techniques such as spreads or straddles. The term
"spread" or "straddle" describes a commodity futures trading
transaction involving the simultaneous buying and selling of commodity
futures contracts dealing with the same commodity but involving
different delivery dates or different markets, and in which the trader
expects to earn profits from a widening or narrowing movement of the
prices of the different commodity futures contracts.
8. The Fund, under extraordinary circumstances, may establish offsetting
positions in foreign currencies through banks or in the inter-bank
market to reduce risk exposure due to lack of liquidity on the
commodity exchanges and to protect the Fund's capital.
9. The Fund will not permit rebates or give-ups to be received by the
General Partner or any advisor.
10. The Fund will not buy, sell or trade in securities (other than those
in which customers' funds are permitted to be invested under the CE
Act), nor will it write, purchase, sell or trade in options on
securities. Although the Fund has no current intention to trade in
options on commodity futures contracts or physical commodities, the
Fund may from time to time trade in options on commodity futures
contracts or physical commodities.
11. The Fund will not commingle its assets with those of other persons,
except as permitted by law.
12. The Fund will not permit the churning of its commodity trading account
-57-
13. The Fund may trade in futures contracts on foreign currencies through
domestic commodity exchanges, including the International Monetary
Market Division of the Chicago Mercantile Exchange.
14. The Fund will generally maintain approximately 90% of its assets in
investment mediums such as United States Treasury Bills and other
interest bearing debt obligations or repurchase agreements relating
thereto.
15. The Fund will not be a dealer and therefore will not acquire commodity
interests as inventory or primarily for sale to customers in the
ordinary course of business.
Although the General Partner / Advisor is currently serving as the general
partner of, and the commodity trading advisor to, the Fund, the General Partner
will monitor the trading policies of the Fund described above and will impose
any additional restrictions upon the trading activities of the Fund's other
advisor(s), if any, as the General Partner, in the exercise of its prudent
business judgment, deems appropriate. In addition, the General Partner may
change the trading policies described above without notice to or the approval of
the Limited Partners if it, in its sole discretion, determines that such change
is in the best interests of the Fund.
If the Net Asset Value of the Fund (increased by the amount of
distributions per Unit, if any) on any business day during any given fiscal year
decreases to or below 50% of the Net Asset Value per Unit as of the beginning of
that fiscal year, provided that such 50% decrease results in a Net Asset Value
per Unit of less than $1,000, or if the Net Asset Value per Unit decreases on
any business day to or below $350, the Fund will attempt to liquidate all open
positions as expeditiously as possible and suspend trading. No assurance is
given that the Fund will be able to close out all open positions without
incurring substantial additional losses. (See "Risk Factors".) Within ten
business days after the date of the suspension of trading, the General Partner
shall either give notice to the Limited Partners of its intention to withdraw
from the Fund or shall declare a special redemption date. Such special
redemption date, if declared, shall be a business day within thirty business
days from the date of suspension of trading by the Fund, and the General Partner
shall mail notice of such date to each Limited Partner by first class mail,
postage prepaid, not later than ten business days prior to such special
redemption date, together with instructions as to the procedure such partner
must follow to have his Units redeemed on such date by the Fund, if such partner
so desires. No redemption fees would be due in respect of a Unit redeemed on the
special redemption date. If, after such special redemption date, the Fund's Net
Asset Value is at least 50% of the Net Asset Value on the close of business on
the day before the special redemption date, the Fund will resume trading unless
the General Partner elects to withdraw from the Fund. If, after such special
redemption date, the Fund's Net Asset Value is less than 50% of the Net Asset
Value of the close of business on the day before the special redemption date,
the Fund shall terminate.
SUMMARY OF THE ADVISORY AGREEMENT
The Fund has entered into an advisory agreement (the "Advisory Agreement")
with the Advisor that provides that the Advisor will have sole discretion during
the term of the contract to determine the Fund's trades. The Advisory Agreement
has a term ending one year after the end of the month in which the Fund
commences trading subject to the Fund's right to automatically renew the
Advisory Agreement on the same terms and conditions for one additional year on
ninety days' prior written notice and further subject to the Advisor's right to
terminate the Advisory Agreement during the extended term on sixty days' prior
written notice. The Advisory Agreement terminates automatically in the event
that the Fund is terminated and may be terminated at any time by the General
Partner or the Fund upon sixty days' prior written notice to the Advisor. The
Advisory Agreement may also be terminated at the election of the
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General Partner at any time, upon written notice to the Advisor, in the event
that: (i) the General Partner withdraws from the Fund as its general partner;
(ii) the Advisor's registration as a commodity trading advisor with the CFTC
lapses or is suspended or terminated; (iii) the General Partner, in its sole
discretion, should determine in good faith that the Advisor has violated the
Fund's trading policies; (iv) the Fund's Net Asset Value per Unit (increased by
the amount of any distributions per Unit, if any) on any business day during any
given fiscal year decreases to or below 50% of the Net Asset Value per Unit of
the Fund at the beginning of the fiscal year, provided that such 50% decrease
results in a Net Asset Value per Unit of less than $1,000, or if the Net Asset
Value per Unit (increased by the amount of any distributions per Unit, if any)
decreases on any business day to or below $350.00; (v) Mr. Shaffer leaves the
employ of the Advisor, becomes incapacitated or is otherwise not active in the
management of the trading programs of the Advisor; (vi) the Advisor becomes
unable to use its trading strategies for the benefit of the Fund for any reason;
or (vii) the Advisor merges, consolidates with or sells a substantial portion of
its assets, any portion of its trading strategies, trading programs or goodwill
to any individual or entity, or becomes bankrupt or insolvent. Under the terms
of the Advisory Agreement, upon the termination or expiration of the Advisory
Agreement, the Fund may retain a new trading advisor or advisors or may
renegotiate the Advisory Agreement with the Advisor on the same or different
terms. No assurance is given that, after the expiration of such contract, the
Fund will be able to retain the trading management services of the Advisor or
obtain those services on the same terms as those of the current advisory
agreement. In addition, the Advisor has the right to terminate the Advisory
Agreement with the Fund in certain circumstances, and no assurance is given that
the Advisory Agreement will not be terminated prior to the expiration of the
initial twelve month term. The types of commodity interests that the Fund may
trade under the terms of any new advisory agreement may differ from those which
the Advisor will trade for the Fund under the current advisory agreement. The
compensation of a new trading advisor or the Advisor under any advisory
agreement negotiated in the future may be determined without regard to the
previous performance of the Fund. The Commodity Broker has agreed to keep
confidential the Advisor's trades and trading strategies as disclosed to it,
except to the extent necessary to conduct the affairs of the Fund. The
compensation payable by the Fund to the Advisor is described under "Fees,
Compensation and Expenses".
The business of the Advisor is the management of discretionary commodity
trading accounts, and it may manage other accounts during the same period that
it is managing the Fund's account. The Advisory Agreement provides that the
Advisor and its principals, employees and affiliates shall be free to trade for
their own accounts and manage other trading accounts and to use the same
information, trading strategies and formulae which it obtains, produces or
utilizes in the performance of services for the Fund. See "Conflicts of Interest
/ Fiduciary Responsibility of the General Partner". The Limited Partners will
have no right to inspect the trading records or evaluate the performance of such
accounts except to the extent required by law. The Advisor has agreed with the
Fund that it will not deliberately use any trading strategies for the Fund which
it knows are inferior to those employed by it for any other account managed by
the Advisor or any of its principals or affiliates. In addition, in its trading
for the Fund's account and such other accounts, the Advisor has agreed to use
its good faith, best efforts to achieve an equitable treatment of all accounts
including with respect to priorities of order entry and any changes or
modifications to the Advisor's trading strategies or recommendations resulting
from the application of speculative position limits. No assurance is or can be
given, however, that the results of the Fund's trading will be similar to those
of other accounts concurrently managed by the Advisor.
The Advisory Agreement provides that the Advisor, its shareholders,
directors, officers, employees and other affiliates shall not be liable to the
Fund or to its partners except by reason of acts or omissions due to bad faith,
misconduct, negligence or for not having acted in good faith in the reasonable
belief that their actions were taken in, or not opposed to, the best interests
of the Fund. The Advisory Agreement further provides that with respect to any
action in which the Advisor or any of such affiliates is made a party alleging
claims arising out of or in connection with the management of the Fund's assets
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(other than an action brought by or in the right of the Fund), the Fund shall
indemnify and hold harmless such person, subject to receipt of an independent
legal opinion regarding the applicable standard of conduct, against any loss,
liability, damage, cost, expense (including, without limitation, attorneys' and
accountants' fees and disbursements), judgments and amounts paid in settlement,
if the indemnified person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Fund, and if such
actions did not involve gross negligence, willful, wanton or reckless
misconduct, or a breach of fiduciary obligations on the part of the person
seeking indemnification. In any action brought by or in the right of the Fund
against the Advisor or any of its affiliates, the Fund shall also indemnify and
hold harmless such person, subject to receipt of an independent legal opinion
regarding the applicable standard of conduct, against any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees and disbursements) incurred in connection with the
investigation, defense or settlement of such action, if the indemnified party
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Fund, and if such actions did not involve
negligence, misconduct or a breach of fiduciary obligations on the part of the
person seeking indemnification (unless the court in which such action was
brought shall determine that, in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnification for such
amounts as the court shall deem proper). To the extent that the indemnified
party has been successful in the defense of any action, no independent legal
opinion is necessary. Expenses may be paid by the Fund in advance of the final
disposition of such action if the indemnified person agrees to reimburse the
Fund in the event that indemnification is not permitted. The Fund has also
agreed to indemnify the Advisor and its affiliates under certain circumstances
with respect to claims, if any, arising under the Securities Act of 1933 in
connection with the Fund's Registration Statement and the sale of the Units.
The Advisory Agreement prohibits the Advisor from receiving any commission,
compensation, remuneration or payment whatsoever by reason of Fund transactions
from any commodity broker with whom the Fund carries any account. The Fund will
pay the Advisor a management fee and allocate to the Advisor an incentive
allocation as described under the caption "Fees, Compensation and Expenses".
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The rights and duties of the General Partner and the Limited Partners are
governed by the provisions of the Delaware Revised Uniform Limited Partnership
Act and by the Limited Partnership Agreement (the "Limited Partnership
Agreement"), a copy of which is included as Exhibit A to the Statement of
Additional Information that accompanies this Prospectus. Certain features of the
Limited Partnership Agreement are explained below, but reference is made to the
Limited Partnership Agreement for complete details of its terms and conditions.
When appropriate, the term "General Partner" herein refers to Shaffer Asset
Management, Inc. or any successor general partner of the Fund.
Additional Limited Partners
The General Partner has the sole discretion to admit additional Limited
Partners. Subsequent to this offering, the Fund may offer and sell additional
Units, and there is no limitation on the total number of Units that may be
outstanding. All Units offered by the Fund after the conclusion of this offering
must be sold for no less than the Fund's then current Net Asset Value per Unit.
Amendments; Meetings
The Limited Partnership Agreement may be amended in any respect (except to
change the Fund to a general partnership, to change the liability of the General
Partner or any Limited Partners, to remove
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the General Partner, to terminate the Fund or to extend its duration) by a vote
of the holders of a majority of the outstanding Units (not including Units held
by the General Partner), either pursuant to a written vote or at a duly called
meeting of the Limited Partners. An amendment may be proposed or a meeting may
be called by the General Partner or by the holders of at least 10% of the
outstanding Units. It is not expected that the General Partner will call any
annual meetings of the Limited Partners.
Certificates for Units
The Limited Partnership Agreement provides that Units need not be evidenced
by certificates, but it is presently contemplated that certificates will be
issued to the Limited Partners with respect to Units purchased by them.
Election, Removal and Withdrawal of the General Partner
The General Partner may be removed by a vote of the holders of at least
seventy five percent of the outstanding Units (not including Units held by the
General Partner, if any), and additional or successor general partner(s) may be
elected by a vote of a majority of the outstanding Units (not including Units
held by the General Partner, if any). The General Partner may withdraw as the
general partner of the Fund upon ninety days' notice to the Limited Partners.
Indemnification
The Limited Partnership Agreement provides that with respect to any action
in which the General Partner or its affiliates are made a party (other than an
action brought by or in the right of the Fund), the Fund shall indemnify and
hold harmless such persons, subject to receipt of an independent legal opinion
regarding the applicable standard of conduct, against any loss, liability,
damage, cost, expense (including, without limitation, attorneys' and
accountants' fees and disbursements), judgments and amounts paid in settlement,
if the indemnified person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Fund, and if such
actions did not involve gross negligence, willful, wanton or reckless
misconduct, or a breach of fiduciary obligations. In any action brought by or in
the right of the Fund against the General Partner or its affiliates involving
the management of the internal affairs of the Fund, the Fund shall indemnify and
hold harmless the General Partner and its affiliates, subject to receipt of an
independent legal opinion regarding the applicable standard of conduct, against
any loss, liability, damage, cost or expense (including, without limitation,
attorneys' and accountants' fees and disbursements) incurred in connection with
the investigation, defense or settlement of such actions if the indemnified
party acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the Fund, and if such actions did not involve
negligence, misconduct or a breach of fiduciary obligations on the part of the
person seeking indemnification (unless the court in which such action was
brought shall determine that, in view of all circumstances of the case, such
person(s) are nevertheless fairly and reasonably entitled to. indemnification
for such amounts as the court shall deem proper). To the extent that the
indemnified party has been successful in the defense of any action, no
independent legal opinion is necessary. Expenses may be paid by the Fund in
advance of the final disposition of such action if the indemnified person shall
agree to reimburse the Fund in the event indemnification is not permitted. No
indemnification of the General Partner or its affiliates is permitted for losses
resulting from or arising out of any violation of the Securities Act of 1933 or
applicable state securities laws in connection with or related to the
registration, issuance, offer or sale of the Units, unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the General Partner or its affiliates, (ii) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction, or (iii) a court of competent jurisdiction approves a settlement
of the claims and finds that indemnification of the settlement and related costs
should be made; provided that such court has been advised of the position as to
indemnification for violations of securities
-61-
laws of the SEC and the securities administrators of the jurisdictions in which
the claimant alleges to have been offered or sold Units. The position of the SEC
is that any such indemnification is contrary to the federal securities laws and
therefore unenforceable.
Liabilities
A Limited Partner will not be personally liable for any debts or losses of
the Fund beyond the amount of his capital contribution and profits earned
thereon, if any, except as indicated above in the event that a Limited Partner
has a negative balance in his Book Capital Account upon liquidation of the Fund.
In the event that the Fund is otherwise unable to meet its obligations, the
Limited Partners might be required, under applicable law, to repay to the Fund,
cash distributions previously received by them (including distributions on
partial or complete redemptions, wrongfully distributed profits and
distributions deemed to be a return of capital), with interest, to the extent
that such distributions were made after the date that the Fund's obligations
arose. Each Unit, when issued, will be fully paid and non-assessable. Except as
indicated above, losses in excess of the Fund's assets will be the obligation of
the General Partner.
Limited Partners' Rights
Each Limited Partner or his duly authorized representative may inspect the
Fund's books and records during normal business hours. Holders of a majority of
the Units (exclusive of any such Units held by the General Partner, if any) may
(a) adopt amendments to the Limited Partnership Agreement proposed by the
General Partner or Limited Partners owning at least 10% of the outstanding
Units, (b) elect new general partner(s) if the General Partner withdraws or is
removed or is otherwise unable to serve, or (c) admit additional general
partner(s). In addition, holders of at least seventy five percent of the
outstanding Units (not including Units held by the General Partner, if any) may
(a) remove the General Partner, (b) cancel any contract for services with the
General Partner or its affiliates for any reason on sixty days' notice or (c)
terminate the Fund. In addition, Limited Partners must approve any material
change in the Fund's trading policies. (See "Trading Policies".)
Profit and Loss; Distributions
The General Partner may, but need not and, in fact, does not intend to,
distribute any portion of the capital or profits of the Fund. The General
Partner may declare distributions in additional Units of the Fund, in which
event Limited Partners will be given at least sixty days' prior written notice
and the option to elect to receive cash instead of additional Units. However, a
Limited Partner has the right to redeem a portion or all of his Units in
accordance with the redemption procedures described in this Prospectus and the
accompanying Statement of Additional Information. (See "Redemptions".) For
purposes of calculating Net Asset Value, any distribution shall become a
liability of the Fund as of the date of its declaration.
The allocation of the Fund's income or loss for Federal income tax purposes
is discussed under the caption "Federal Income Tax Consequences."
Redemptions
The Limited Partnership Agreement provides that Limited Partners may redeem
all or a portion of their Units (but partial redemptions shall be in whole Units
except as the General Partner may permit) as of the close of business on the
last business day of each calendar month upon at least ten days' prior written
notice to the General Partner, subject to certain restrictions and in some
instances to early
-62-
redemption fees during the first full twelve calendar months following the
purchase of the Units. (See "Redemptions".)
Limited Partners should note that there are certain tax consequences
attendant upon redemptions of their Units. (See "Federal Income Tax
Consequences".)
Reports and Accounting
The Fund will keep its books in accordance with generally accepted
accounting principles on the accrual basis of accounting. The Fund's fiscal year
shall be the calendar year for all purposes. The books of the Fund shall be
audited at least annually at the Fund's expense by an independent public
accountant to be designated by the General Partner and each Limited Partner
shall be furnished with an annual report certified by an independent public
accountant containing such information as the CFTC requires. CFTC regulations
presently require that an annual report be provided to futures fund participants
within ninety days after the close of each fiscal year, setting forth among
other matters:
(1) the Fund's Net Asset Value as of the end of each of its two preceding
fiscal years;
(2) the Net Asset Value per Unit outstanding as of the end of each of its
two preceding fiscal years;
(3) a Statement of Financial Condition as of the close of the Fund's
fiscal year and preceding fiscal year;
(4) Statements of Income (Loss), Changes in Financial Position and Changes
in Ownership Equity for the most recent fiscal year, together with
Statements of Income (Loss), Changes in Financial Position and Changes
in Ownership Equity for the previous fiscal year; and
(5) appropriate footnote disclosure and such further material information
as may be necessary to make the required statements not misleading.
In addition to the annual report, present CFTC rules require that the Fund
furnish each Limited Partner, within thirty days of the end of each month, with
an unaudited account statement covering such month, which statement shall be
presented in the form of a Statement of Income (Loss) and a Statement of Changes
in Net Asset Value. Limited Partners will also be furnished with such additional
information as the General Partner, in its sole discretion, deems appropriate,
as well as any information required to be provided to the Limited Partners by
any governmental authority having jurisdiction over the Fund. The General
Partner will also furnish each Limited Partner, by no later than the 15th day of
the third month following the close of the Fund's fiscal year (i.e., March 15)
with tax information in a form which may be utilized in the preparation of
Federal income tax returns.
Each Limited Partner shall be notified within seven business days of the
decline in the Net Asset Value per Unit during a month to less than 50% of the
Net Asset Value per Unit as of the last business day of the preceding month.
Included in such notification shall be a description of the Limited Partners'
voting rights, which rights include (a) the right, upon the initiative of the
General Partner or the holders of 10% of the outstanding Units and by vote of a
simple majority of such Units (exclusive of any Units owned by the General
Partner, if any), to revise the Limited Partnership Agreement, or (b) the right
by a vote of the holders of at least seventy five percent of the outstanding
Units (not including Units held by the General Partner, if any) to (i) replace
or revise the Fund's arrangements with the General Partner or (ii) to terminate
the Fund.
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The General Partner shall maintain a list of the names and addresses of,
and the number of Units owned by, all Limited Partners at the Fund's principal
office. Such list shall be made available for the review of any Limited Partner
or his representative at reasonable times and upon request, either in person or
by mail. The General Partner shall furnish a copy of such list to a Limited
Partner or his representative upon payment of the costs of reproduction and
mailing; provided, however, that such list shall not be used by the Limited
Partner for commercial purposes.
Termination
Unless earlier dissolved, the Fund shall cease doing business on December
31,2025, and shall thereupon be dissolved. The Fund shall also cease doing
business and shall thereafter be dissolved if required by law or upon the
occurrence of any of the following events:
(1) The decrease of the Fund's Net Asset Value per Unit (increased by the
amount of distributions per Unit, if any) on any business day during
any given fiscal year to or below 50% of the Net Asset Value per Unit
as of the beginning of the fiscal year, provided that such 50%
decrease results in a Net Asset Value per Unit of less than $1,000, or
the decrease of the Fund's Net Asset Value per Unit (increased by the
amount of distributions per Unit, if any) on any business day to or
below $350;
(2) the legal disability, bankruptcy, dissolution or withdrawal of the
General Partner, provided, however, that the holders of a majority of
outstanding Units (not including Units held by the General Partner, if
any) may elect, within the ninety day period following the General
Partner's required notice of withdrawal, one or more substitute
general partners to continue the Fund;
(3) the vote of the holders of at least seventy five percent of the
outstanding Units (not including Units held by the General Partner, if
any) to dissolve the Fund; or
(4) the insolvency or bankruptcy of the Fund.
Upon the dissolution of the Fund, its affairs shall be wound up, its
liabilities discharged and its remaining assets distributed to the Unit holders
in accordance with their capital accounts maintained for financial accounting
purposes (the "Book Capital Accounts"). To the extent that the Fund has open
commodity futures interest positions at such time, it will use its best efforts
to close such positions, although no assurance can be given that market
conditions might not delay such liquidation.
In order that the allocation provisions of the Limited Partnership
Agreement be respected for Federal income tax purposes, a Limited Partner having
a negative balance in his Book Capital Account following the distribution of
liquidation proceeds will be required to contribute an amount to the Fund
sufficient to reduce such negative balance to zero. In the opinion of the
General Partner, it is unlikely that any Limited Partner will have such a
negative balance at such time.
Transfer of Units
A Limited Partner's Units may be assigned at the election of the Limited
Partner upon notice to the General Partner. However, the assignee shall become a
substituted Limited Partner in the Fund only upon the consent of the General
Partner (which may be granted or withheld in its sole discretion) and upon the
execution and filing of an amended certificate of limited partnership. An
assignee who does not
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become a substituted Limited Partner shall be entitled to be allocated the share
of the profits or losses or the return of capital to which his assignor would
otherwise be entitled, but he shall not be entitled to vote, to receive an
accounting of Fund transactions, to receive tax information, or to inspect the
books and records of the Fund. There is not now a public market for the Units,
and it is unlikely that one will develop in the future.
CAPITALIZATION / SELECTED FINANCIAL DATA
The table below shows the capitalization of the Fund on the date hereof and
as adjusted for the sale, within the initial offering period, of the minimum
(1,000) and maximum (25,000) number of Units offered hereby:
- ----------------------------------------------------------------------------------------------------------------------
As Adjusted (1)(2)
- ----------------------------------------------------------------------------------------------------------------------
Title of Class Outstanding (1) Minimum Mid-Point Maximum
- ----------------------------------------------------------------------------------------------------------------------
Units of General Partnership Interest 1 26.21 137.92 249.63
- ----------------------------------------------------------------------------------------------------------------------
Units of Limited Partnership Interest 1 1,000 12,500 25,000
- ----------------------------------------------------------------------------------------------------------------------
Total Partners' Contribution (including
the General Partner's capital
contribution) $2,000 $951,000 $12,826,000 $23,751,000
- ----------------------------------------------------------------------------------------------------------------------
(1) One Unit of limited partnership interest has been issued to Daniel S.
Shaffer, the sole officer, director and shareholder of the General
Partner and the initial limited partner of the Fund, for $1,000 to
permit the Fund to be organized, and the General Partner has purchased
one Unit of general partnership interest for $1,000. The Fund intends
to redeem the one Unit of limited partnership interest issued to the
initial limited partner at the end of the initial offering period.
(2) Subsequent to the initial offering period, unsold Units (if any) may
be sold at the then Net Asset Value per Unit, plus a sales charge of
5% of the Net Asset Value per Unit. (See "Plan of Distribution"). The
proceeds from such sales, before and after selling commissions, will
depend upon the Fund's Net Asset Value per Unit from time to time and
thus the particular purchase prices charged for those Units.
The Fund has only recently been organized (August 29, 2000) and has no
financial history. Its total assets, consisting entirely of a cash account, and
total partners' equity as of September 30, 2000, were $2,000.00. The information
is derived from, and qualified by reference to, the audited statement of
financial condition of the Fund included elsewhere in this Prospectus and the
accompanying Statement of Additional Information.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion constitutes the opinion of Morrison Cohen Singer &
Weinstein, LLP, special tax counsel to the Fund, and summarizes the material
federal income tax consequences to individual investors in the Fund, as so
stated in a formal opinion letter filed as an exhibit to the Registration
Statement to which this Prospectus is a part. The opinion is premised upon the
continuing accuracy of various assumptions and representations as to certain
factual matters made by the General Partner, chief among which is that the Fund
will continuously operate solely in the manner described in this prospectus. The
opinion is also based upon present tax law, which is subject to change at any
time (possibly even retroactively).
Because the specific tax consequences to an investor resulting from an
investment in the Fund will also be affected by such investor's own personal tax
situation, prospective investors are urged to consult their tax advisers before
deciding whether to invest.
The Fund's Partnership Tax Status
The Fund is organized as a partnership, and so the Fund does not pay any
federal income tax. Based on the expected income of the Fund, the Fund will not
be taxed as a corporation by reason of being a "publicly traded partnership."
Taxation Of Limited Partners On Profits And Losses Of The Fund
Each Limited Partner must pay tax on his share of the Fund's annual income
and gains, if any, even if the Fund does not make any cash distributions. The
Fund generally allocates the Fund's income, gains and losses among the partners
in proportion to their respective capital accounts in the Fund which, as among
the Limited Partners, generally results in income, gains or losses being
allocated equally to each unit. However, a Limited Partner who redeems any units
will be allocated his share of the Fund's gains and losses in order that the
amount of cash he receives for the redeemed units equals his adjusted tax basis
in the redeemed units. A Limited Partner's adjusted tax basis in a unit equals
the amount originally paid for the unit, increased by income or gains allocated
to the unit and decreased (but not below zero) by distributions, deductions or
losses allocated to the unit.
Fund Losses By Limited Partners
A Limited Partner may deduct his share of Fund losses only to the extent of
his adjusted tax basis in his units. However, a Limited Partner subject to the
so-called "at-risk" limitations (generally, non-corporate taxpayers and
closely-held corporations) can only deduct losses to the extent he is "at-risk."
The "at-risk" amount is similar to tax basis, except that it does not include
any amount borrowed on a non-recourse basis or from someone with an interest in
the Fund.
Effect of the "Passive-Activity Loss Rules"
The trading activities of the Fund are not a "passive activity."
Accordingly, a Limited Partner can deduct Fund losses from taxable income.
However, a Limited Partner cannot offset losses from "passive activities"
against Fund gains.
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Cash Distributions And Unit Redemptions
A Limited Partner who receives cash from the Fund, either through a
distribution or a partial redemption, will not pay tax on that cash until his
adjusted tax basis in his units has been reduced to zero.
Gain Or Loss On Section 1256 Contracts And Non-Section 1256 Contracts
Section 1256 Contracts are futures and most options traded on U.S.
exchanges and certain foreign currency contracts. For tax purposes, Section 1256
Contracts that remain open at year-end are treated as if the position were
closed at year-end. The gain or loss on Section 1256 Contracts is characterized
as 60% long-term capital gain or loss and 40% short-term capital gain or loss
regardless of how long the position was open. Non-Section 1256 Contracts are,
among other things, certain foreign currency transactions, including Section 988
transactions -- transactions in which the amount paid or received is in a
foreign currency. The Fund expects to make a tax election that will cause gain
and loss from these Non-Section 1256 Contracts generally to be short-term gain
or loss.
Tax On Capital Gains And Losses
Long-term capital gains -- net gain on capital assets held more than one
year and 60% of the gain on Section 1256 Contracts -- are taxed at a maximum
federal income tax rate of 20% for individuals. Short-term capital gains -- net
gain on capital assets held less than one year and 40% of the gain on Section
1256 Contracts -- are subject to tax at the same rates as ordinary income, with
a maximum federal income tax rate of 39.6% for individuals. Individual taxpayers
can deduct capital losses in any one year only to the extent of their capital
gains in such year plus $3,000. Excess capital losses can be carried forward and
deducted in future years, subject to the same limitation. An individual taxpayer
can carry back net capital losses on Section 1256 Contracts three years to
offset earlier gains on Section 1256 Contracts. To the extent the taxpayer
cannot offset past Section 1256 Contract gains, he can carry forward such losses
indefinitely as losses on Section 1256 Contracts. As a result of the limitations
on the tax deductibility of capital losses, the Fund could suffer significant
losses and a Limited Partner could still be required to pay taxes on his share
of the Fund's interest income.
Limited Deduction For Certain Expenses
The General Partner does not consider the management and brokerage fees, as
well as other ordinary expenses of the Fund, to be investment advisory expenses.
Accordingly, the General Partner treats these expenses as ordinary business
deductions not subject to the material deductibility limitations which apply to
investment advisory expenses. The IRS could contend otherwise and, to the extent
the IRS recharacterizes these expenses, a Limited Partner would have the amount
of the ordinary expenses allocated to him reduced accordingly.
Interest Income
Interest received by the Fund is taxed as ordinary income. Net capital
losses can offset ordinary income only to the extent of $3,000 per year.
Syndication Fees
Neither the Fund nor any Limited Partner is entitled to any deduction for
syndication expenses, nor can these expenses be amortized by the Fund or any
Limited Partner even though the payment of such expenses reduces net asset
value. The IRS could take the position that a portion of the brokerage fees
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paid by the Fund to ADM Investor Services, Inc. or part or all of any redemption
fees paid by a Limited Partner constitute non-deductible syndication expenses.
Investment Interest Deductibility Limitations
Individual taxpayers can deduct "investment interest" -- interest on
indebtedness allocable to property held for investment -- only to the extent
that it does not exceed net investment income. Net investment income does not
include adjusted net capital gain taxed at the lower 20% rate.
Unrelated Business Taxable Income
Tax-exempt Limited Partners will not be required to pay tax on their share
of income or gains of the Fund, provided that such Limited Partners do not
purchase units with borrowed funds.
IRS Audits Of The Fund And Its Limited Partners
The IRS audits Fund-related items at the Fund level rather than at the
Limited Partner level. The General Partner acts as "tax matters partner" with
the authority to determine the Fund's responses to an audit. If an audit results
in an adjustment, all Limited Partners may be required to pay additional taxes,
interest and penalties.
State And Other Taxes
In addition to the federal income tax consequences described above, the
Fund and the Limited Partners may be subject to various state and other taxes.
Taxation Of Foreign Limited Partners
Subject to the discussion below regarding derivative transactions, a
non-resident alien individual not otherwise engaged in a United States trade or
business should not be deemed to be engaged in a United States trade or business
solely by virtue of an investment as a Limited Partner in the Fund. Capital
gains earned by the Fund and allocated to such a foreign Limited Partner will,
as a general matter, not be subject to United States federal income tax or
withholding, but may be subject to tax in the jurisdiction in which the foreign
Limited Partner is resident. Interest income earned by the Fund will, as a
general rule, likewise not be subject to United States federal income tax or
withholding, but may be subject to tax in other jurisdictions to which the
foreign limited partner is connected.
With respect to derivative transactions (such as swaps or forward
contracts), based on current law it is uncertain whether entering into
derivative transactions may cause the Fund, and therefore any foreign Limited
Partners, to be treated as engaged in a United States trade or business.
However, the Treasury has issued proposed regulations which, if finalized in
their current form, would provide that foreign limited partners should not be
deemed to be engaged in a United States trade or business solely by virtue of an
investment as a limited partner in the Fund even if the Fund enters into
derivative transactions. These regulations are proposed to be effective for
taxable years beginning 30 days after the date final regulations are published
in the Federal Register. The Fund may, however elect to apply the final
regulations retroactively once they are finalized.
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FORWARD-LOOKING STATEMENTS
This Prospectus and the accompanying Statement of Additional Information
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements use words like "believes," "intends," "expects,"
"may," "will," "should" or "anticipates," or the negative equivalents of those
words or comparable terminology, and discuss strategies that involve risks and
uncertainties.
The General Partner / Advisor based all forward-looking statements upon
estimates and assumptions about future events that were derived from information
available to it on the date of this Prospectus and the accompanying Statement of
Additional Information. Given the risks and uncertainties of the business of the
Fund, actual events and results may differ materially from those expressed or
implied by forward-looking statements. In light of these risks, uncertainties
and assumptions, the forward-looking statements included in this Prospectus and
the accompanying Statement of Additional Information may not occur. Risks,
uncertainties and assumptions that may affect the business, financial condition
and results of operations of the Fund include changes in the financial markets
generally, increased competition, risks associated with leverage, changes in
general economic conditions and the risks discussed in "Risk Factors" beginning
on page _____.
LEGAL MATTERS
Certain legal matters in connection with this offering and the securities
being offered hereby will be passed upon for the General Partner / Advisor and
the Fund by Kurzman Karelsen & Frank, LLP, 230 Park Avenue, New York, NY 10169.
Morrison Cohen Singer & Weinstein, LLP has provided the statements under
"Federal Income Tax Considerations."
EXPERTS
The statements of financial condition of (i) the General Partner / Advisor
as of December 31, 1998 and 1999 and for the period from inception (March 16,
1998) to December 31, 1998 and the year ended December 31, 1999, and (ii) the
Fund as of August 31, 2000, each of which is included in the Statement of
Additional Information that accompanies this Prospectus, have been audited by
Anchin, Block & Anchin, LLP, independent auditors, as set forth in their reports
appearing in the Statement of Additional Information that accompanies this
Prospectus and are included in such Statement of Additional Information in
reliance upon the authority of the firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus and the accompanying Statement of Additional Information
constitutes part of the Registration Statement filed by the Fund with the
Securities and Exchange Commission ("SEC") in Washington, D.C. This Prospectus
and the accompanying Statement of Additional Information does not contain all
the information set forth in such Registration Statement and the exhibits
thereto, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. Such Registration Statement and exhibits may be
inspected without charge at the public reference facilities maintained by the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or part
thereof may be obtained from the SEC upon payment of the prescribed fees.
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INDEX TO FINANCIAL STATEMENTS
Shaffer Diversified Fund, L.P.
Independent Auditors' Report............................................... F-2
Financial Statements:
Statement of Financial Condition as of August 31, 2000............ F-3
Notes to the Statement of Financial Condition..................... F-4
Shaffer Asset Management, Inc.
Independent Auditors' Report............................................... F-6
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998................... F-7
Statements of Operations and Retained Earnings (Deficit)
for the Year Ended December 31, 1999 and for the Period
from Inception (March 16, 1998) to December 31, 1998........ F-8
Statements of Cash Flows for the Year Ended December 31, 1999
and for the Period from Inception (March 16, 1998)
to December 31, 1998........................................ F-9
Notes to the Financial Statements................................. F-10
SHAFFER DIVERSIFIED FUND, LP
INDEPENDENT AUDITORS' REPORT
To the Partners of Shaffer Diversified Fund, L.P.:
We have audited the accompanying statement of financial condition of
Shaffer Diversified Fund, L.P. as of August 31, 2000. The financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of Shaffer
Diversified Fund, L.P. at August 31, 2000, in conformity with generally accepted
accounting principles.
/s/ Anchin, Block & Anchin, LLP
New York, New York
September 7, 2000
-2-
SHAFFER DIVERSIFIED FUND, LP
STATEMENT OF FINANCIAL CONDITION
August 31, 2000
Assets:
Cash............................................................$1,000
Partners' Capital........................................................$1,000
See the accompanying Notes to the Statement of Financial Condition.
-3-
SHAFFER DIVERSIFIED FUND, LP
NOTES TO THE STATEMENT OF FINANCIAL CONDITION
Note 1. Organization
Shaffer Diversified Fund, L.P. (the "Partnership") is a Delaware limited
partnership formed on August 29, 2000 that intends to operate as a commodity
investment pool. The Partnership's objective will be the appreciation of its
assets through speculative trading of commodity futures contracts. As of August
31, 2000, the Partnership has not commenced operations.
The Partnership intends to register with the Securities and Exchange
Commission, and will be subject to regulatory requirements under the Securities
Act of 1933 and the Securities Exchange Act of 1934. As a commodity investment
pool, the Partnership will be subject to the regulations of the Commodity
Futures Trading Commission, an agency of the United States "U.S.") government
which regulates most aspects of the commodity future industry; the rules of the
National Futures Association, an industry self-regulatory organization; and the
requirements of the various commodity exchanges where the Partnership executes
transactions. Additionally, the Partnership will be subject to the requirements
of Futures Commission Merchants (brokers) through which the Partnership will
trade.
Note 2. Related Party Transactions
The general partner of the Partnership is Shaffer Asset Management, Inc.
(the "General Partner"), which will conduct and manage the business of the
Partnership. The General Partner is also the commodity trading advisor of the
Partnership.
The Partnership will pay for management and servicing at an annual rate of
5% of the monthly net asset value of the Partnership, calculated and payable
monthly. Such fees will be allocated between the General Partner and the selling
agents as follows: 3.75% to the General Partner and 1.25% to the selling agents
during the first twelve months after an investment is made; and 1% to the
General Partner and 4% to the selling agents thereafter.
Investors will be charged a 5% sales commissions of which the General
Partner will receive approximately 20%.
The General Partner will also receive, on a quarterly basis, a special
allocation from the Partnership equivalent to 15% per year of any increase in
the cumulative appreciation of the net asset value of the Partnership without
regard to interest income.
The General Partner will pay all expenses associated with the organization
of the Partnership and the initial offering of the units ("Units") of limited
and general partnership interest in the Partnership (other than selling
commissions). Partnership operating expenses (excluding continuing services
fees, management fees, incentive allocations, brokerage commissions and
extraordinary expenses) in excess of 0.5% of the average monthly net asset value
of the Partnership at year end will be reimbursed by the General Partner. All
early redemption fees charged by the Partnership upon redemptions of Units will
be paid to the General Partner.
Note 3. Redemptions
A limited partner may request and receive redemption of its Units owned,
subject to restrictions in the Limited Partnership Agreement. Redemption fees
charged to the limited partner apply through the first twelve month-ends
following purchase ranging from 1% to 4% based on length of investment. After
-4-
SHAFFER DIVERSIFIED FUND, LP
NOTES TO THE STATEMENT OF FINANCIAL CONDITION
(continued)
twelve month-ends following purchase of a Unit, no redemption fees will apply.
These fees will be paid to the General Partner.
Note 4. Trading Activities and Related Risks
The Partnership will engage in the speculative trading of U.S. commodity
futures contracts, which are derivative financial instruments. The Partnership
will be exposed to both market risk, the risk arising from changes in the market
value of the contracts, and credit risk, the risk of failure by another party to
perform according to the terms of a contract.
Purchase and sale of futures contracts requires margin deposits with the
broker. The Commodity Exchange Act requires a broker to segregate all customer
transactions and assets from such broker's proprietary activities. A customer's
cash and other property (for example, U.S. Treasury bills) deposited with a
broker are considered commingled with all other customer funds subject to the
broker's segregation requirements. In the event of a broker's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than the total cash and other
property deposited.
The amount of required margin and good faith deposits with the broker
usually ranges from 10% to 40% of net asset value.
Note 5. Income Taxes
The Partnership is not subject to income taxes. The partners report their
allocable share of income, expense and trading gains or losses on their own tax
returns.
Note 6. Subsequent Event
In September 2000, the sole stockholder of the General Partner contributed
$1,000 as the Partnership's initial limited partner.
-5-
SHAFFER ASSET MANAGEMENT, INC.
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Directors of
Shaffer Asset Management, Inc.:
We have audited the accompanying balance sheets of Shaffer Asset
Management, Inc. as of December 31, 1999 and 1998 and the related statements of
operations and retained earnings (deficit) and cash flows for the year ended
December 31, 1999 and the period from March 16, 1998 (inception) to December 31,
1998. These financial statements are the responsibility of the Company's
management. 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
management, 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 Shaffer Asset Management,
Inc. at December 31, 1999 and 1998 and the results of its operations and its
cash flows for the year and period, respectively, then ended, in conformity with
generally accepted accounting principles.
/s/ Anchin, Block & Anchin LLP
New York, New York
September 5, 2000
-6-
SHAFFER ASSET MANAGEMENT, INC.
BALANCE SHEETS
December 31,
------------
1999 1998
------- -------
Assets:
Current Assets:
Cash $ 4,516 $ 54
Fee receivable 8,073 --
------- -------
Total Current Assets 12,589 54
------- -------
Fixed Assets:
Office equipment 3,392 --
Computer software 6,000 --
------- -------
9,392 --
Less: accumulated depreciation and amortization 339 --
------- -------
Total Fixed Assets 9,053 --
------- -------
Total Assets $21,642 $ 54
------- -------
Liabilities and Stockholder's Equity (Deficiency):
Current Liabilities:
Accounts payable and accrued expenses $11,399 $ --
Loan payable-stockholder -- 5,710
------- -------
Total Current Liabilities 11,399 5,710
------- -------
Stockholder's Equity (Deficiency)
Capital stock:
Class A voting, no par, $2 stated value; 200 shares
authorized;
50 shares issued and outstanding 100 100
Retained earnings (deficit) 10,143 (5,756)
------- -------
Total Stockholder's Equity (Deficiency) 10,243 (5,656)
------- -------
Total Liabilities and Stockholder's Equity (Deficiency) $21,642 $ 54
------- -------
See the accompanying Notes to the Financial Statements.
-7-
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Period from
March 16, 1998
Year Ended (inception) to
December 31, 1999 December 31, 1998
----------------- -----------------
Income from Fees $ 51,446 $ --
-------- -------
Expenses:
Automobile expense 12,901 --
Dues and subscriptions 4,278 --
Offices supplies and expense 2,261 521
Printing and reproduction 5,583 319
Professional development 3,432 --
Professional fees -- 2,653
Travel and entertainment 2,265 222
Other expenses 4,827 2,041
-------- -------
Total Expenses 35,547 5,756
-------- -------
Net Income (Loss) 15,899 (5,756)
Retained Earnings (Deficit)
Balance, beginning of period (5,756) --
-------- -------
Balance, end of period $ 10,143 $(5,756)
-------- -------
See the accompanying Notes to the Financial Statements.
-8-
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
Period from
March 16, 1998
Year Ended (inception) to
December 31, 1999 December 31, 1998
----------------- -----------------
Cash Flows from Operating Activities: $ 15,899 $(5,756)
-------- -------
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 339 --
Increase in:
Fees receivable (8,073) --
Increase in:
Accounts payable and accrued expenses 6,899 --
-------- -------
Total adjustments (835) --
-------- -------
Net Cash Provided by (Used in) Operating Activities 15,064 (5,756)
-------- -------
Cash Flows from Investing Activities:
Purchase of fixed assets (4,892) --
-------- -------
Cash Flows from Financing Activities:
Repayment of stockholder loan (5,710) --
Loan from stockholder -- 5,710
Proceeds from issuance of common stock -- 100
-------- -------
Net Cash Provided by (Used in) Financing Activities: (5,710) 5,810
-------- -------
Net Increase in Cash 4,462 54
Cash:
Beginning of period 54 --
-------- -------
End of period $ 4,516 $ 54
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Income taxes $ 625 $ --
Supplemental Schedule of Noncash Investing and
Financing Activities:
Incurred liability for acquisition of computer software $ 4,500 $ --
See the accompanying Notes to the Financial Statements.
-9-
SHAFFER ASSET MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Description of Business: Shaffer Asset Management, Inc. (the "Company")
earns fees on managed accounts as a Commodity Trading Advisor registered with
and subject to the regulations of the Commodity Futures Trading Commission, an
agency of the United States government, which regulates most aspects of the
commodity futures industry. It is also subject to the rules of the National
Futures Association, an industry self-regulatory organization.
Use of Estimates: 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 those estimates.
Revenue Recognition: Performance fees may be earned by achieving defined
performance objectives. Performances fees are accrued when the conditions of the
performance fee agreement are satisfied.
Fixed Assets: Fixed assets are stated at cost. Depreciation and
amortization are computed by the straight-line method over the estimated useful
lives of the assets.
Income Taxes: The Company is taxed as an S corporation for federal and New
York State tax purposes, whereby the Company's income is reported by the
stockholder. Accordingly, no provision has been made for federal income taxes.
The Company remains liable for New York State income taxes on S corporations.
Note 2. Related Party Transactions
The loan from the stockholder was non-interest bearing.
Note 3. Subsequent Event
The Company will be the trading advisor for a newly formed commodity pool,
Shaffer Diversified Fund, L.P. (the "Partnership"). The Company became the
general partner of the Partnership and made a capital contribution of $1,000
during August 2000. The Company will receive approximately 20% of the 5% sales
commission charged to investors and management fees at an annual rate of 3.75%
during the first twelve months after an investment is made and 1% thereafter,
based on the monthly net asset value of the Partnership. The Company will also
receive, on a quarterly basis, a special allocation from the Partnership
equivalent to 15% per year of any increase in the cumulative appreciation of the
net asset value of the Partnership without regard to interest income.
Additionally, the Company will be responsible for expenses (excluding continuing
services fees, management fees, incentive allocations, brokerage commissions and
extraordinary expenses) in excess of 0.5% of the average monthly net assets at
year end of the Partnership and expenses associated with the organization of the
Partnership and initial offering costs.
-10-
STATEMENT OF ADDITIONAL INFORMATION
SHAFFER DIVERSIFIED FUND, LP
(A Delaware limited partnership)
25,000 UNITS OF LIMITED PARTNERSHIP INTEREST
70 West Red Oak Lane
White Plains, NY 10604
Telephone Number: (800) 352-5265
_______________, 2001
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated _______________, 2001,
a copy of which accompanies this Statement of Additional Information.
PART TWO - STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
----
Glossary and Definitions of Commodity Futures Trading.........................3
Description of Commodity Futures Trading......................................7
General...................................................................7
Mechanics of Commodity Futures Trading....................................8
Margins...................................................................9
Regulation...............................................................10
Exhibits
Limited Partnership Agreement...........................................A-1
Subscription Requirements...............................................B-1
Subscription Instructions; Subscription Agreement / Power of Attorney...C-1
Request for Redemption..................................................D-1
-2-
GLOSSARY AND DEFINITIONS OF COMMODITY FUTURES TRADING
The following glossary may assist the prospective investor in understanding
the terms used in the accompanying Prospectus of Shaffer Diversified Fund, L.P.
(the "Fund") and this Statement of Additional Information:
Advisory Profits. See "Fees, Compensation and Expenses - Certain
Definitions" in the accompanying Prospectus.
Affiliate. A person that directly or indirectly controls, or is controlled
by, or is under common control with, another person.
Capital contribution. The payment by Shaffer Asset Management, Inc., the
Fund's general partner and initial commodity trading advisor (the "General
Partner") or a limited partner of the Fund ("Limited Partner") of the purchase
price for units of general partnership interest or units of limited partnership
interest in the Fund (the "Units"), respectively.
Clearing broker. Certain futures commission merchants and all introducing
brokers may not be members of the various organized commodity exchanges, or in
the case of futures commission merchants who are members, they may choose not to
clear their own trades and are, therefore, not members of the exchange's related
clearing house. Such futures commission merchants and introducing brokers use a
member firm for clearing and other administrative services. The firm providing
this service is known as a "clearing broker" and the firm using this service is
known as a "correspondent." The services usually performed include the clearance
and settlement of transactions, ordering executions on the floor and various
back-office type functions.
Clearing house. The agency, associated with a commodity exchange, through
which futures contracts are offset or fulfilled and financial settlements are
made.
Commission. The fee charged by a broker for executing a trade in a
commodity trading account of a customer. ADM Investor Services, Inc., the Fund's
initial commodity broker (the "Commodity Broker"), will (as is the industry
custom) charge the Fund commissions on a "round-turn" basis, i.e., only upon the
closing of an open position. However, for purposes of calculating the Net Asset
Value of the Fund, commodity brokerage commissions on open positions will be
subtracted from any unrealized profits or added to any unrealized losses on such
positions.
Commodity. The term "commodity" refers to goods, wares, merchandise,
produce, and in general everything that is bought and sold in commerce,
including financial instruments and currencies. Out of this large class, certain
commodities (including the aforesaid "financial" commodities), because of their
wide distribution, universal acceptance and marketability in commercial
channels, have become the subjects of trading on various national and
international exchanges located in principal marketing and commercial areas.
Traded commodities include: grains such as wheat corn, oats and soybean products
(meal and oil); foods such as livestock and meat, poultry and poultry products,
frozen concentrated orange juice, potatoes, sugar, cocoa and coffee; fibers such
as cotton, lumber and plywood; metals such as copper, silver, gold, platinum,
tin and zinc; financial instruments such as obligations issued by the Government
National Mortgage Association (GNMA's), United States Treasury Bills and
Treasury Bonds and corporate commercial paper; foreign currencies; such as
British pounds, Canadian dollars, Deutche marks, EuroCurrency, Japanese yen and
Swiss francs; contracts based on securities indices and groups; and energy
supplies such as petroleum and petroleum products (heating oil). Those
"physical" commodities that are traded are sold according to uniform,
established grade standards, in convenient
-3-
predetermined lots and quantities such as bushels, pounds, or bales, are
fungible (admit of free substitution of one lot for another to satisfy a
contract) and, with few exceptions, are storable over periods of time.
Commodity futures contract. See "Futures contract" (below).
Commodity option. See "Option" (below).
Commodity Futures Trading Commission (the "CFTC"). An independent
regulatory commission of the United States Government empowered to regulate
commodity futures transactions and other commodity interest transactions under
the Commodity Exchange Act, as amended (the "CE Act").
Commodity pool operator. The sponsor or administrator of a commodity pool
such as the Fund. The General Partner/Advisor is a CFTC-registered commodity
pool operator.
Commodity trading advisor. One who analyzes or makes recommendations with
respect to commodity values and commodity trading or manages commodity trading
accounts for others. The General Partner / Advisor is a CFTC-registered
commodity trading advisor.
Contract market. A commodity exchange or, more correctly, that specific
market within a commodity exchange that is devoted to a particular commodity,
upon which the trading of a particular futures contract or commodity option has,
been authorized by the CFTC.
Daily price fluctuation limit. The maximum permitted fluctuation (imposed
by an exchange and approved by the CFTC) in the price of a commodity futures
contract for a given commodity that can occur on a commodity exchange on a given
day in relation to the previous day's settlement price, which maximum permitted
fluctuation is subject to change by the exchange from time to time.
Daily trading limit. The maximum number of futures contracts for a given
commodity allowed to be purchased or sold on a given day by any one person or
group of persons acting together. In the past, daily trading limits have been
established by certain exchanges and may be established again in the future.
Day trading. The purchase and sale of the same futures contract during a
single day.
Delivery. The process of satisfying a commodity futures contract by
transferring ownership of a specified quantity and grade of a cash commodity
(i.e., the actual underlying commodity) to the purchaser thereof.
Forward contract. A cash market transaction in which buyer and seller agree
to the purchase and sale of a specific quantity of a commodity for delivery at
some future time under such terms and conditions as the two may agree upon
through negotiation.
Fully disclosed brokerage arrangement. An arrangement between a retail
broker or an introducing broker and its clearing broker pursuant to which the
latter carries the individual accounts of the former's customers on its books.
Under this arrangement, the retail broker or introducing broker receives a share
of the income generated by the account.
Fundamental analysis. Analyzing the price trends of commodities using the
underlying factors of supply and demand. Among these are items such as weather,
weather forecasts, price support programs,
-4-
political developments, population, floods, drought, labor problems, the
economy, acreage yields, substitutes, and so on.
Futures contract. Traditionally, a contract providing for delivery or
receipt at a future date of a specified amount and type of a traded commodity at
a specified price and delivery point. A commodity futures contract should be
distinguished from the actual physical commodity, which is termed a "cash
commodity". "Stock index futures", however, are based upon the values of certain
stock indices and are settled in cash rather than by delivery of an underlying
commodity.
Futures commission merchant. A commodity broker. The Commodity Broker is a
CFTC-registered futures commission merchant.
Hedging. Reducing (or attempting to reduce) exposure to changes in the
market for a commodity through the establishment of an opposite position in the
futures market from that held in the cash or "spot" market therefore. (See
"Description of Commodity Futures Trading - General", below).
Introducing broker. Any person, except an individual who elects to be and
is registered as an associated person of a futures commission merchant or
introducing broker, engaged in soliciting or in accepting orders for the
purchase or sale of any commodity for future delivery on or subject to the rules
of any contract market who does not accept any money, securities, or property
(or extend credit in lieu thereof) to margin, guarantee, or secure any trades or
contracts that result or may result therefrom.
Limit. See "Daily price fluctuation limit", above.
Limit order. A trading order which sets a limit on either price or time of
execution or both. Limit orders (as contrasted with stop orders) do not become
market orders (see below).
Long contract (position). A commodity futures contract to buy a specified
amount and grade of a commodity at a future date at a specified price (or the
trading position arising therefrom).
Margin. In commodity trading, "margin" refers to good faith deposits with a
broker to assure fulfillment of a purchase or sale of a commodity futures
contract. At present, margins generally range from 4% to 20% of the value of the
commodity underlying the contract. "Maintenance" margin requirements are
generally 75% of initial margin requirements. (See 'Description of Commodity
Futures Trading - Margins", below).
Margin call. A demand for additional funds after the initial margin deposit
required to maintain a customer's account in compliance with the "maintenance
margin" requirements of a particular commodity exchange or of a commodity
broker. (See "Description of Commodity Futures Trading - Margins", below).
Market order. An order to execute a trade at the prevailing price as soon
as possible.
Net Asset Value and Net Asset Value per Unit. See "Fees, Compensation and
Expenses - Certain Definitions" in the accompanying Prospectus.
Open position (or trade). The contractual commitment arising from an
outstanding long or short futures contract that has not been extinguished by an
offsetting trade or by delivery.
Option. A contract giving the holder the right (but not the obligation) to
buy (a call) or sell (a put) a specified commodity futures contract or commodity
at a future date for a specified price.
-5-
Position limit. The maximum number of commodity futures contracts in one
commodity on a contract market that can be held or controlled at one time by one
person or a group of persons acting together, as allowed by the CFTC or a
commodity exchange.
Position trading. Holding futures contracts for an extended period of time,
as contrasted with "day trading", above.
Pyramiding. The use of unrealized profits in an existing position to
provide margin for the acquisition of additional commodity futures contracts in
the same or a related commodity.
Round-turn. The acquisition and subsequent liquidation of a futures
contract (i.e., open position). Commodity brokerage commissions are
traditionally charged on a "round-turn" basis.
Syndication fees / selling commissions / sales charges. During the initial
offering period, the Units will be offered at an initial offering price of
$1,000 ($950 per Unit, plus an initial sales charge of $50 per Unit). Subsequent
to the closing of the initial offering period, unsold Units (if any) may be
offered and sold by the Fund at the then current Net Asset Value per Unit, plus
a sales charge of 5% of the Net Asset Value per Unit for each Unit purchased. If
at least 1,000 Units are sold and accepted by the General Partner during the
initial offering period, approximately 20% of all sales charges shall be paid to
the General Partner to reimburse the General Partner to reimburse the General
Partner for the payment of the Fund's organizational and initial offering and
the Fund's operating expenses that are payable by the General Partner and
approximately 80% of all sales charges shall be paid as syndication fees to
Berthel Fisher &Company Financial Services, Inc. (the "Selling Agent"); and as
selling commissions to certain other firms that are members of the National
Association of Securities Dealers, Inc. ("NASD") and certain foreign dealers and
institutions which are not members of the NASD (the "Selected Dealers") that are
participating in the offering. The Selling Agent and the Selected Dealers may in
turn pay a portion of such syndication fees and selling commissions to their
respective employees who are NASD registered representatives for each Unit sold
by them. The sales charge may be increased at any time and from time to time by
the General Partner upon sixty days' prior written notice to the Limited
Partners. (See "Fees, Compensation and Expenses - Description of Fees,
Compensation and Expenses - Syndication Fees / Selling Commissions / Sales
Charges" and "Plan of Distribution" in the accompanying Prospectus).
Settlement price. The daily price or value of each futures contract
established by a commodity exchange's clearing house after the close of each
day's trading, usually the closing price, on the basis of which "maintenance
margin" requirements are set. (See "Description of Commodity Futures Trading -
Margins", above).
Short contract (position). A commodity futures contract to sell a specified
amount and grade of a commodity at a future date at a specified price (or the
trading position arising therefrom).
Speculating. In commodity trading, to trade other than for the purpose of
hedging; to trade in hopes of profiting from favorable price changes. (See
"Description of Commodity Futures Trading - General", below).
Spot contract. A cash market transaction in which buyer and seller agree to
the purchase and sale of a specific commodity lot for immediate delivery.
Spread. The taking of both long and short positions with respect to the
same or related commodities but in different delivery months or on different
exchanges.
-6-
Stop order. An order given to a broker to execute a trade in a commodity
futures contract when the market price for the contract reaches the specified
stop order price. Stop orders are utilized to protect gains or limit losses on
open positions. Stop orders become market orders when the stop order price is
reached.
Straddle. Same as "Spread", above.
Technical analysis. An approach to forecasting commodity prices based on
the study of price movement itself without regard to underlying fundamental
market factors.
Trading limit. See "Daily trading limit", above.
Unrealized profit or loss. The profit or loss which would be realized on an
open position if it were closed out at the current settlement price.
DESCRIPTION OF COMMODITY TRADING
General
Commodity futures contracts are made on or through a commodity exchange and
provide for future delivery of agricultural and industrial commodities, foreign
currencies or financial instruments, or, in more recent instances, the cash
equivalent thereof. Such contracts are uniform for each commodity and vary only
with respect to price and delivery time. A commodity futures contract to accept
delivery (buy) is referred to as a "long" contract; conversely, a contract to
make delivery (sell) is referred to as a "short" contract. A long contract may
be satisfied either by taking delivery of the commodity and paying the entire
purchase price therefor or by offsetting the contractual obligation prior to
delivery through the acquisition of a corresponding short contract on the same
exchange. A short contract may be satisfied either by making delivery of the
commodity (usually by tendering warehouse receipts, shipping certificates or
similar documents of title) or by acquiring a corresponding long contract on the
same exchange. Commodity exchanges provide a clearing mechanism to facilitate
the matching of offsetting trades. Until a commodity futures contract is
satisfied by delivery or offset, it is said to be an "open" position. Commodity
futures contracts are but one category of organized commodity trading as it
presently exists in the United States. Two other categories of commodity
transactions are "spot" contracts and "forward" contracts. Both of these are
varieties of cash commodity transactions, as opposed to futures transactions, in
that they relate to the purchase and sale of specific actual physical
commodities. Whereas futures contracts are uniform except for price and delivery
time, cash commodity contracts may differ from each other with respect to such
terms as quantity, grade, mode of shipment, terms of payment, penalties, risk of
loss and the like. Spot contracts are generally cash commodity contracts for the
purchase and sale of a specific physical commodity for immediate delivery.
Forward contracts are cash commodity contracts for the purchase and sale of a
specific physical commodity for delivery at some future time under terms and
conditions specifically negotiated by the parties. Cash commodity transactions
may arise in conjunction with commodity futures transactions. For example, if
the holder of a long contract satisfies it by taking delivery of the commodity,
such holder is said to have a cash commodity position. This cash position, if it
is not to be used or processed by the holder, may be sold through spot or
forward contracts, or delivered in satisfaction of a commodity futures contract.
Another type of commodity contract is the "commodity option" which gives the
holder the right (but not the obligation) to buy or sell a specified futures
contract or commodity at a future date for a specified price.
-7-
The prices of commodities fluctuate rapidly and over wide ranges. Except
for the effect of government price control and support programs, commodity
prices are generally determined by the interaction of supply and demand. The
market is subject to the many psychological factors working on each buyer and
seller, as well as to crop conditions, deflation or inflation, strikes
(especially in the transportation and commodity storage industries), world
conditions, war or threats of war, interest rates, and other factors. Any
fundamental prediction of commodity prices is necessarily subject to all of
these factors, which can change daily if not hourly. Only by constant updating
of accurate information as to these fundamental factors or by technical analysis
can any reasonable forecasts be made for commodity prices, and, notwithstanding
that current and correct information as to substantially all factors is known,
prices still may not react as predicted. Prices of commodities are listed in
most major daily newspapers and financial journals.
The prices of financial instruments and foreign currencies are subject to
the factors described above. Some of the other factors which affect financial
instrument or foreign currency prices include a country's balance of payments
(surplus or deficit), political stability, treaties, government policies and
exchange controls, the inflation rate, and interest rates.
There are two broad classifications of commodity traders: hedgers and
speculators. Hedgers are persons or entities who market or process commodities
and utilize the commodity markets for protection against the risk of price
variation. For example, a seller or processor is at the risk of market price
fluctuations between the time he contracts to sell or process and the time he
must perform on the contract. In such cases, at the time of the contract, he
will simultaneously enter into futures contracts to buy the necessary equivalent
quantity of the commodity he needs or to sell the equivalent quantity of the
commodity he intends to market at some later date. To illustrate, a cattle
feeder may enter into a futures contract to sell cattle, which can ultimately be
satisfied by the delivery of his herd, thus relieving himself of exposure to
price variations in either his raw material or ultimate market product.
Similarly, a farmer may hedge against the price fluctuations between the day he
plants his crop and the day it is ready for delivery. In these examples, the
hedger may either make or take delivery in satisfaction of his futures contract,
or else close the position prior to delivery (see "Mechanics of Commodity
Futures Trading", below) and buy or sell the necessary equivalent amount of the
physical commodity. In either case, the price of the commodity is established at
the time the hedger initiates his futures position. Thus, the commodity markets
enable the hedger to shift the risk of price fluctuations to the speculator.
A speculator is a person or entity who buys or sells in expectation of a
rise or decline in the price of a commodity and assumes the market risk sought
to be avoided by the hedger. For instance, the speculator may take the opposite
side of a hedger's trade, as in the example above, by acquiring the opposite
side of the futures contract sold by the cattle feeder. If the price rises, the
speculator can close out his position at a profit, either by taking delivery of
the cattle covered by his contract or, more usually, by offsetting his original
position by taking an opposite position (see "Mechanics of Commodity Futures
Trading, below). If the price falls, the speculator can still liquidate his
position, but at a loss. Because the speculator may take either a long or short
position in the futures markets, it is possible for him to make profits or incur
losses regardless of the direction of price trends. All trades made by the Fund
will be for speculative rather than hedging purposes.
Mechanics of Futures Trading
The commodity futures contract is the basic instrument involved in futures
trading. Upon entering into or acquiring such a contract, the trader becomes
obligated to buy or sell a certain quantity of a specific commodity on a certain
date. Thereafter, trading profits or losses result from movements in the price
of the commodity underlying the futures contract. For example, if on April 1st a
trader enters into a contract to buy for $5.00 a bushel of wheat for delivery in
July and the price of July wheat subsequently
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rises to $7.50 per bushel, then a profit of $2.50 per bushel has been achieved.
Conversely, if the price of July wheat falls to $2.50 per bushel, the investor
will have lost $2.50 per bushel because he is obligated to pay $5.00 for
something worth only half that price.
When the trader places an order with a broker, the order is transmitted by
the broker to the floor of a commodity futures exchange where the trade is
consummated by floor brokers by means of "open outcry" and the details of the
transaction are recorded. The individual trader does not appear on the exchange
records as buyer or seller; the contract is, rather, executed in the name of the
"clearing house member" through which the order has ultimately been placed and
the exchange's clearing house itself becomes the opposite party to the contract.
At the close of each trading day, cash settlements are made which reflect that
day's price movements in all the commodities covered by outstanding futures
contracts. The clearing house credits the account of the clearing member whose
position shows a gain, and debits the account of the clearing member who
suffered a loss.
In practice, a commodity futures contract seldom results in the taking or
making of delivery in accordance with its terms. Usually, the contract will be
"offset" with a second futures contract that represents a position that is the
opposite of the first. Using the same example given above, if a futures contract
provides for the purchase of a bushel of July wheat for $5.00 and the price
subsequently rises to $7.50 per bushel, the trader can close out his position
and liquidate his profit by entering into or acquiring a contract to sell a
bushel of July wheat for $7.50.
Margins
In commodity trading, "margins" are good faith deposits that must be
deposited with a broker in order to initiate or maintain an open position in a
commodity futures contract. When commodity futures contracts are traded, both
buyer and seller are required to post margins with the brokers handling their
trades as security for the performance of their buying and selling undertakings
and to offset losses in their trades due to daily fluctuations in the markets.
Minimum margins are set by the several exchanges and generally range from 4% to
20% of the value of the commodity underlying the contract (see "Regulation",
below). For example, wheat valued at $5.00 per bushel may have a margin set at
50 cents per bushel. A speculator with only $2,500 may thus enter into a
contract for 5,000 bushels of wheat worth $25,000. A variation of 50 cents per
bushel in price would then result in a loss of $2,500 (his entire margin) or a
gain of $2,500 (a 100% profit on his margin). If delivery of a commodity is made
in satisfaction of a futures contract the entire contract price is generally
payable by the buyer. Brokerage firms carrying accounts for traders in commodity
futures contracts may increase the amount of required margin as a matter of
policy in order to afford further protection for themselves. It is presently
contemplated that the Commodity Broker will require the Fund to make margin
deposits of at least 100% of the minimum level for all commodity futures
contracts. This requirement may be altered from time to time at the discretion
of the Commodity Broker.
The customer's margin deposit is the "equity" in his account. A change in
the market price of a commodity futures contract will increase or decrease the
equity. If the equity decreases below the "maintenance margin" amount (generally
75% of the initial margin requirement), the broker may issue a margin call
requiring the customer to increase the account's equity. Failure to honor such a
margin call may result in the closing out of the open position. If at the time
such open position is closed the account equity is negative, then the equities
in the customer's open positions in excess of their required margins, as well as
the customer's cash reserves, will be used to offset such debit balance. If such
equities and reserves are not sufficient, the customer will be liable for the
remaining unpaid balance.
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Regulation
Congress enacted the Commodity Exchange Act, as amended (the "CE Act"), to
regulate trading in commodity futures contracts and other commodity interests,
the exchanges on which they are traded, the individual brokers who are members
of such exchanges, and commodity professionals and commodity brokerage houses
that trade in these commodities. The Commodity Futures Trading Commission (the
"CFTC") is an independent agency which administers the CE Act and is authorized
to promulgate rules thereunder. The CE Act is designed to promote the orderly
and systematic marketing of commodities and futures contracts while preventing
fraud, speculative excess and price manipulations, and makes unlawful any
device, scheme or artifice to defraud a customer or participant in a commodity
pool. It also prohibits any transaction, practice or course of business that
operates as a fraud or deceit upon any current or prospective customer or
participant.
The CE Act further provides, among other things, that futures trading in
commodities must be upon exchanges designated as "contract markets" by the CFTC.
The CFTC has adopted regulations covering the designation of contract markets,
the monitoring of commodity exchange rules, the establishing of position limits,
the registration of brokers and brokerage houses, commodity trading advisors and
commodity pool operators, the segregation of customers' funds, minimum financial
requirements, record keeping and periodic audits of such registered brokerage
houses and professionals. Under the CE Act, the CFTC is empowered, among other
things, to (i) hear and adjudicate customer complaints against all individuals
and firms registered under the CE Act (reparations), (ii) seek injunctions and
restraining orders, (iii) issue orders to cease and desist, (iv) initiate
disciplinary proceedings, (v) revoke or suspend registrations, and (vi) levy
substantial fines.
Shaffer Asset Management, Inc., the Fund's general partner and commodity
trading advisor (the "General Partner / Advisor"), is a "commodity pool
operator" and a "commodity trading advisor" and the Commodity Broker is a
"futures commission merchant", as those terms are used in the CE Act and, as
such, are registered with, and subject to regulation by, the CFTC. If the
registration of the General Partner as a commodity pool operator were to be
suspended or terminated, the Fund would no longer be able to trade until a
substitute general partner could be duly elected and registered. If the
registration of the General Partner / Advisor as a commodity trading advisor was
similarly suspended or revoked, the Advisor would not be permitted to advise the
Fund. Should the registration of the Commodity Broker as a futures commission
merchant be suspended or revoked, the Fund would no longer be able to maintain
its account with the Commodity Broker, and a new futures commission merchant
would be retained by the General Partner.
The CE Act and the regulations promulgated thereunder make it unlawful for
any commodity pool operator, commodity trading advisor, principal thereof or
person who solicits therefor to represent or imply in any manner whatsoever that
they have been sponsored, recommended or approved, or that their abilities or
qualifications have in any respect been passed upon, by the CFTC, the Federal
government, or any agency thereof. The CFTC registrations of the General Partner
/ Advisor and the Commodity Broker should not be taken by prospective investors
as governmental endorsements of the registered entities.
The CFTC has in effect a comprehensive scheme for the regulation of
commodity pool operators and commodity trading advisors. As now in effect, the
rules require commodity pool operators and commodity trading advisors to provide
certain disclosures to new customers and to retain certain trading and other
records, prohibit pool operators from commingling pool assets with those of the
operators or its customers, and require pool operators to provide their
customers with periodic account statements and an annual report. Upon request by
the CFTC, the names and addresses of the Limited Partners in the Fund
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would be required to be furnished to the CFTC, along with copies of all
transactions with, and reports and other communications to, the Limited
Partners.
Commodity exchanges are given certain latitude in promulgating rules and
regulations to control and regulate their members and clearing houses as well as
the trading conducted on their floors. Examples of regulation by an exchange
include the establishment of initial and maintenance margins, limits on price
fluctuations, size of trading limits and contract specifications. The CFTC
reviews such rules, except those relating to margins, and all such rules and
regulations relating to the terms and conditions of contracts of sale or to
other trading requirements must be approved by the CFTC.
In order to prevent excessive, speculation and attempted cornering of a
market, the various exchanges and the CFTC have imposed speculative position
limits on commodity futures transactions, and certain exchanges may have
established limits referred to as "daily trading limits" on the maximum number
of contracts which any person may trade on a particular trading day. Position
limits are subject to certain exemptions, such as bona fide hedging
transactions. All futures trades made by the Advisor and its principals on
behalf of their respective managed accounts (including trades for the Fund) will
be aggregated for purposes of determining speculative position limits.
Violation of the CE Act and the regulations thereunder subjects the
violator to penalties under the CE Act, including revocation of registration,
suspension of trading privileges, civil fines and imprisonment.
In 1979, the staff of the Securities and Exchange Commission (the "SEC")
adopted the position that the trading of futures contracts with respect to
financial instruments (other than United States Treasury Notes, United States
Treasury Bills, United States Treasury Bonds, Government National Mortgage
Association certificates and commercial paper) by a commodity pool such as the
Fund would require such pool to register under the Investment Company Act of
1940, as amended, and its trading advisors to register under the Investment
Advisers Act of 1940, as amended. Since that time, other financial instrument
futures contracts, such as the stock index contract have begun trading. The
Futures Trading Act of 1982 expressly granted jurisdiction to the CFTC over
stock index contracts and, accordingly, the Fund may trade such contracts.
Additionally, as a result of these statutory revisions and a June 1988
"no-action" letter issued by the staff of the SEC, the Fund is permitted to
trade in futures contracts on financial instruments and in options on futures
contracts without registration under the Investment Company Act of 1940 or the
Investment Advisers Act of 1940.
In the fall of 1981, the CFTC approved the application of the National
Futures Association to become a "registered futures association" under Section
17 of the CE Act, and the NFA became operational in 1982. The NFA acts as a
general "self-regulatory" body for the commodity industry, performing a role
similar to that played by the NASD with respect to the securities industry.
Significant regulatory responsibilities under the CE Act, particularly with
respect to the activities of futures commission merchants and introducing
brokers, was transferred from the CFTC to the NFA. The General Partner/Advisor
and the Commodity Broker are members of NFA.
The Futures Trading Act of 1982 was signed into law in January 1983. It
contains various amendments to the CE Act, including additional regulations for
commodity pool operators, such as the General Partner, an express, private right
of action to bring suit in Federal courts for violations of the CE Act, and
additional powers to the NFA to carry out its responsibilities as a
self-regulatory organization.
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Exhibit A
SHAFFER DIVERSIFIED FUND, L.P.
(A Delaware Limited Partnership)
Amended and Restated
Agreement of Limited Partnership
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement")
made as of __________, 200_, by and between SHAFFER ASSET MANAGEMENT, INC., a
New York corporation having an address at 70 West Red Oak Lane, White Plains, NY
10604 (the "General Partner / Advisor"), and DANIEL S. SHAFFER, an individual
having an address c/o Shaffer Asset Management, Inc., 70 West Red Oak Lane,
White Plains, NY 10604 (the "Initial Limited Partner"), and those who hereafter
execute this Agreement, whether in counterpart, by separate instrument, by
attorney-in-fact or otherwise, with the consent of the General Partner, as
limited partners (the "Limited Partners"; the General Partner and the Limited
Partners collectively being referred to herein as the "Partners").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto have formed a limited partnership under the
provisions of the Delaware Revised Uniform Limited Partnership Act, as amended
and in effect on the date hereof (the "Act"), for the purpose of speculatively
trading in commodity futures contracts and other commodity interests;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
ORGANIZATION
1.1 Formation and Name. The parties hereto have formed a limited
partnership under the name SHAFFER DIVERSIFIED FUND, L.P. (the "Partnership")
under the provisions of the Act and do hereby continue the Partnership pursuant
to the terms hereof. The General Partner has heretofore executed and filed with
the Office of the Secretary of State of the State of Delaware a Certificate of
Limited Partnership of the Partnership (the "Certificate of Limited
Partnership") in accordance with the Act, and the General Partner shall execute,
file, record and publish as appropriate all other certificates, amendments and
documents as the General Partner deems necessary or advisable. Each Limited
Partner hereby undertakes to furnish to the General Partner a power of attorney,
which may be filed with the Certificate of Limited Partnership and/or this
Agreement and any amendment thereto and/or hereto, and such additional
information as is required to complete such documents, and to execute and
cooperate in the filing, recording or publishing of such documents at the
request of the General Partner.
1.2 Business. The Partnership's business and purpose is to buy, sell, trade
or otherwise acquire, hold and dispose of commodities, commodity futures
contracts (including, without limitation, futures contracts on United States
Treasury Bills and other financial instruments), commodity options, other
commodity interests, and any other items which are presently or may hereafter
become the subject to futures contract trading (hereinafter collectively
referred to as "Futures Interests"), and other
investments and to engage in any and all activities incidental or related
thereto. The objective of the Partnership's business is to achieve appreciation
of its assets through the speculative trading of Futures Interests.
1.3 Term. The term of the Partnership commenced upon the execution and
filing with the Office of the Secretary of State of the State of Delaware on
August 29, 2000 of the Certificate of Limited Partnership and shall continue in
existence until December 31, 2025 unless earlier terminated as provided in
Section 5.1 hereof or by operation of law.
1.4 Fiscal Year; Tax Matters Partner. The fiscal year of the Partnership
for all purposes shall commence on January 1 and shall end on December 31 each
year, unless the General Partner elects, with the approval of the Internal
Revenue Service and the Commodity Futures Trading Commission (the "CFTC"), a
different fiscal year. The tax matters partner for the Partnership shall be the
General Partner.
1.5 Principal Office. The Partnership's principal place of business shall
located be at 70 West Red Oak Lane, White Plains, NY 10604; additional or other
places of business may be established at such other locations as may be
determined, from time to time, by the General Partner.
1.6 Power of Attorney. Each Limited Partner, by the execution of this
Agreement, whether in counterpart, by separate instrument, by attorney-in-fact
or otherwise, does hereby irrevocably constitute and appoint the General
Partner, with full power of substitution, his true and lawful attorney and
agent, with full power and authority in his name, place and stead, to admit
additional Limited Partners, to file, prosecute, defend, settle or compromise
any and all actions at law or suits in equity for or on behalf of the
Partnership with respect to any claim, demand or liability asserted or
threatened by or against the Partnership, and to execute, acknowledge, deliver,
file and record on each Limited Partner's behalf in the appropriate public
offices (i) all certificates and other instruments (including, without
limitation, the Certificate of Limited Partnership, all amendments thereto, all
counterparts of this Agreement and all amendments hereto) which the General
Partner deems necessary or appropriate to qualify or continue the Partnership as
a limited partnership in the jurisdictions in which the Partnership may conduct
business or which may be required to be filed by the Partnership or any of the
Partners under the laws of any jurisdiction; (ii) all instruments which the
General Partner deems appropriate to reflect a change in or modification of the
Partnership in accordance with the terms of this Agreement; (iii) all
conveyances and other instruments which the General Partner deems appropriate to
reflect the termination and dissolution of the Partnership; (iv) certificates of
assumed name; (v) the advisory agreement (the "Advisory Agreement") between the
Partnership and Shaffer Asset Management, Inc., the Partnership's general
partner and initial commodity trading advisor (the "Advisor"), requiring the
payment of management fees and advisory allocations described in Section 2.3
hereof, the Prospectus and Statement of Additional Information (as defined in
Section 3.1(a) of this Agreement) or such other advisory agreement(s) as the
General Partner may deem, from time to time, necessary or desirable; and (vi)
the customer agreement (the "Customer Agreement") between the Partnership and
ADM Investor Services, Inc., the Partnership's initial commodity broker (the
"Commodity Broker"), requiring the payment of the brokerage commissions
described in the Prospectus and Statement of Additional Information or such
other brokerage agreement(s) as the General Partner may deem, from time to time,
necessary or desirable. The Power of Attorney granted herein shall be
irrevocable and be deemed to be a power coupled with an interest and shall
survive the incapacity or death of any Limited Partner. Each Limited Partner
hereby agrees to be bound by any representation made by the General Partner and
by any successor(s) thereto acting in good faith pursuant to such Power of
Attorney, and each Limited Partner hereby waives any and all defenses which may
be available to contest, negate or disaffirm the action of the General Partner
and any successor(s) thereto taken in good faith under such Power of Attorney.
In the event of any conflict between this Agreement and any instruments filed by
such attorney pursuant to the Power of Attorney granted in this Section 1.6,
this Agreement shall control.
-A-2-
1.7 Partnership Units. All partnership interests in the Partnership shall
be evidenced by units and as used herein the term "Unit" is defined as an
interest in the Partnership acquired upon the making of a capital contribution
by either the General Partner or a Limited Partner. The General Partner's
capital contribution shall be evidenced by Units of General Partnership Interest
and a Limited Partner's capital contribution shall be evidenced by Units of
Limited Partnership Interest. When used herein without qualification, the term
"Units" shall include both Units of Limited Partnership Interest and Units of
General Partnership Interest, pari passu.
1.8 Expenses; Limits; Reserves. (a) Except as otherwise set forth herein or
in the Prospectus or Statement of Additional Information, the Partnership shall
be obligated to pay all liabilities incurred by it, including without limitation
Continuing Services Fees (as defined in Section 4.4 hereof); Management Fees (as
defined in Section 4.4 hereof) and Incentive Allocations (as defined in Section
4.4 hereof); brokerage commissions; legal, accounting, auditing, printing,
recording, filing and other periodic fees and expenses; and extraordinary
expenses incurred by the Partnership. Notwithstanding the foregoing, the General
Partner shall reimburse the Partnership for all such expenses (except Continuing
Services Fees, Management Fees, Advisory Allocations, brokerage commissions and
extraordinary expenses incurred by the Partnership) to the extent that such
expenses exceed, in a fiscal year, 0.5% of the average monthly Net Asset Value
(as defined in Section 4.4 hereof) of the Partnership. In addition, the General
Partner shall pay the organizational and initial offering expenses of the public
offering and sale of the Units of Limited Partnership Interest described in
Section 3.1(a) hereof, and no such expenses shall be deducted from the proceeds
of such offering. For the purposes of this Agreement, organization and initial
offering expenses shall include all costs paid or incurred by the Partnership or
the General Partner in organizing the Partnership and offering the Units of
Limited Partnership Interest, including bank and escrow agent charges, blue sky
filing fees, filing fees payable upon formation and organization of the
Partnership and legal, accounting and printing fees associated with the
preparation, filing and printing of the Registration Statement (as defined in
Section 3.1 hereof), the Prospectus and the Statement of Additional Information
related to such offering. Indirect expenses of the General Partner, such as
salaries, rent and other overhead expenses, shall not be liabilities of the
Partnership.
(b) Compensation to any party, including the General Partner (or any
commodity trading advisor that may be retained in the future), shall not exceed
the limitations imposed as of the date hereof by the North American Securities
Administrators Association. In the event that such compensation exceed such
limitations, the General Partner shall promptly reimburse the Partnership for
such excess.
(c) Appropriate reserves shall be created, accrued and charged to the
Partners' capital accounts for contingent liabilities (in accordance with
generally accepted accounting principles), if any, as of the date of any such
contingent liability becomes known to the General Partner.
1.9 Prohibitions. The Partnership shall not (a) engage in pyramiding, (b)
commingle its assets with the assets of any other person, except as permitted by
law, (c) make loans to the General Partner, any affiliate thereof or any other
person or entity at any time for any reason, (d) pay per-trade compensation to
the General Partner, any commodity trading advisor, any affiliate thereof or any
other person or entity that receives any other form of compensation from the
Partnership, (e) permit rebates or give-ups to be received by the General
Partner or any affiliate thereof (nor shall the General Partner participate in
any reciprocal business arrangements that would circumvent the foregoing or any
other provision of this Agreement) or (f) borrow cash or other assets from the
General Partner.
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ARTICLE II
GENERAL PARTNER; ADMINISTRATION
2.1 Management. Subject to the limitations of this Agreement, the General
Partner shall have full, exclusive and complete authority for and control of the
management of the Partnership's affairs for the purposes herein stated, and
shall make all decisions affecting the Partnership's affairs, including, without
limitation, the decision to enter into contracts for trading advisors' services
and brokerage services. In that regard, the General Partner may, but need not,
make trading decisions for the Partnership and may employ one or more affiliated
and/or unaffiliated commodity trading advisors to perform that function. The
General Partner may take such other actions as it deems necessary or desirable
to manage the business and affairs of the Partnership including, but not limited
to, the following: opening bank accounts with state or national banks; paying,
or authorizing the payment of, distributions to the Partners and expenses of the
Partnership such as selling commissions (if any), advisory fees, brokerage
commissions, legal and accounting fees, printing fees, and registration and
other fees of governmental agencies; and investing or directing the investment
of assets of the Partnership, whether or not involving the purchase or sale of
Futures Interests. Subject to the terms and conditions set forth in this
Agreement, the General Partner may engage and compensate on behalf of the
Partnership from assets of the Partnership such persons or entities, including
any affiliated person or entity or any other person or entity, as the General
Partner in its sole discretion shall deem advisable for the conduct and
operation of the business of the Partnership.
2.2. Compensation and Reimbursement. The General Partner shall share in all
Partnership income, gains, losses, deductions and credits to the extent of its
interest in the Partnership. In addition, the General Partner, in its capacity
as the general partner of the Partnership, shall receive from the Partnership
(i) approximately twenty percent (20%) of all Sales Charges (as defined in
Section 4.4 hereof), if at least 1,000 Units are sold and accepted by the
General Partner during the Initial Offering Period (as defined in Section 3.1(a)
hereof); and (ii) all early redemption fees charged by the Partnership upon
redemptions of Units of Limited Partnership Interest to reimburse the General
Partner for the payment by the General Partner of the Partnership's
organizational, initial offering and operating expenses payable by the General
Partner.
2.3. Initial Commodity Trading Advisor. The General Partner is hereby
authorized, on behalf of the Partnership, to enter into the Advisory Agreement
with the Advisor (which also serves as the general partner of the Partnership).
The General Partner, in its sole discretion, may employ the Advisor or other
commodity trading advisors on the terms and conditions contained in the Advisory
Agreement or on different terms and conditions, and the compensation for such
other commodity trading advisors may be negotiated and determined without regard
to the Partnership's previous trading performance. No person who receives any
advisory, management, incentive or administrative fees or allocations from the
Partnership for trading advisory or management services may share or
participate, directly or indirectly, in the brokerage commissions paid by the
Partnership.
2.4 Initial Commodity Broker. The General Partner is further authorized, on
behalf of the Partnership, to enter into the Customer Agreement with the
Commodity Broker and to cause the Partnership to pay to the Commodity Broker
brokerage commissions at such rates as may be established and re-established
from time to time under the terms of the Customer Agreement, which rates may
exceed the lowest rates otherwise available.
2.5 Standard of Liability; Indemnification. (a) The General Partner and its
controlling persons shall have no liability to the Partnership or any Limited
Partner for any liability or loss suffered by the Partnership that arises out of
any action of the General Partner if the General Partner acted in good faith and
in a manner it reasonably believed to be in or not opposed to the best interests
of the Partnership, if the General Partner was acting on behalf of or performing
services for the Partnership, and if the
-A-4-
General Partner's conduct did not constitute negligence, misconduct, or a breach
of its fiduciary obligations to the Partnership and the Limited Partners.
(b) In any threatened, pending or completed action, suit or proceeding to
which the General Partner was, is or is threatened to be made a party by reason
of the fact that it is or was a general partner or sponsor of the Partnership
(including an action brought by or in the right of the Partnership), the
Partnership shall indemnify, defend and hold harmless the General Partner, from
and against any loss, liability, damage, cost, expense (including, without
limitation, attorneys' and accountants' fees and disbursements), judgments and
amounts paid in settlement actually incurred by it in connection with the
investigation, defense or settlement of any such action, suit or proceeding if
the General Partner acted in good faith and in a manner it reasonably believed
to be in or not opposed to the best interests of the Partnership, if the General
Partner was acting on behalf of or performing services for the Partnership, and
if the General Partner's conduct did not constitute negligence, misconduct, or a
breach of its fiduciary obligations to the Partnership and the Limited Partners.
No indemnification shall be made with respect to any claim, issue or matter as
to which the General Partner shall have been adjudged to be liable for
negligence, misconduct or breach of its fiduciary obligations in the performance
of its duties to the Partnership and the Limited Partners, unless and only to
the extent that the court in which such action, suit or proceeding was brought
shall determine upon application by the General Partner that, despite the
adjudication of liability and in view of all of the circumstances of the case,
the General Partner is nevertheless fairly and reasonably entitled to
indemnification for such amounts as such court shall deem proper. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, in and of itself, create a presumption that the General Partner did
not act in good faith and in a manner which it reasonably believed to be in or
not opposed to the best interests of the Partnership.
(c) To the extent that the General Partner has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
Section 2.5(b) hereof, or in the defense of any claim, issue or matter therein,
the Partnership shall indemnify it against the costs and expenses (including,
without limitation, attorneys' and accountants' fees and disbursements) actually
and reasonably incurred by it in connection therewith.
(d) No indemnification of the General Partner by the Partnership shall be
permitted to the extent that the General Partner incurs any loss, liability,
damage, cost or expense (including, without limitation, attorneys' and
accountants' fees, costs and expenses incurred in investigating or defending any
demand, claim, suit or proceeding) resulting from or arising out of any
violation by the General Partner of Federal or applicable state securities laws
in connection with or related to the Registration Statement or to the offer or
sale of the Units, unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
General Partner, (ii) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction, or (iii) a court of competent
jurisdiction approves a settlement of the claims and finds that indemnification
of the settlement and related costs should be made; provided that such court has
been advised of the position as to indemnification for violations of securities
laws of the Securities and Exchange Commission (the "SEC") and the securities
administrators of the jurisdictions in which the claimant alleges to have been
offered or sold Units.
(e) Expenses incurred in defending a threatened or pending civil,
administrative or criminal action, suit or proceeding against the General
Partner may be paid by the Partnership in advance of the final disposition of
such action, suit or proceeding if and to the extent that (i) such action, suit
or proceeding relates to acts or omissions with respect to the performance of
duties or services on behalf of the Partnership, (ii) such action, suit or
proceeding is initiated by a party who is not a Limited Partner or, if by a
Limited Partner, then such advance payment is specifically approved by a court
of competent jurisdiction, and (iii) the General Partner agrees to reimburse the
Partnership, together with the applicable
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legal rate of interest thereon, in the event that indemnification is not
permitted under this Section 2.5 upon final disposition.
(f) The term "General Partner" as used in this Section 2.5 shall include
the General Partner (including any former general partner of the Partnership
that has withdrawn from the Partnership), and its stockholders, directors,
officers, employees and affiliates and each person who controls the General
Partner (including such former general partner), as the case may be.
(g) In the event that the Partnership 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 any Partner's (or assignee's) obligations or liabilities
unrelated to the Partnership's business, such Partner (or assignees,
cumulatively) shall indemnify and reimburse the Partnership for all losses and
expenses incurred by the Partnership in connection therewith (including, without
limitation, attorneys and accountants' fees and disbursements).
2.6 Net Worth of the General Partner. The General Partner agrees that, so
long as it acts as a general partner of the Partnership, it will maintain its
Net Worth (as hereafter defined) at an amount equal to not less than the greater
of (i) five percent (5%) of the aggregate capital contributions made to the
Partnership by all Partners (including the General Partners' capital
contributions) or (ii) Fifty Thousand Dollars ($50,000). The General Partner
further agrees that it will not be a general partner of any limited partnership
in addition to the Partnership unless at all times when it is a general partner
of any such additional limited partnership its Net Worth shall be at least equal
to the Net Worth required by the preceding sentence plus, for each such
additional limited partnership, an amount equal to five percent (5%) of the
total capital contributions made by all the partners to such other limited
partnership (including the contributions made by the General Partner).
Notwithstanding the foregoing, the General Partner's net worth need not exceed
$1,000,000. For purposes of this Section 2.6, "Net Worth" shall reflect the
carrying of all assets at fair market value, shall exclude the General Partner's
interest in the Partnership or in any other limited partnership of which it is a
general partner, and shall otherwise be determined in accordance with generally
accepted accounting principles.
2.7 General Partner's Capital Contribution. The General Partner shall make
a capital contribution to the Partnership by purchasing Units of General
Partnership Interest in an amount equal to not less than the greater of: (i) one
percent (1%) of the aggregate amount of capital contributions made to the
Partnership by the Partners (including the General Partner's capital
contributions), or (ii) Twenty Five Thousand Dollars ($25,000). The General
Partner may not make any transfer or withdrawal of its contribution to the
Partnership or receive any distribution of any portion of its General
Partnership Interest in the Partnership while it is a general partner of the
Partnership which would reduce its percentage interest in the Partnership to
less than its required interest as set forth in the preceding sentence. The
General Partner may contribute any greater amount to the Partnership. The
General Partner may withdraw or receive a distribution of any portion of its
interest in the Partnership that is in excess of its required interest upon
thirty (30) days' prior written notice to the Limited Partners.
2.8 Other Business. The General Partner and its principals and affiliates
may engage in other business activities (including without limitation serving as
a general partner of other partnerships) and shall not be required to refrain
from any other activity or disgorge any profits derived from any such other
activity. Any of the commodity trading advisors to the Partnership, including
the Advisor, and their respective principals and affiliates will also be free to
manage additional accounts other than the Partnership's account, including for
their own account.
2.9 Distributions. (a) The General Partner shall have sole discretion in
determining the amount and frequency of any distributions which the Partnership
shall make other than distributions made upon the withdrawal of or redemption by
any Partner. The General Partner may declare distribution in
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additional Units of the Fund, in which event Limited Partners will be given at
least sixty (60) days' prior written notice and the option to receive cash
instead of additional Units. All distributions shall be made pro rata to the
number of Units held of record by the respective Partners.
(b) Current and liquidating distributions shall be made (i) first, to the
General Partner, so that the General Partner receives an amount equal to the
aggregate amount of any Special Allocation credited to its capital account
pursuant to Article V hereof, and (ii) second, to the Partners in the ratio that
the capital account of each Partner bears to the capital account of all
Partners.
2.11 Contracts with the General Partners or its Affiliates. The maximum
term of any contract between the Partnership and the General Partner or an
affiliate thereof shall be one year (excluding renewals or extensions thereof);
provided that certain provisions in any such contract may expressly survive the
termination of the contract if survival would be customary. Agreements between
the Partnership and the General Partner or any affiliate thereof shall be
terminable by the Partnership without penalty on sixty (60) days' prior written
notice.
2.12 Withdrawal. The Partnership shall terminate and be dissolved upon the
withdrawal of the General Partner (unless in the case of the withdrawal of the
General Partner, the actions necessary to continue the Partnership are taken
pursuant to Section 5.1 hereof). In that regard, the General Partner shall cease
to be, and shall be deemed to have withdrawn as, a general partner of the
Partnership upon the occurrence of any of the following events:
(i) the legal disability, insolvency, bankruptcy, dissolution or
liquidation of the General Partner;
(ii) any event of withdrawal prescribed in the Act that is not
encompassed in this Article 2.12; or
(c) on written notice given by the General Partner, at least one
hundred twenty (120) days prior thereto, of the intention of the
General Partner to withdraw as a general partner of the
Partnership.
If the General Partner withdraws as general partner of the Partnership, it shall
receive the proportionate share of the Net Assets of the Partnership
attributable to its general partnership interest as of the close of business on
the last business day of the month in which the withdrawal is effective. If the
Limited Partners elect to continue the Partnership, the withdrawing General
Partner shall pay all Partnership expenses incurred as a result of its
withdrawal. Except as provided by this Section 2.12, the General Partner may not
sell, assign or otherwise dispose of all or substantially all of its general
partnership interest in the Partnership, except for a sale or transfer of all
interests of all Partners or a sale of all or substantially all of its general
partnership interest to a corporation controlled by the General Partner;
provided that the General Partner may mortgage, pledge, hypothecate or grant a
security interest in its general partnership interest as collateral for a loan
or loans. Any such assignment of all or any portion of a general partnership
interest shall not cause an event of withdrawal with respect to the General
Partner pursuant to this Section 2.12.
2.13 Tax Elections. The General Partner, in its sole discretion, may cause
the Partnership to make, refrain from making and, once having made, revoke the
election referred to in Section 754 of the Internal Revenue Code of 1986, as
amended, (the "Internal Revenue Code"), or any other election affecting the
computation of Partnership income required to be made by the Partnership
pursuant to Section 703(b) of the Internal Revenue Code, and any similar
election provided by state or local law or any similar provision enacted in lieu
thereof.
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2.14 No Personal Liability for Return of Capital. Subject to Section 2.5
hereof, the General Partner shall not be personally liable for the return or
repayment of all or any portion of the capital or profits of any Partner (or
assignee of Unit(s)), it being expressly agreed that any such return or
repayment of capital or profits made pursuant to this Agreement shall be made
solely from the assets of the Partnership (which shall not include any right of
contribution from the General Partner).
ARTICLE III
LIMITED PARTNERS
3.1 Capital Contributions and Public Offering of Units of Limited
Partnership Interest. (a) The General Partner, on behalf of the Partnership,
shall (i) file or cause to be filed with the SEC such registration statement(s)
and such amendments thereto as the General Partner deems advisable from time to
time (collectively, the "Registration Statement"), for the registration of the
public offering and sale of Units of Limited Partnership Interest; (ii) file or
cause to be filed copies of the final prospectus(es) and statement(s) of
additional information included as part of the Registration Statement
(collectively, the "Prospectus and Statement of Additional Information") with
the SEC pursuant to Rule 424(b); (iii) seek to qualify Units of Limited
Partnership Interest for sale under the securities laws of such states of the
United States or other jurisdictions as the General Partner shall deem necessary
or advisable, and (iv) take such action with respect to the matters described in
subsections (i) through (iii), above, as it shall deem advisable or necessary.
(b) The General Partner is authorized to take such actions and make such
arrangements for the sale of the Units of Limited Partnership Interest as it
deems appropriate including, without limitation, the execution on behalf of the
Partnership of a Selling Agent agreement appointing Berthel Fisher & Company
Investment Services, Inc. (the "Selling Agent") as the Partnership's selling
agent for the offer and sale of the Units of Limited Partnership Interest as
contemplated in the Prospectus and Statement of Additional Information. The
General Partner will keep copies of all Subscription Agreements / Powers of
Attorney signed by Limited Partners in connection with the public offerings of
the Units of Limited Partnership Interest for a period of at least six years.
(c) The Initial Limited Partner has contributed $1,000 in cash to the
capital of the Partnership in consideration for one (1) Unit of Limited
Partnership Interest. The General Partner may, on behalf of the Partnership and
in accordance with the latest Prospectus and Statement of Additional
Information, issue and sell Units of Limited Partnership Interest to other
persons (which other persons may include the General Partner) at any time
without the consent of the other Limited Partners. Such additional Limited
Partners shall contribute capital to the Partnership and shall be admitted as
Limited Partners as of the first business day of the month immediately following
the month in which their subscriptions are accepted by the General Partner; it
being understood and agreed, however, that the General Partner may reject any
subscription for Units at any time and for any reason.
During the Initial Offering Period (as hereinafter defined), (i) the
purchase price for each Unit of Limited Partnership Interest shall be $1,000 per
Unit ($950 per Unit, plus an initial Sales Charge (as defined in Section 4.4
hereof) of $50 per Unit) and (ii) the purchase price for each Unit of General
Partnership Interest shall be $1,000. Thereafter, Units of Limited Partnership
Interest may be sold as of the last business day of each calendar month at a
purchase price per Unit equal to the Net Asset Value per Unit (as defined in
Section 4.4 hereof) as of the last business day of such month, plus a Sales
Charge of five percent (5%) of the Net Asset Value per Unit for each Unit
purchased. The purchase price for each Unit of General Partnership Interest
after the Initial Offering Period shall be the then current Net Asset Value per
Unit.
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The initial offering period (the "Initial Offering Period") of the Units
will extend from the date of the Prospectus and Statement of Additional
Information until sixty (60) days thereafter (subject to the General Partner's
right to extend the offering period for up to an additional sixty (60) days).
Notwithstanding anything to the contrary contained herein, the General Partner,
in its sole discretion, may terminate the Initial Offering Period at any time
for any reason. In addition, if the General Partner shall not have received and
accepted subscriptions for at least 1,000 Units of Limited Partnership Interest
during the Initial Offering Period, this Agreement shall terminate, and all
subscription monies shall be promptly returned to the subscriber(s) together
with any interest earned thereon. Any interest earned on the contributions of
the General Partner and the Initial Limited Partner prior to the expiration or
sooner termination of the Initial Offering Period shall be paid to such
contributors pro rata.
The Partnership shall not commence trading operations unless and until the
General Partner has received and accepted subscriptions (which may include Units
of Limited Partnership Interest subscribed for by the General Partner, the
Partnership's commodity trading advisor(s), the Partnership's selling agent and
selected dealers, the Partnership's commodity broker(s) or any affiliate of any
of the foregoing) for at least 1,000 Units of Limited Partnership Interest
(excluding the one initial Unit of Limited Partnership Interest). The General
Partner may terminate the offering of Units of Limited Partnership Interest at
any time. The aggregate of all capital contributions shall be available to the
Partnership to carry on its business, and no interest shall be paid by the
Partnership to any Partner on any such contribution except as set forth above.
Pursuant to Section 3.5 hereof, the General Partner, in its sole
discretion, may consent to and admit any assignee of Units of Limited
Partnership Interest as a substituted Limited Partner.
(d) All Units of Limited Partnership Interest subscribed for upon receipt
of a check or draft of the subscriber are issued subject to the collection of
the funds represented by such check or draft. In the event that a check or draft
of a subscriber for Units of Limited Partnership Interest representing payment
for Units of Limited Partnership Interest is returned unpaid, the Partnership
shall cancel the Units of Limited Partnership Interest issued to such subscriber
represented by such returned check or draft. Any losses or profits sustained by
the Partnership in connection with the Partnership's trading allocable to such
cancelled Units of Limited Partnership Interest shall be deemed an increase or
decrease in Net Asset Value and allocated among the remaining Partners as
described in Article IV hereof.
(e) The Units may but need not be evidenced by certificates.
3.2 Additional Capital Contributions. No additional contributions of
capital are or shall be required of any Limited Partner during the term of the
Partnership.
3.3 Rights and Obligations. Each Unit of Limited Partnership Interest owned
by a Limited Partner shall be fully paid and non-assessable upon issuance. A
Limited Partner shall be liable for the obligations of the Partnership to the
extent of the capital contributed by such Limited Partner plus the share of
undistributed profits, if any, allocable to such Limited Partner. A Limited
Partner who receives a return of any part of the capital contributed by such
Limited Partner to the Partnership shall be liable to the Partnership for one
year thereafter for the amount of the returned contribution, but only to the
extent necessary to discharge liabilities of the Partnership to creditors who
extended credit to the Partnership during the period that the capital
contribution was held by the Partnership. A Limited Partner shall also be liable
to the Partnership for return of any part of his capital contribution returned
to him for a period of six (6) years thereafter, if such return was in violation
of this Agreement or the Act.
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No Limited Partner shall take part in the management of the business or
transact any business for the Partnership, and no Limited Partner shall have the
power to sign for or bind the Partnership. No salary shall be paid to any
Limited Partner, nor shall any Limited Partner have a drawing account or earn
interest on his contribution once contributed to the capital of the Partnership.
No Limited Partner shall be entitled to the return of his contribution or any
profits with respect thereto except (i) to the extent, if any, that
distributions made, or deemed to be made, pursuant to this Agreement, may be
considered as such by law; (ii) upon dissolution of the Partnership; or (iii)
upon redemption and then only to the extent provided for in this Agreement. No
Limited Partner shall have priority over any other Limited Partner either as to
the return of contributions of capital or as to profits, losses or
distributions. In no event shall a Limited Partner be entitled to demand or
receive property other than cash in return for capital contributed.
3.5 Assignment of Limited Partnership Interest(s).
(a) General. Each Limited Partner expressly agrees that he will not
transfer, assign or dispose of, by gift or otherwise, any of his Units of
Limited Partnership Interest or any part or all of his right, title or interest
in and to the capital or profits of the Partnership without giving written
notice of the assignment, transfer or disposition to the General Partner and
without complying with the suitability standards imposed by the Partnership,
applicable laws (including, without limitation, state securities or Blue Sky
laws) and the rules of any other applicable governmental authority. Each and
every transfer, assignment or disposition of Units of Limited Partnership
Interest shall be subject to all applicable laws (including, without limitation,
state securities or Blue Sky laws). In addition, the transferor or assignor of
such Units shall bear all costs, including attorneys' fees and disbursements,
incurred in connection with such transfer, assignment or disposition.
(b) Effectiveness; Notice. No such transfer, assignment or disposition
shall be effective against the Partnership or the General Partner until the
General Partner receives the written notice described below. If a transfer,
assignment or disposition occurs by reason of the death of a Limited Partner or
assignee, such written notice may be given by the duly authorized representative
of the estate of the Limited Partner or assignee and shall be supported by such
proof of legal authority and valid assignment as may reasonably be requested by
the General Partner. The written notice required by this Section 3.5: (i) shall
specify (A) the name, address and Social Security or taxpayer identification
number of the transferee or assignee, (B) the number of Units of Limited
Partnership Interest transferred or assigned, and (C) the date of such transfer
or assignment, (ii) shall include a statement by the transferee or assignee that
he agrees to give the above-described written notice to the General Partner upon
any subsequent transfer, assignment or disposition, (iii) shall contain such
other information and be accompanied by such additional documentation as the
General Partner may request, and (iv) shall be signed by the assignor and
transferee or assignee. The General Partner, in its sole discretion, may waive
receipt of the above-described notice or any defect therein.
Any transfer, assignment or disposition of Units of Limited Partnership
Interest permitted hereunder shall be effective as of the beginning of the month
following the month in which the General Partner has received notice of such
transfer, assignment or disposition; it being understood, however, that the
Partnership need not recognize any transfer, assignment or disposition of Units
of Limited Partnership Interest until it has received at least thirty (30) days'
prior written notice thereof.
Notwithstanding the foregoing, no transfer, assignment or disposition of
Units of Limited Partnership Interest shall be effective or recognized by the
Partnership if (i) such transfer, assignment or disposition would be in
violation of the Act, (ii) the amount of the transfer, assignment or disposition
(other than transfers by gift or inheritance or to affiliates, including members
of the transferor's or assignor's immediate family) is less than the minimum
subscription amount, (iii) as a result of such transfer, assignment or
disposition, the Partnership would no longer be treated as a partnership rather
than
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a corporation or an association under the Internal Revenue Code, or (iv) as a
result of such transfer or assignment, there would result a termination of the
Partnership for United States Federal income tax purposes as provided in Section
708(b) of the Internal Revenue Code.
(c) Substituted Limited Partner. No assignee or transferee of Units of
Limited Partnership Interest shall become a substituted Limited Partner unless
the General Partner consents in writing to such substitution (which consent may
be withheld in the sole and absolute discretion of the General Partner). A
substituted Limited Partner shall have all the rights and powers and shall be
subject to all the restrictions and liabilities of his assignor. Each Limited
Partner agrees that, with the consent of the General Partner, any assignee may
become a substituted Limited Partner without the further act or consent of any
Limited Partner. Each Limited Partner agrees that he has no right to consent to
and will not consent to any person or entity becoming a substituted Limited
Partner, except as set forth in the preceding sentence. If the General Partner
withholds its consent, an assignee shall not become a substituted Limited
Partner and shall not have any of the rights of a Limited Partner, except that
the assignee shall be entitled to receive that share of the Partnership's
capital and profits, if any, and shall have that right of redemption to which
his assignor would otherwise have been entitled. An assigning Limited Partner
shall remain liable to the Partnership as provided in the Act, regardless of
whether his assignee becomes a substituted Limited Partner.
3.6 Redemption of Units of Limited Partnership Interest.
(a) General. A Limited Partner (and the General Partner subject to Sections
2.7 and 2.12 hereof) or any assignee of Units of Limited Partnership Interest of
whom the General Partner has received written notice as described in Section 3.5
hereof may withdraw all or any part of his capital contributions and
undistributed profits, if any, from the Partnership (such withdrawal being
herein referred to as "redemption"), effective as of the last business day of
any calendar month, by requiring the Partnership to redeem any or all of his
Units of Limited Partnership Interest at the Net Asset Value per Unit (subject
to the penalties for early redemption described below), calculated as of the
close of business (as determined by the General Partner) on the effective date
of redemption; provided that (i) all liabilities, contingent or otherwise, of
the Partnership, except any liability to Partners on account of their capital
contributions, have been paid or there remains property of the Partnership
sufficient to pay them, and (ii) the General Partner shall have timely received
a Request for Redemption in the form included as Exhibit C to the Statement of
Additional Information. As used herein, Request for Redemption shall mean a
letter in the form specified by the General Partner sent by a Limited Partner
(or any assignee of whom the General Partner has received written notice as
described in Section 3.5 hereof) and received by the General Partner at least
ten (10) days (or such lesser period as shall be acceptable to the General
Partner) in advance of the requested effective date of redemption. Requests for
Redemption that are received by the General Partner at least ten (10) days prior
to the last business day of a calendar month shall be effected as of the close
of business on the last business day of that month. Requests for redemption that
are received by the General Partner less than ten (10) days prior to the last
business day of a calendar month shall be effected as of the close of business
on the last business day of the following month. The General Partner may declare
additional redemption dates upon notice to the Limited Partners. Redemptions of
fractional Units of Limited Partnership Interest will be permitted. The
Partnership shall not be obligated to redeem Units of Limited Partnership
Interest that are subject to a pledge or otherwise encumbered in any fashion.
(b) Payment. Upon redemption, a Limited Partner (or any assignee of whom
the General Partner has received written notice as described above) shall
receive from the Partnership for each Unit of Limited Partnership Interest
redeemed an amount equal to the Net Asset Value per Unit as of the date of
redemption, less (i) any amount owing by such Partner (or assignee) to the
Partnership, and (ii) any applicable redemptions fees due under Section 3.6(f)
hereof. Redemption payments shall be made within
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twenty (20) days following the date of redemption. Under special circumstances,
however, including but not limited to the inability of the Partnership to
liquidate its commodity positions or defaults or delays in payments due to the
Partnership from banks or other persons, the Partnership may delay payment to
Partners requesting redemptions of Units of the proportionate part of the Net
Asset Value thereof represented by the sums which are the subject of such
inability to liquidate its positions, default or delay. If the General Partner
delays redemption payments for any reason, the General Partner shall cause
payments to resume as soon as practicable and shall be make redemption payments
in the order in which the requests for redemption were received. The General
Partner shall notify any Limited Partner or assignee of Units who requests
redemption within ten (10) days after the date of redemption if payment will be
delayed.
(c) Redemptions by Assignees. If a redemption is requested by an assignee,
all amounts owed under Section 2.5(g) by the Partner to whom such Unit was sold
by the Partnership as well as all amounts owned by all assignees who owned such
Unit shall be deducted from the amount paid to such assignee upon redemption of
his Units of Limited Partnership Interest. An assignee shall not be entitled to
redemption until the General Partner has received written notice (as described
in Section 3.5 hereof) of the assignment, transfer or disposition under which
the assignee claims an interest in the Units of Limited Partnership Interest to
be redeemed and shall have no claim against the Partnership or the General
Partner with respect to distributions or amounts paid on redemption of Units of
Limited Partnership Interest prior to the receipt by the General Partner of such
notice.
(d) Redemptions Upon Notice of Substantial Decline. If (i) the Net Asset
Value per Unit (increased by the amount of distributions per Unit, if any) on
any business day during any given fiscal year decreases to or below 50% of the
Net Asset Value per Unit as of the beginning of the fiscal year, and such 50%
decrease results in a Net Asset Value per Unit of less than $1,000, or (ii) if
the Net Asset Value per Unit (increased by the amount of distributions per Unit,
if any) decreases on any business day to or below $350, the Partnership will
liquidate all open positions as expeditiously as possible and suspend trading.
Within ten (10) business days after the date of the suspension of trading, the
General Partner shall either give notice to the Limited Partners of its
intention to withdraw from the Partnership or shall declare a special redemption
date. Such special redemption date, if declared, shall be a business day within
thirty (30) business days from the date of suspension of trading by the
Partnership, and the General Partner shall mail notice of such date to each
Limited Partner by first class mail, postage prepaid, not later than ten (10)
business days prior to such special redemption date, together with instructions
as to the procedure such Limited Partner must follow to have his Units redeemed
on such date by the Partnership, if such Limited Partner so desires. No
redemption fees would be due in respect of a Unit redeemed on the special
redemption date. If, after such special redemption date, the Partnership's Net
Asset Value is at least 50% of the Partnership's Net Asset Value on the close of
business on the day before the special redemption date, the Partnership will
resume trading unless the General Partner elects to withdraw from the
Partnership. If, after such special redemption date, the Partnership's Net Asset
Value is less than 50% of the Net Asset Value of the close of business on the
day before the special redemption date, the Partnership shall terminate and
dissolve in accordance with the provisions of Article V hereof.
(e) Mandatory Redemption(s). The Unit of Limited Partnership Interest of
the Initial Limited Partner shall be automatically redeemed for $1,000, without
the imposition of any redemption fee, as of the date that an additional Limited
Partner is first admitted to the Partnership.
If and to the extent necessary to ensure that the assets of the Partnership
are not considered "plan assets" for purposes of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the General Partner may redeem all
or a portion of the Units held by one or more Limited Partners without the
consent of such Limited Partners at the Net Asset Value per Unit without the
imposition of any redemption fee. Such redemption may be effected from time to
time in any manner deemed reasonable in the sole
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discretion of the General Partner, provided, however, that the General Partner
will use its best efforts to cause a redemption of Units of Limited Partnership
Interest on a pro rata basis among all "benefit plan investors" in an amount
sufficient to reduce the number of Units of Limited Partnership Interest held by
all of them to not more than 24.9%. For purposes of this Section, a "benefit
plan investor" shall mean a Limited Partner who is (i) an "Employee Benefit
Plan," as defined in Section 3(3) of ERISA; (ii) a plan described in Section
4975(e)(1) of the Internal Revenue Code; or (iii) a partnership, the general
partner of which has been appointed "investment manager," as defined in Section
3(38) of ERISA, over the assets used by one or more Employee Benefit Plans to
purchase limited partnership interests in such partnership.
(f) Redemption Fees. Except as set forth in Sections 3.6(d) and (e) hereof,
this Section 3.6(f) or as otherwise waived by the General Partner in its
discretion, an early redemption fee equal to a percentage of the Net Asset Value
of the Units of Limited Partnership Interests redeemed (the "Redemption Fee")
shall be charged by the Partnership in the case of redemptions of Units of
Limited Partnership Interest that are effected as of or before the end of the
twelfth (12th) full calendar month after their purchase. The Redemption Fee
shall be four percent (4%) of the Net Asset Value of the Units of Limited
Partnership Interest redeemed for such redemptions occurring as of or before the
end of the third (3rd) full calendar month after their purchase; three percent
(3%) of the Net Asset Value of the Units of Limited Partnership Interest
redeemed for such redemptions occurring as of or before the end of the sixth
(6th) full calendar month after their purchase; two percent (2%) of the Net
Asset Value of the Units of Limited Partnership Interest redeemed for such
redemptions occurring as of or before the end of the ninth (9th) full calendar
month after their purchase; and one percent (1%) of the Net Asset Value of the
Units of Limited Partnership Interest redeemed for such redemptions occurring as
of or before the end of the twelfth (12th) full calendar month after their
purchase. There shall be no Redemption Fee charged with respect to Units of
Limited Partnership Interest redeemed after the twelfth (12th) full calendar
month after their purchase. Notwithstanding the foregoing and in order to assure
each Limited Partner the availability of funds to pay taxes on each year's
profits, if any, the redemption fee will be waived on redemptions of Units to
the extent, if any, distributions in the first quarter on a calendar year are
less than thirty-five (35%) of the profits reportable to a Limited Partner for
the prior year. Redemption Fees received by the Partnership will be paid over by
the Partnership to the General Partner to reimburse the General Partner for the
payment by the General Partner of the Partnership's organizational, initial
offering and operating expenses payable by the General Partner.
3.8 Maintenance of Records and Books of Account.
(a) Books of Account and Records. The General Partner shall keep and retain
for at least six (6) years such books of account and records relating to the
business of the Partnership as it deems necessary or advisable (including
without limitation to substantiate the efforts of the Partnership to ensure that
Units were sold only to purchasers for whom an investment in the Units was
suitable) and as are required by the Commodity Exchange Act, as amended (the "CE
Act") and the rules and regulations promulgated thereunder. Such books of
account and records shall be kept at the Partnership's principal place of
business, and each Limited Partner (or any duly constituted designee of a
Limited Partner) shall at all times during reasonable business hours have free
access to and the right to inspect and copy said books. The books of accounts
and records of the Partnership shall be kept on an accrual basis of accounting
in accordance with generally accepted accounting principles, consistently
applied. The books of account or financial statements of the Partnership shall
be audited at least annually at the Partnership's expense by an independent
public accountant to be selected by the General Partner.
(b) Unit-holder Lists. The General Partner shall also maintain at the
principal office of the Partnership a list of the names and addresses of, and
the number of Units of Limited Partnership Interest owned by, all of the Limited
Partners at the Partnership's principal office, and the General Partner shall
make such list available for review by any Limited Partner or his personal
representative at the offices of
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the Partnership at reasonable times upon request or by mail upon payment of the
costs of reproduction and mailing, provided, however, that such list shall not
be used by any Limited Partner for commercial purposes.
ARTICLE IV
PROFIT AND LOSS
4.1 Capital Accounts. The Partnership shall establish for each Partner, and
maintain in accordance with the terms of this Agreement, a capital account. The
initial balance of each Partner's capital account shall be the amount of the
initial cash contribution to the Partnership of such Partner.
4.2 Adjustments to Capital Accounts. As of the close of business (as
determined by the General Partner in its sole discretion) on the last business
day of each calendar month, the General Partner shall make the following
calculations, payments and allocations and shall redeem and accept subscriptions
for Units, each in the following order:
(a) the Management Fee (as defined in Section 4.4 hereof) earned with
respect to such month shall be calculated and paid; the Continuing Services
Fee (as defined in Section 4.4 hereof) earned with respect to such month
shall be calculated and paid; other expenses of and reimbursements by the
Partnership shall be calculated and paid; and any costs of indemnification
to the extent permitted under Section 2.5 shall be paid;
(b) Net Assets (as defined in Section 4.4 hereof) shall be calculated;
(c) the amount of any Special Allocation (as defined in Section 4.4
hereof) shall be calculated and credited to the capital account of the
General Partner;
(d) any increase (less the amount of any Special Allocation) or
decrease in Net Assets shall be credited or charged to the capital accounts
of the Partners in the ratio that the capital account of each Partner bears
to the capital accounts of all Partners;
(e) the amount of any distributions or any withdrawn capital during
such month, and the amount of any redemption payments in such month shall
be charged to the capital accounts of the relevant Partners;
(f) Net Asset Value (as defined in Section 4.4 hereof) shall be
calculated;
(g) redemptions of Units shall be effected;
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(h) Syndication Fees / Sales Charges (as defined in Section 4.4
hereof) shall be calculated and paid with respect to any subscriptions for
Units that the General Partner intends to accept during such month; and
(i) subscriptions for Units shall be accepted in the sole discretion
of the General Partner.
4.3 Allocation of Profit and Loss. At the end of each taxable year, each
item of Partnership income, gain, loss, deduction and credit shall be allocated
among the Partners in accordance with the following provisions:
(a) Capital Gain (as defined in Section 4.4 hereof) shall be allocated
first to each Partner who has redeemed all of his Units or withdrawn all of
his capital during the year to the extent that the amount the Partner
received on redemption exceeded the amount paid for the redeemed Units or
to the extent of the withdrawn capital;
(b) Capital Gain shall be allocated second to each Partner who has
redeemed some of his Units or withdrawn some of his capital during the year
to the extent that the amount that such Partner received on redemption
exceeded the amount paid for the redeemed Units or to the extent of the
withdrawn capital;
(c) Capital Gain remaining after the allocations in Sections 4.3(a)
and 4.3(b) hereof shall be allocated among the Partners in the ratio that
the capital account of each Partner bears to the capital accounts of all
Partners;
(d) Capital Loss (as defined in Section 4.4 hereof) shall be allocated
first to each Partner who has redeemed all of his Units or withdrawn all of
his capital during the year to the extent that the amount that the Partner
paid for the redeemed Units exceeded the amount that the Partner received
on redemption;
(e) Capital Loss shall be allocated second to each Partner who has
redeemed some of his Units or withdrawn some of his capital during the year
to the extent that the amount that the Partner paid for the redeemed Units
exceeded the amount that the Partner received on redemption;
(f) Capital Loss remaining after the allocations in Sections 4.3(d)
and (e) hereof shall be allocated among the Partners in the ratio that the
capital account of each Partner bears to the capital accounts of all
Partners;
(g) For the purpose of the allocations of Capital Gain and Capital
Loss in Sections 4.3(a), (b), (d) and (e) hereof, the amount that each
Partner paid for each of his Units shall be deemed to have been increased
by the amount of Capital Gain allocated to such Partner with respect to
such Unit pursuant to Section 4.3(c) hereof or ordinary income allocated
pursuant to Section 4.3(h) hereof, to have been decreased by the amount of
any Capital Loss allocated to such Partner with respect to such Unit
pursuant to Section 4.3(f) hereof or ordinary expense allocated pursuant to
Section 4.3(h) hereof and to have decreased by the amount of any
distributions to such Partner with respect to such Unit pursuant to Section
2.9 hereof.
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(h) Items of ordinary income and expense shall be allocated among the
Partners in the ratio that the capital account of each Partner bears to the
capital account of all Partners.
(i) Notwithstanding Sections 4.3(e), (f) and (h) hereof, to the extent
that an allocation of Capital Loss or expense would cause the capital
account of a Limited Partner to have a deficit balance, then such loss or
expense shall be allocated to the capital account of the General Partner.
(j) Allocations of Capital Gain or Capital Loss shall be made pro rata
from each category of Capital Gain or Capital Loss determined under Section
1(h) of the Internal Revenue Code and income or loss determined under
Section 988 of the Internal Revenue Code.
4.4 Definitions. For purposes of this Article IV, the following terms shall
have the following meanings:
(a) "Continuing Services Fee" shall mean a fee charged to each Unit
equal to, in the aggregate, 1/12 of 1.25% of the Net Asset Value per Unit
of the Partnership's assets under management as of the close of business on
the last day of each month (without reduction for distributions or
redemptions effected as of such date or management fees or incentive fees
payable as of such date) with respect to Units purchased within the prior
twelve (12) month period and 1/12 of 4% of the Net Asset Value per Unit of
the Partnership's assets under management as of the close of business on
the last day of each month (without reduction for distributions or
redemptions effected as of such date or management fees or incentive fees
payable as of such date) with respect to Units purchased more than twelve
(12) months prior thereto. Such Continuing Services Fee shall be paid to
the Selling Agent and certain selected dealers and their respective
registered representatives in return for their continuing services to the
Partnership and the Limited Partners solicited by them. Such services
include, without limitation, keeping the Limited Partners apprised of
developments affecting the Partnership, responding to specific inquiries
received from Limited Partners relating to the Partnership and the
commodity markets, communicating current valuations of the Partnership's
Net Asset Value per Unit to the Limited Partners, assisting in redemptions,
transfers and distributions, assisting Limited Partners in interpreting the
Partnership's monthly and annual reports, financial statements and the tax
information provided to Limited Partners, and providing such other services
as the Limited Partners from time to time may reasonably request.
With respect to each of the first twelve (12) month-ends during which
a Unit is outstanding, the Continuing Services Fee attributable to such
Unit shall be paid (i) twenty percent (20%) to the Selling Agent, and (ii)
eighty percent (80%) to the selected dealers and their respective
registered representatives that solicited the Limited Partner's
subscription. After a Unit has been outstanding for twelve (12) month-ends,
the preceding sentence shall be amended so that the Continuing Services Fee
attributable to such Unit shall be paid twenty-five percent (25%) to the
Selling Agent and seventy-five (75%) to the selected dealers and their
respective registered representative that solicited the Limited Partner's
subscription. Notwithstanding the foregoing, such Continuing Services Fee
shall be paid only to, or for the benefit of, persons who are registered
with the CFTC and/or the National Futures Association ("NFA") as futures
commission merchants or introducing brokers. In the event that the Selling
Agent or any selected
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dealer is not registered with the CFTC and/or the NFA as futures commission
merchants or introducing brokers, the Selling Agent's and such selected
dealers' portions(s) of such Continuing Services Fee shall be paid to the
General Partner.
The General Partner may increase the amount of the Continuing Services
Fee payable by the Partnership at any time and from time to time upon sixty
(60) days' prior written notice to the Limited Partners, which notice shall
set forth the redemption and voting rights of the Units; provided that
prior to the effectiveness of the increased Continuing Services Fee, the
Limited Partners shall have an opportunity to redeem their Units on the
last business day of the month in which such notice is sent without the
imposition of any redemption fee.
(b) "Capital Gain" or "Capital Loss" shall mean gain or loss
characterized as gain or loss from the sale or exchange of a capital asset
by the Internal Revenue Code, including without limitation gain or loss
required to be taken into account pursuant to Sections 988 and 1256 of the
Internal Revenue Code.
(c) "Management Fee" shall mean a fee equal to 1/12 of 3.75% of the
Net Asset Value per Unit of the Partnership's asset under management as of
the close of business on the last day of each month with respect to Units
purchased within the prior twelve (12) month period and 1/12 of 1% of the
Net Asset Value per Unit of the Fund's assets under management as of the
close of business on the last day of each month with respect to Units
purchased more than twelve (12) months prior thereto which shall be paid to
the Advisor.
(d) "Net Assets" shall mean the value of the assets of the
Partnership, including all cash and cash equivalents (valued at cost), plus
accrued interest thereon, and the market value of all open commodity
positions and other assets of the Partnership, less the liabilities of the
Partnership. Net Assets shall be determined in accordance with this Section
4.4(d) or, if no principle is specified, in accordance with generally
accepted accounting principles consistently applied under the accrual basis
of accounting. The market value of a commodity or commodity futures
contract traded on an exchange, or through a clearing firm or bank, shall
mean the most recent available settlement price or closing quotation, as
appropriate on the exchange, or of the clearing firm or bank, on or through
which the commodity or contract is traded by the Partnership on the date
with respect to which Net Assets are being determined. If such contract
cannot be liquidated due to the operation of daily limits or otherwise on
such date, the liquidating value on the first subsequent date on which the
contract could be liquidated, or such other value as the General Partner
deems fair and reasonable, shall be used.
(e) "Net Asset Value" of the Partnership shall mean the total capital
accounts of all Partners. The "Net Asset Value" of a Unit shall be the
total capital accounts of all Partners, divided by the number of Units
owned by all Partners.
(f) "Syndication Fee / Sales Charge" shall mean a fee, calculated and
paid immediately prior to the acceptance of a subscription, equal to five
percent (5%) of the subscription amount for a Unit. The Syndication Fee /
Sales Charge attributable to such Unit shall be paid (i) twenty percent
(20%) to the General Partner, and (ii) eighty percent (80%) to the
Partnership's selling agent, who in turn may pay up to seventy-five percent
(75%) of its Syndication Fee / Sales Charge to the selected dealer
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that solicited the subscription pursuant to the terms of any selected
dealer agreement entered into from time to time between the Partnership's
selling agent and such selected dealer. The General Partner may increase
the amount of the Syndication Fee / Sales Charge at any time and from time
to time upon sixty (60) days' prior written notice to the Limited Partners.
(g) "Special Allocation" shall mean a quarterly special allocation to
the Advisor equal to (i) fifteen percent (15%) of the increase in Net
Assets, calculated as the amount by which the value of the Net Assets on
the last business day of calendar quarter exceeds the value of the Net
Assets on the last business day of the preceding calendar quarter, less
(ii) the amount of any decrease in Net Assets in any prior calendar
quarter, calculated as the amount by which Net Assets on the last business
day of the prior calendar quarter is less than Net Assets on the last
business day of the calendar quarter preceding such calendar quarter, but
only to the extent that such amount has not offset an increase in Net
Assets in any prior calendar quarter. The amount of any Special Allocation
shall be adjusted to exclude the effect of interest income, redemptions,
the issuance of additional Units, withdrawn capital and distributions.
4.5 Equitable Allocations. The General Partner may make such other or
additional allocations of income, gain, loss and deduction among the Units as
are, in the General Partner's reasonable discretion, equitable in order to
allocate income, gain, loss and deduction for Federal income tax purposes among
the Partners in accordance with their respective interest in the Partnership.
ARTICLE V
TERMINATION
5.1 Dissolution. The Partnership shall terminate and be dissolved
immediately upon (i) the conclusion of the Initial Offering Period without the
sale or acceptance of at least 1,000 Units of Limited Partnership Interest, (ii)
the withdrawal of the General Partner, as defined in, and subject to the
limitation of Section 2.12 hereof, (iii) an election to dissolve the Partnership
in accordance with the provisions of Section 6.1 hereof by Limited Partners
owning more than fifty percent (50%) of the Units of Limited Partnership
Interest, (iv) a reduction in Net Asset Value of the Partnership following a
substantial decline in the Net Asset Value per Unit as more fully described in
Section 3.6(d) hereof, (v) a determination by the General Partner that the
purpose of the Partnership cannot be fulfilled; and (vi) any event that
constitutes a dissolution of a limited partnership under the Act or otherwise
makes it unlawful for the existence of the Partnership to be continued. The
General Partner shall give, prior to its voluntary withdrawal, ninety (90) days'
prior notice to all Limited Partners pursuant to Section 2.12 hereof, who may
within such period elect substitute general partner(s) in accordance with
Section 6.2 hereof and continue the Partnership. Unless earlier terminated as
specified above or by operation of law, the Partnership shall terminate on
December 31, 2025.
The death, incompetence, incapacity, legal disability, bankruptcy,
insolvency, dissolution or withdrawal of any Limited Partner shall not result in
the dissolution or termination of the. Partnership, and such Limited Partner, or
the estate, custodian or personal representative thereof, shall have no right to
withdraw as a limited partner of the Partnership or to have his Units redeemed
except as provided in Section 3.6 hereof. Upon the death or legal disability of
a Limited Partner, his interest in the Partnership shall pass to his legal
representatives. Each Limited Partner (and any assignee of such Limited
Partner's interest) expressly agrees that, in the event of his death, he waives
on behalf of himself and his estate, and he directs the legal representative of
his estate and any person interested therein to waive, the furnishing
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of any inventory, accounting or appraisal of the assets of the Partnership and
any right to a special audit or examination of the books and records of the
Partnership.
5.2 Final Accounting. Upon the dissolution of and failure to reconstitute
the Partnership, an accounting shall be made of the accounts of the Partnership,
the capital accounts of each Unit, and the Partnership's assets, liabilities and
operations from the date of the last previous accounting to the date of such
dissolution. Thereupon, the General Partner (or in the event that the
dissolution is caused by the legal disability, bankruptcy, dissolution,
liquidation or withdrawal of the General Partner, such person as may be
designated by the holders of a majority of the then outstanding Units of Limited
Partnership Interest, not including Units of Limited Partnership Interest held
by the General Partner) shall act as liquidating trustee and immediately proceed
to wind up and terminate the business and affairs of the Partnership and to
liquidate the property and assets of the Partnership.
5.3 Distribution. Upon the winding up and termination of the business and
affairs of the Partnership, its liabilities and obligations to creditors and all
expenses incurred in its liquidation shall be paid, and its remaining assets
shall be distributed to the Partners in accordance with their capital accounts
as determined under Article IV hereof.
5.4 Use of Firm Name Upon Dissolution. At no time during the operation of
the Partnership or upon the termination of and dissolution of the Partnership
shall any value be placed on the firm name, the right to its use, or the
goodwill, if any, attached thereto, either between the Partners or for the
purpose of determining any distributive interest of any Partner in accordance
with this Agreement.
5.5 Balance Owed by a Partner. In the event that a Partner has a negative
balance in his capital account after all adjustments to capital accounts have
been made hereunder, whether by reason of losses in liquidating Partnership
assets or otherwise, the negative balance shall represent an obligation from
such Partner to the Partnership to be paid in cash within thirty (30) days after
written demand and shall be distributed to creditors of the Partnership or to
Partners with a positive balance in their capital accounts in accordance with
Section 5.3 hereof.
ARTICLE VI
MISCELLANEOUS
6.1 Meetings. Meetings of the Partnership for purposes of amending this
Agreement or taking any action permitted to be taken by the Limited Partners
under this Agreement may be called by the General Partner and shall, subject to
the limitations imposed by the final sentence of Section 6.2(b) hereof, be
called by it when requested in writing by the Limited Partners holding ten
percent (10%) or more of the Units of Limited Partnership Interest. The General
Partner shall deposit the call in the United States mail within fifteen (15)
days after receipt of such written requests from the requisite percentage of the
Limited Partners. The call shall state the date, place, time and purpose of such
meeting, setting forth any amendments to this Agreement proposed to be adopted,
and no other business shall be conducted at such meeting except as set forth in
the call. The meeting shall be held no less than thirty (30) and no more than
sixty (60) days after the date of the mailing of the call. The Limited Partners
may vote in person or by proxy at any such meeting. In the event that the
Partnership is required to comply with Regulation 14A under the Securities
Exchange Act of 1934 (the so-called "Proxy Rules") or any successor regulation,
the foregoing time periods may be altered by the General Partner so as not to
conflict therewith.
6.2. Amendments. (a) Amendments to this Agreement may be proposed by the
General Partner or by Limited Partners owning not less than ten percent (10%) of
the Units of Limited Partnership
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Interest. Within thirty (30) days following such proposal, the General Partner
shall submit the proposed amendment to the Limited Partners together with an
opinion of counsel as to the legality of such amendment and its effect on the
Limited Partners for the Partnership's debts. The General Partner shall make its
recommendation with regard to each such proposal advanced by any Limited
Partner. A simple majority of the Units of Limited Partnership Interest
outstanding (not including Units of Limited Partnership Interest held by the
General Partner) shall be required to pass an amendment; provided, however, that
no such amendment shall (i) change or alter the terms of this Section 6.2, (ii)
cause the Partnership to become a general partnership, (iii) change the
liability of the General Partner or the Limited Partners, (iii) reduce the
capital account of any Partner, (iv) modify the percentage of profits, losses or
distributions to which any Partner is entitled, or (v) extend the duration of
the Partnership, in each case without the consent of the General Partner and all
of the Limited Partners. For purposes of obtaining a written vote, the General
Partner may require response within a specified time.
(b) Notwithstanding any provision to the contrary contained herein, the
General Partner may, without the consent of the Limited Partners, make such
amendments to this Agreement as are necessary:
(i) to reflect the admission of an additional or substitute general
partner.
(ii) to change the name of the Partnership;
(iii) to effect any other minor change that the General Partner deems
advisable, so long as such amendment is not adverse to the Limited
Partners and does not alter the basic investment policies and
structure of the Partnership, or that is required by law;
(iv) to clarify any inaccuracy or ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein or otherwise (including any inconsistency between this
Agreement and the Prospectus or Statement of Additional Information),
or to make any other provisions with respect to matters or questions
arising under this Agreement which will not be inconsistent with the
provisions of this Agreement;
(v) to delete from or add to this Agreement any provision required to be
so deleted or added by representatives of the SEC, the CFTC or any
other government authority (including state securities or Blue Sky
administrators) having jurisdiction over activities of the
Partnership, which addition or deletion is deemed by such agency,
authority or administrators to be for the benefit or protection of the
Limited Partners;
(vi) to attempt to ensure that the Partnership is not treated as an
association taxable as a corporation for federal income tax purposes;
(vii) to modify, with respect to a taxable year ending after the date of
such amendment or for which a tax return of the Partnership has not
yet been filed, and to the extent permitted by law, any provision
concerning the allocation of profits and losses for Federal income tax
purposes, if such modification is deemed, in the General Partner's
discretion, necessary to promote an equitable treatment among the
Partners with respect to such allocations, as measured by the degree
to which the profits and losses allocated to them for tax purposes
reflect the actual increase or decrease in the value of their
investments;
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(viii) to effect the intent of the tax allocations proposed herein,
including without limitation the allocation of Capital Gain and
Capital Loss on a net rather than a gross basis, to the maximum extent
possible in the event of a change in the Code or the interpretations
thereof affecting such allocations;
(ix) to effect any other change that is appropriate or necessary, in the
opinion of the General Partner, to prevent the Partnership or the
General Partner or its controlling persons from in any manner being
subject to the provisions of the Investment Company Act of 1940, as
amended, or the "plan asset" regulations adopted under ERISA as a
result of their association with the Partnership; and
(x) to add to the representations, duties or obligations of the General
Partner or surrender any right or power granted to the General Partner
herein for the benefit of the Limited Partners.
(c) Notwithstanding anything to the contrary contained herein, (i) this
Agreement may be amended without the consent of the General Partner in
accordance with and only to the extent permissible under the Act; provided that
consent of all Limited Partners shall be required in the case of amendments
requiring the consent of all Limited Partners under the Act, (ii) the
Partnership may be dissolved, (iii) all or substantially all of the Partnership
assets may be sold or pledged, (iv) the General Partner may be removed from
office and replaced, (v) a new general partner may be elected if the General
Partner withdraws from the Partnership, or (vi) any contract between the
Partnership and the General Partner or any of its affiliates may be cancelled
upon not more than sixty (60) days' prior written notice and without penalty, in
each case by the affirmative vote of the holders of a simple majority of the
Units of Limited Partnership Interest (not including any Units of Limited
Partnership Interest held by the General Partner), at a meeting called and
conducted in accordance with Section 6.1 hereof. However, nothing contained in
this Section 6.2(c), or in any other section of this Agreement, shall imply that
the Limited Partners have any rights of management or control over the
operations of the Partnership
If an action described in the first sentence of subsection (iv) or (v) of
this Section 6.2 (c) is taken, the General Partner shall withdraw from the
Partnership and shall receive the proportionate share of the Net Assets
attributable to its general partnership interest as of the close of business on
the last business day of the month in which the withdrawal is effective.
(d) Upon any amendment of this Agreement, the Certificate of Limited
Partnership shall also be amended if necessary to reflect such amendment.
6.3 Annual Reports and Monthly Statements. (a) As required by the CE Act,
the General Partner shall furnish each Limited Partner with unaudited monthly
statements as of the end of each calendar month and with an audited annual
report containing financial statements certified by an independent public
accountant as of the end of each fiscal year. The General Partner shall also
furnish each Limited Partner with such other reports and information (and in
such detail) as are required to be given to the Limited Partners by the CFTC or
any other governmental authority which has jurisdiction over the activities of
the Partnership and as the General Partner, in its sole discretion, deems
necessary or appropriate.
Annual reports shall be transmitted to the Limited Partners within ninety
(90) days after the close of the Partnership's fiscal year (unless a shorter
period is provided by applicable law or regulations) containing financial
statements of the Partnership certified by an independent public accountant
including a balance sheet as of the end of the fiscal year and statements of
income, Partners' equity, and changes in
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financial position for the year then ended, all of which shall be prepared in
accordance with generally accepted accounting principles, and a statement
showing the total fees, compensation, brokerage commissions and expenses of the
Partnership, segregated as to type. Appropriate tax information (adequate to
enable each Limited Partner to complete and file his United States Federal
income tax return) shall be delivered to each Limited Partner no later than the
fifteenth (15th) day of the third month following the end of each fiscal year.
(b) Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the transactions contemplated by this
Agreement and supersedes all prior arrangements or understandings with respect
thereto.
(c) Descriptive Headings. The descriptive headings of this Agreement are
for convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
(d) Notices. All notices or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be considered
properly given or made if delivered personally or mailed by registered mail,
postage prepaid, return receipt requested, or if telegraphed by prepaid telegram
and confirmed by written notice mailed contemporaneously as aforesaid, and
addressed, if to the General Partner, to it at 70 West Red Oak Lane, White
Plains, NY 10604 and if to a Limited Partner, to the address set forth below
such Limited Partner's signature on the execution page hereof. Notwithstanding
the foregoing, Requests for Redemption and notices of transfer, assignment or
disposition of Units of Limited Partnership Interest shall be effective upon
receipt by the Partnership or the General Partner; and reports by the General
Partner to the Limited Partners may be mailed by unregistered first class mail,
postage prepaid, return receipt not requested. Any Limited Partner may change
his address by giving notice in writing to the General Partner stating his new
address, and the General Partner may change its address by giving such notice to
all the Limited Partners. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such Partner's or Partners'
address for the purpose of all notices or other communications required or
permitted to be given pursuant to this Agreement.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(f) Illegalities. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
(h) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Partners, their respective legal representatives, successors,
heirs and permitted assigns. Any person hereafter admitted to the Partnership as
a general partner or a Limited Partner shall be subject to all of the provisions
of this Agreement as if an original signatory thereto.
(i) Third Party Rights. Notwithstanding any other provision of this
Agreement, this Agreement shall not create benefits on behalf of any third
party, and this Agreement shall be effective only as between the parties hereto
and their respective legal representatives, successors, heirs and permitted
assigns.
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(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute on and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
SHAFFER ASSET MANAGEMENT, INC.
By:__________________________________________
Daniel S. Shaffer
President
---------------------------------------------
Daniel S. Shaffer, as initial Limited Partner
---------------------------------------------
Daniel S. Shaffer, as attorney-in-fact
for the Limited Partners
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Exhibit B
SUBSCRIPTION REQUIREMENTS
General Representations and Warranties
By executing the Subscription Agreement / Power of Attorney for Shaffer
Diversified Fund, L.P. (the "Fund"), a subscriber in units of limited
partnership interest ("Units") in the Fund represents and warrants to the Fund,
the General Partner, the Selling Agent, the Selected Dealer(s) that solicited
the subscription, and the Commodity Broker that:
o the subscriber is of legal age to execute the Subscription Agreement /
Power of Attorney and is legally competent to do so;
o all information furnished by the subscriber or set forth in the
Subscription Agreement / Power of Attorney submitted by the subscriber
is correct and complete as of the date set forth next to the signature
of the subscriber, and the subscriber will revise or correct such
information if any change in such information occurs prior to
acceptance of the subscription by the General Partner;
o unless one of the next two provisions applied, the subscription is
made for the account of the subscriber and not as trustee, custodian
or nominee for another;
o the subscription, if made as custodian for a minor, is a gift that the
subscriber has made to the minor and is not made with funds of the
minor or, if not a gift, the representations as to net worth and
annual income set forth below apply only to the minor;
o if the subscriber is subscribing in a representative capacity, the
subscriber has full power and authority to purchase the units and
enter into and be bound by the Subscription Agreement / Power of
Attorney on behalf of the entity for which he or she is purchasing the
Units, and the entity has full right and power to purchase the Units,
to enter into and be bound by the Subscription Agreement / Power of
Attorney and to become a limited partner in the Fund pursuant to the
Limited Partnership Agreement;
o the subscriber either is not required to be registered with the
Commodity Futures Trading Commission (the "CFTC") or to be a member of
the National Futures Association (the "NFA") or, if required to be so
registered, is duly registered with the CFTC and a member in good
standing of the NFA; and
o the subscriber has net worth of at least $150,000, exclusive of home,
furnishings and automobiles, or an annual gross income of at least
$45,000 and a net worth similarly calculated of at least $45,000, and
the investment of the subscriber in the Fund will not constitute more
than 10% of the net worth, exclusive of home, furnishings and
automobiles, of the subscriber.
Additional State Law Suitability Requirements
Some jurisdictions impose additional requirements on subscribers, which
requirements may change from time to time. The descriptions below are based on
unofficial compilations of the blue-sky laws believed to be accurate on the date
of the accompanying Prospectus and this Statement of Additional
Information. Subscribers who are residents of the following states represent and
warrant that they meet the following additional requirements imposed by such
states, in each case excluding from their net worth the value of their home,
furnishings and automobiles:
Alabama: The investment may not exceed 20% of net worth.
Alaska: Net worth of at least $225,000 or net worth of at least $60,000 and
an annual taxable income of at least $60,000.
Arizona: Net worth of at least $225,000 or net worth of at least $75,000
and an annual taxable income of at least $75,000.
Arkansas: The investment may not exceed 20% of net worth.
California: Net worth of at least $500,000 or net worth of at least
$250,000 and an annual taxable income of at least $100,000, together with a
reasonable expectation of taxable income of at least $100,000 in the current
year.
Florida: Net worth of at least $1,000,000 or an annual taxable income of at
least $200,000 individually or $300,000 with spouse in each of the two most
recent years, together with a reasonable expectation of income of a similar
level in the current year.
Idaho: Net worth of at least $1,000,000 or an annual taxable income of at
least $200,000 individually or $300,000 with spouse in each of the two most
recent years, together with a reasonable expectation of income of a similar
level in the current year.
Illinois: Net worth of at least $1,000,000 or an annual taxable income of
at least $200,000 in each of the two most recent years, together with a
reasonable expectation of income of a similar level in the current year.
Indiana: The investment may not exceed 10% of net worth.
Iowa: Net worth of at least $1,000,000 or an annual taxable income of at
least $200,000 individually or $300,000 with spouse in each of the two most
recent years, together with a reasonable expectation of taxable income of a
similar level in the current year.
Kansas: The investment may not exceed 20% of net worth.
Louisiana: The investment may not exceed 25% of net worth.
Maine: Net worth of at least $200,000 or net worth of $50,000 and an annual
taxable income of at least $50,000.
Michigan: For purchases of more than $50,000 in units, net worth of at
least $1,000,000 or a taxable income during the preceding year of at least
$100,000 and the ability to bear the financial risk of the investment.
Minnesota: Net worth of at least $1,000,000.
Mississippi: The investment may not exceed 10% of net worth.
-B-2-
Missouri: Net worth of at least $75,000 or net worth of at least $30,000
and an annual taxable income of at least $30,000.
Montana: The investment may not exceed 10% of net worth.
Nebraska: Net worth of at least $150,000 or net worth of at least $45,000
and an annual taxable income of at least $45,000.
Nevada: The investment may not exceed 10% of net worth.
New Hampshire: Net worth of at least $250,000 or net worth of at least
$125,000 and an annual taxable income of at least $50,000.
New Mexico: Net worth of at least $150,000 or net worth of at least $65,000
and an annual taxable income of at least $65,000.
New York: Net worth equal to five times the total investment or net worth
equal to three times the total investment and an annual taxable income equal to
the total investment.
North Carolina: Net worth of at least $225,000 or net worth of at least
$60,000 and an annual taxable income of at least $60,000.
Ohio: Net worth of at least $150,000 or net worth of at least $45,000 and
an annual taxable income of at least $45,000.
Oregon: Net worth of at least $1,000,000 or an annual income of at least
$200,000 individually or $300,000 with spouse in each of the two most recent
years, together with a reasonable expectation of income of a similar level in
the current year.
Rhode Island: Net worth of at least $1,000,000 or an annual taxable income
of at least $200,000 individually or $300,000 with spouse in each of the two
most recent years, together with a reasonable expectation of income of a similar
level in the current year.
South Carolina: Net worth of at least $150,000 or net worth of at least
$65,000 and an annual taxable income of at least $65,000.
South Dakota: Net worth of at least $1,000,000 or an annual taxable income
of at least $200,000 individually or $300,000 with spouse in each of the two
most recent years, together with a reasonable expectation of income of a similar
level in the current year.
Texas: Net worth of at least $150,000 or net worth of at least $50,000 and
an annual taxable income of at least $50,000.
Utah: The investment may not exceed 10% of net worth.
Vermont: The investment may not exceed 10% of net worth.
Washington: Net worth of at least $1,000,000 or an annual taxable income of
at least $200,000 individually or $300,000 with spouse in each of the two most
recent years, together with a reasonable expectation of income of a similar
level in the current year
-B-3-
Wisconsin: Net worth of at least $150,000 or net worth of at least $45,000
and an annual taxable income of at least $45,000.
Wyoming: The investment may not exceed 10% of net worth.
ERISA Requirements
If a subscriber in the Fund is acting on behalf of an "employee benefit
plan" as defined in and subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or a "plan" as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), the individual signing
the Subscription Agreement / Power of Attorney as plan fiduciary further
represents and warrants, on behalf of the subscriber, to the Fund, the General
Partner, the Selling Agent , the Selected Dealer(s) that solicited the
subscription, and the Commodity Broker that:
o the plan fiduciary has considered an investment in the Fund for such
plan in light of the risks relating thereto;
o the plan fiduciary has determined that, in view of such
considerations, the investment in the Fund is consistent with the
responsibilities of the plan fiduciary under ERISA;
o an investment in the Fund does not violate and is not otherwise
inconsistent with the terms of any legal document constituting the
plan or any trust agreement thereunder;
o an investment in the Fund has been duly authorized and approved by all
necessary parties;
o none of the General Partner, the Advisor, the Selling Agent, the
Selected Dealer(s) that solicited the subscription, or any of their
respective affiliates, agents or employees:
o has investment discretion with respect to the plan assets;
o has authority or responsibility to give or regularly gives
investment advice with respect to the plan assets for a fee and
pursuant to an agreement or understanding that such advice will
serve as a primary basis for investment decisions with respect to
the plan assets and that such advice will be based on the
particular investment needs of the plan; or
o is an employer maintaining or contributing to the plan;
o the plan fiduciary:
o is authorized to make, and is responsible for, the decision to
invest in the Fund, including the determination that the
investment is consistent with the requirement imposed by Section
404 of ERISA that plan investments be diversified so as to
minimize the risks of large losses;
o is independent of the General Partner, the Advisor, the Selling
Agent, the Selected Dealer(s) that solicited the subscription,
the Commodity Broker, and their respective affiliates, agents and
employees; and
-B-4-
o is qualified to make the investment decision.
At the request of the General Partner, the plan fiduciary agrees to furnish
the General Partner with any information reasonably required by the General
Partner to establish that the purchase of the Units by the plan does not violate
any provision of ERISA or the Internal Revenue Code, including without
limitation those provisions relating to "prohibited transactions" by "parties in
interest" or "disqualified persons."
-B-5-
Exhibit C
SUBSCRIPTION INSTRUCTIONS FOR
SUBSCRIPTION AGREEMENT / POWER OF ATTORNEY
Prospective investors in Shaffer Diversified Fund, L.P. (the "Fund") should
carefully read and review a copy of the Fund's most recent Prospectus and
Statement of Additional Information. In addition, the Prospectus and Statement
of Additional Information should be accompanied by the most recent monthly
report of the Fund.
The date printed on the front of the Prospectus and at the top of the
Subscription Agreement / Power of Attorney should be no more than nine
months ago. If such date is more than nine months ago, new materials are
available and should be utilized.
1. Enter the total dollar amount being invested on LINE 1. [Initial minimum
investment: $10,000 in Units ($5,000 in Units in the case of any pension,
profit-sharing or other employee benefit plan qualified under Section 401
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code"), IRAs, Education IRAs, Roth IRAs, SIMPLE IRAs, Simplified Employee
Pension - IRA plans and retirement and deferred compensation and annuity
plans and trusts used to fund those plans, including but not limited to,
those defined in Sections 401(a), 403(b) or 457 of the Internal Revenue
Code. Subsequent minimum investment: $1,000 in Units.]
2. If a customer securities account is to be debited for the investment, enter
the account number on LINE 2.
3. Enter the Social Security or Taxpayer Identification Number of the
subscriber on LINE 3, and check the appropriate box to indicate ownership
type. For individual retirement accounts, enter the Social Security Number
of the subscriber and the Taxpayer Identification Number of the custodian.
4. Check the box in LINE 4 if this investment is an addition to an existing
account, and complete the account number.
5. Enter the name of the subscriber on LINE 5. For UGMA/UTMA accounts, enter
the name of the minor on LINE 5, followed by "minor," and enter the name of
the custodian on LINE 6. For trusts, enter the name of the trust on LINE 5
and the name(s) of the trustee(s) on LINE 6. For corporations, partnerships
and estates, enter the name of the entity on LINE 5 and the name of the
officer or contact person of such entity on LINE 6. Subscribers who are not
individuals must furnish a copy of organizing or other documents evidencing
the authority of the entity to invest in the Fund. For example, trusts must
furnish a copy of the trust agreement, and corporations must furnish a copy
of the corporate charter, bylaws and enabling resolutions.
6. Enter the legal address, which is the residence or domicile address used
for tax purposes, of the subscriber on LINE 7. Do not enter post office
boxes.
7. If the mailing address of the subscriber is different from the legal
address of the subscriber, complete LINE 8.
8. If an individual retirement account, enter the name and address of the
custodian on LINE 9.
9. The subscriber must sign and date LINE 10. If a joint account, both
subscribers must sign. In an individual retirement account, both the
custodian and the subscriber must sign.
10. Financial advisors must complete and sign under "Financial Advisors" below.
The financial advisor should send the Subscription Agreements / Powers
of Attorney, payments and all other required documents to:
o the administration or fund administration office of the Selling
Agent or Selected Dealer(s) that solicited the subscription , if
firm procedures require;
o the custodial firm, if one is required; or
o the Fund at 70 West Red Oak Lane, White Plains, New York 10604,
Attention: Fund Administration.
Please send all documents and payments early in the month to ensure
timely delivery. Subscriptions close on the last business day of each
month. The fund administration department of the Selling Agent and the
Selected Dealer(s) that solicited the subscription may have an earlier
deadline for subscriptions.
If payment is being made by wire transfer, the financial advisor
should contact his or her fund administration department or the
administration department of the Fund for instructions. Payments made by
check must be received at least three business days prior to the last
business day of the month, and personal checks must be received at least
five business days prior to the last business day of the month. Only
subscriptions for which payment has cleared will be accepted.
A financial advisor having specific questions about the subscription
process should call the administration department of the Fund at (800)
352-5265 or his or her fund administration department.
-C-2-
SHAFFER DIVERSIFIED FUND, L.P.
(A Delaware Limited Partnership)
SUBSCRIPTION AGREEMENT / POWER OF ATTORNEY
DATED _______________, 200__
Shaffer Diversified Fund, L.P.
c/o Shaffer Asset Management, Inc.
70 West Red Oak Lane
White Plains, NY 10604
Dear Sir or Madam:
Subscription for Units. By executing this Subscription Agreement / Power of
Attorney, I hereby irrevocably subscribe for the number of units ("Units") of
limited partnership interest in Shaffer Diversified Fund, L.P. (the "Fund") set
forth on page D-4 hereof at a purchase price equal to (i) $1,000 per Unit ($950
per Unit, plus an initial sales charge of $50 per Unit) during the initial
offering period of the Fund, and (ii) at the Net Asset Value per Unit, plus a
sales charge of 5% of the Net Asset Value per Unit for each Unit purchased,
thereafter, each as more fully described in the Fund's prospectus (the
"Prospectus") and accompanying Statement of Additional Information (the
"Statement of Additional Information"), as the same may be amended or
supplemented from time to time. I understand that only whole Units may be
purchased during the initial offering period of the Fund, but that fractional
Units may be purchased thereafter. My check payable to "Shaffer Diversified
Fund, L.P." in the full amount of my subscription accompanies this Subscription
Agreement / Power of Attorney, or I have authorized Berthel Fisher & Company
Financial Services, Inc. (the "Selling Agent") or the selected dealer(s) that
solicited this subscription to debit my customer securities account in the
amount set forth herein.
Representations and Warranties. I have received a copy of the Prospectus
and accompanying Statement of Additional Information. By signing this letter, I
make the representations and warranties set forth in Exhibit C to the Statement
of Additional Information entitled "Subscription Requirements." In particular, I
represent that I meet all applicable financial standards described in the
Prospectus and the Statement of Additional Information, including the net worth
and annual income requirements. Notwithstanding anything to the contrary
contained herein, however, I understand that by signing this Subscription
Agreement, I am not waiving any rights that I may have under the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder.
Agreements. By signing this letter, I shall be deemed to have executed and
to agree to be bound by the terms of the Agreement of Limited Partnership, as
amended, of the Fund (the "Limited Partnership Agreement") attached as Exhibit A
to the Statement of Additional Information. In addition, I agree to reimburse
the Fund and Shaffer Asset Management, Inc. (the "General Partner / Advisor")
for any expense or loss incurred as a result of my failure to deliver good funds
for the subscription amount. I consent to the execution and delivery of an
advisory agreement between the Fund and the General Partner /Advisor and to the
payment to the General Partner / Advisor of the compensation described in the
Prospectus and the Statement of Additional Information. In addition, if I am not
a citizen or resident of the United States for federal income tax purposes and
not a dealer in commodities, I agree to pay or reimburse the Fund for any taxes
imposed as a result of my status as a limited partner in the Fund.
Power of Attorney. In connection with my purchase of Units, I do hereby
irrevocably constitute and appoint the General Partner / Advisor as my true and
lawful Attorney-in-Fact, with full power of
-C-3-
substitution, in my name, place and stead, (i) to file, prosecute, defend,
settle or compromise litigation, claims or arbitration on behalf of the Fund and
(ii) to make, execute, sign, acknowledge, swear to, deliver, file and record on
my behalf any documents or instruments considered necessary or desirable by the
General Partner /Advisor to carry out fully the provisions of the Limited
Partnership Agreement, including without limitation the execution of the
Certificate of Limited Partnership of the Fund, the Limited Partnership
Agreement, and all amendments thereto permitted by the terms thereof to be
entered into by the General Partner / Advisor. The power of attorney granted
hereby shall be deemed to be coupled with an interest, shall be irrevocable and
shall survive and not be affected by my subsequent death, incapacity,
disability, insolvency or dissolution or any delivery by me of an assignment of
the whole or any portion of my interest in the Fund.
Irrevocability; Governing Law. I hereby acknowledge that I am not entitled
to cancel, terminate or revoke this subscription or any of my agreements
hereunder after this subscription has been submitted. The laws of the State of
Delaware shall govern this Subscription Agreement / Power of Attorney.
1. Amount of subscription: ______________________
2. If debit is to be made to customer securities account, account number:
____________________.
3. Social Security or taxpayer identification number: _______ - ______ -
______.
Taxable investors (check one): Non-taxable investors (check one):
[ ] Individual [ ] Individual retirement account
[ ] Joint tenants with right of survivorship [ ] IRA rollover
[ ] Tenants in common [ ] SEP
[ ] Community property [ ] Profit-sharing account
[ ] Estate [ ] Defined benefit account
[ ] UGMA/UTMA [ ] Pension
[ ] Corporation [ ] Other Retirement Benefit Plan
[ ] Partnership [ ] Other (specify) _____________
[ ] Grantor or other revocable trust
[ ] Trust other than grantor or revocable trust
4. [ ] Existing account number: ____________________.
5. Name: _________________________________________________________.
6. Additional information (see instructions): _________________________.
7. Address: __________________________________________
__________________________________________
__________________________________________
8. Mailing address (if different):
__________________________________________
-C-4-
__________________________________________
__________________________________________
9. Custodian name and mailing address:
__________________________________________
__________________________________________
__________________________________________
10. Signature: Date:
___________________________ _______________
Signature of joint investor: Date:
___________________________ _______________
United States Investors
[ ] I have checked the box if I am subject to backup withholding under
the provisions of section 3406(a)(1)(C) of the Internal Revenue Code
of 1986, as amended. Under penalties of perjury, I hereby certify by
signature above that the Social Security or Taxpayer Identification
Number above is my true, correct and complete Social Security or
Taxpayer Identification Number and that the information given in the
immediately preceding sentence is true, correct and complete.
Non-United States Investors
Under penalties of perjury, I hereby certify by signature above that I am
not a citizen or resident of the United States and not a United States
corporation, partnership, estate or trust.
Financial Advisors
I hereby certify that I have informed the subscriber herein of all
pertinent facts relating to the risks, tax consequences, liquidity,
marketability, management and control of the Fund with respect to an investment
in the Units, as set forth in the Prospectus and the Statement of Additional
Information. I have also informed the subscriber that it is unlikely that a
public trading market in the Units will develop.
I have reasonable grounds to believe, based on information obtained from
the subscriber concerning his or her investment objectives, other investments,
financial situation and needs and any other information known by me, that
investment in the Fund by the subscriber is suitable for the subscriber in light
of his or her financial position, net worth and other suitability
characteristics.
-C-5-
The financial advisor must sign below to substantiate compliance with NASD
Rule 2810.
Financial advisor signature: Date:
______________________________ ___________________
Office manager signature (if required Date:
by the procedures of the Selling Agent
or selected dealer(s) that solicited this
subscription):
______________________________ ___________________
Financial advisor name: ____________________________________________
Address: ____________________________________________
____________________________________________
____________________________________________
Telephone: ____________________________________________
Facsimile: ____________________________________________
E-mail address: ____________________________________________
-C-6-
Exhibit D
SHAFFER DIVERSIFIED FUND, L.P.
(A Delaware Limited Partnership)
REQUEST FOR REDEMPTION
____________________, 20___
(Please date)
Please send original to:
Shaffer Asset Management, Inc.,
as General Partner
Shaffer Diversified Fund, L.P.
70 West Red Oak Lane
White Plains, NY 10604
Re: Account No: _______________
Social Security or taxpayer identification number: ___________
Dear Sir or Madam:
I hereby request redemption, as defined in and subject to all of the terms
and conditions of the Amended and Restated Agreement of Limited Partnership of
Shaffer Diversified Fund, L.P., a Delaware limited partnership (the "Fund"), of
_______________ (insert number of Units to be redeemed) of my Units of limited
partnership interest in the Fund (if no number is entered, the General Partner
will assume that you wish to redeem all of your Units) at the Net Asset Value
per Unit described in the Prospectus and accompanying Statement of Additional
Information of the Fund dated _______________, 2001. I understand that the
redemption shall be effective as of the close of business on the last business
day of the calendar month in which this request for redemption is received by
the General Partner; provided that this request for redemption is received by
the General Partner at least 10 days prior to such effective date, and that if
this request for redemption is received by the General Partner less than 10 days
prior to a permitted redemption date, my Units may be redeemed on the next
succeeding redemption date. I also understand that the redemption fees described
in the Prospectus may apply to this redemption.
I (either in my individual capacity or as an authorized representative of
an entity, if applicable) hereby represent and warrant that I am the true,
lawful and beneficial owner of the Units of limited partnership interest to
which this request for redemption relates, with full power and authority to
request redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion.
United States Investors
[ ] I have checked the box if I am subject to backup withholding under the
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. Under
penalties of perjury, by signature below I hereby certify that the Social
Security or taxpayer identification number above is my true, correct and
complete Social Security or taxpayer identification number and that the
information given in the immediately preceding sentence is true, correct and
complete.
Non-United States Investors
Under penalties of perjury, by signature below I hereby certify that I am
not a citizen or resident of the United States and not a United States
corporation, partnership, estate or trust.
Please forward redemption proceeds by mail to me at:
_______________________________________________
_______________________________________________
_______________________________________________
Signatures must be identical to name(s) in which Units are registered.
Duly authorized persons should sign on behalf of entities.)
Individual Limited Partner(s)
______________________________________
Name(s) (please print)
______________________________________
Signature
______________________________________
Signature
` Partnership, Trust, Corporate of Other
Entity Limited Partner(s):
______________________________________
Name of Partnership, Trust, Corporation or
Other Entity (please print)
By:___________________________________
Signature of partner, trustee or
authorized officer
______________________________________
Name of Partner, Trustee or Other
Authorized Officer
(please print)
______________________________________
Title (please print)
THIS REQUEST FOR REDEMPTION MUST BE MAILED TO THE FUND'S OFFICE
BY REGISTERED MAIL, RETURN RECEIPT REQUESTED, TOGETHER WITH THE
CERTIFICATE(S) REPRESENTING THE UNITS TO BE REDEEMED.
D-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Shaffer Asset Management, Inc., a New York corporation and the general
partner of the Registrant (the "General Partner") will pay initial offering
expenses of the Registrant as described in the Prospectus included in this
Registration Statement.
Securities and Exchange Commission registration fee.................... $ 6,600
National Association of Securities Dealers, Inc. filing fee............ 2,000
Printing expenses...................................................... 20,000
Accounting fees and expenses........................................... 45,000
Blue-sky fees and expenses (excluding legal fees)...................... 5,000
Legal fees and expenses................................................ 120,000
Miscellaneous offering costs........................................... 1,400
Total............................................................. $200,000
Item 14..Indemnification of Directors and Officers.
Article 14 of the Amended and Restated Agreement of Limited Partnership of
the Registrant, which is included as Exhibit A to the Statement of Additional
Information that accompanies the Prospectus which forms a part of this
Registration Statement, provides for the indemnification by the Registrant of
the General Partner, its controlling persons and former general partners in
specified circumstances. Such indemnification is limited to claims arising from
actions or omissions in which the person seeking indemnification was acting on
behalf of or providing services to the Registrant, if the person seeking
indemnification determined, in good faith, that the course of conduct that
caused the loss or liability was in the best interests of the Registrant, if the
person seeking the indemnification was acting on behalf of or performing
services for the Registrant and if the liability or loss did not result from
negligence or misconduct by the person seeking indemnification.
Notwithstanding the above, no person will be indemnified by the Registrant
for claims arising out of alleged violations of federal or state securities laws
unless:
o there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
indemnitee;
o the claims have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee; or
o a court of competent jurisdiction approves a settlement of the claims
and finds that indemnification of the settlement and related costs
should be made; provided that the court has been advised of the
position as to indemnification for violations of securities laws of
the Securities and Exchange Commission and the securities
administrators of the jurisdictions in which the claimant alleges to
have been offered or sold units.
Item 15. Recent Sales of Unregistered Securities.
On August 30, 2000, one Unit of general partnership interest in the
Registrant was sold to the General Partner and one Unit of limited partnership
interest was sold to Daniel S. Shaffer, the sole shareholder and principal of
the General Partner, in order to permit the filing with the Secretary of State
of the State of Delaware of a Certificate of Limited Partnership for the
Registrant. The sale of these Unit
-II-1-
was exempt from registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. No discounts or commissions were paid in
connection with such sales, and no other purchasers or offerees were solicited.
There have been no other unregistered sales of Units.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
The following documents, unless indicated, are filed herewith and made a
part of this Registration Statement.
Exhibit Number Description
1.1 Form of Selling Agent Agreement between Registrant and Berthel Fisher &
Company Financial Services, Inc.
1.2 Form of Selected Dealers Agreement
1.3 Form of Continuing Services Agreement
3.1* Certificate of Limited Partnership of the Registrant.
3.2 Form of Amended and Restated Agreement of Limited Partnership of the
Registrant (included as Exhibit A to the Statement of Additional
Information that accompanies the Prospectus included in this
Registration Statement).
3.3 Form of Request for Redemption (included as Exhibit D to the Statement
of Additional Information that accompanies the Prospectus included in
this Registration Statement).
4.1 Specimen of Unit Certificate.
4.2 Exhibits 3.1, 3.2, 3.3 and 4.1 define the rights of security holders.
5.1 Form of Opinion of Kurzman, Karelsen & Frank, LLP relating to the
legality of the Units.
8.1 Form of Opinion of Morrison Cohen Singer & Weinstein, LLP relating to
federal income tax matters.
10.1 Form of Customer Agreement between the Registrant and ADM Investor
Services, Inc.
10.2* Commodity Trading Authorization between the Registrant and Shaffer Asset
Management, Inc.
10.3 Form of Advisory Agreement between the Registrant and Shaffer Asset
Management, Inc.
10.4 Form of Subscription Agreement / Power of Attorney (included as Exhibit
C to the Statement of Additional Information that accompanies the
Prospectus included in this Registration Statement).
10.5 Form of Net Worth Agreement between Shaffer Asset Management, Inc.,
Daniel S. Shaffer and Bruce I. Greenberg.
10.6** Form of Escrow Agreement between the Registrant and The Chase Manhattan
Bank.
24.1 Consent of Kurzman Karelsen & Frank, LLP (included in Exhibit 5.1 to
this Registration Statement).
24.2 Consent of Morrison Cohen Singer & Weinstein, LLP (included in Exhibit
8.1 to this Registration Statement).
24.2 Consent of Anchin Block & Anchin LLP.
- ----------
* Previously filed and not filed herewith.
** To be filed by amendment.
-II-2-
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
Item 17. Undertakings.
Subject to the limitations set forth in Item 512 of Regulation S-K under
the Securities Act of 1933, as amended, the undersigned Registrant hereby
undertakes:
(i) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(A) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(B) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(C) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(ii) that, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(iii) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering;
(iv) that, for purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from the form
of prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1), 424(b)(4) or 497(h) under the Securities Act of
1933, as amended, shall be deemed to be part of this Registration Statement
as of the time it was declared effective; and
(v) that, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
-II-3-
Insofar as indemnification for liabilities under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 512(h) or
otherwise, the Registrant had been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any such action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933, as amended, and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused Pre-Effective Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of White Plains, State of New York on January 23, 2001.
SHAFFER DIVERSIFIED FUND, LP
By: Shaffer Asset Management, Inc.
General Partner
By: /s/ Daniel S. Shaffer
Daniel S. Shaffer
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pre-Effective Amendment No. 1 to this Registration Statement has been signed
below by the following person in the capacities and on the dates indicated.
Signature Name Title Date
--------- ---- ----- ----
/s/ Daniel S. Shaffer Daniel S. Shaffer President of General Partner January 23, 2001
(chief executive officer)
/s/ Daniel S. Shaffer Daniel S. Shaffer President of General Partner January 23, 2001
(chief accounting officer)
-II-4-
SHAFFER DIVERSIFIED FUND, L.P.
(A Delaware Limited Partnership)
Exhibit Index
Exhibit
Number Description
- ------ -----------
1.1 Form of Selling Agent Agreement between Registrant and Berthel Fisher &
Company Financial Services, Inc.
1.2 Form of Selected Dealers Agreement.
1.3 Form of Continuing Services Agreement.
3.1* Certificate of Limited Partnership of the Registrant.
3.2 Form of Amended and Restated Agreement of Limited Partnership of the
Registrant (included as Exhibit A to the Statement of Additional
Information that accompanies the Prospectus included in this
Registration Statement).
3.3 Form of Request for Redemption (included as Exhibit D to the Statement
of Additional Information that accompanies the Prospectus included in
this Registration Statement).
4.1 Specimen of Unit Certificate.
4.2 Exhibits 3.1, 3.2, 3.3 and 4.1 define the rights of security holders.
5.1 Form of Opinion of Kurzman, Karelsen & Frank, LLP relating to the
legality of the Units.
8.1 Form of Opinion of Morrison Cohen Singer & Weinstein, LLP relating to
federal income tax matters.
10.1 Form of Customer Agreement between the Registrant and ADM Investor
Services, Inc.
10.2* Commodity Trading Authorization between the Registrant and Shaffer Asset
Management, Inc.
10.3 Form of Advisory Agreement between the Registrant and Shaffer Asset
Management, Inc.
10.4 Form of Subscription Agreement / Power of Attorney (included as Exhibit
C to the Statement of Additional Information that accompanies the
Prospectus included in this Registration Statement).
10.5 Form of Net Worth Agreement among Shaffer Asset Management, Inc., Daniel
S. Shaffer and Bruce I. Greenberg.
10.6** Form of Escrow Agreement between the Registrant and The Chase Manhattan
Bank.
24.1 Consent of Kurzman Karelsen & Frank, LLP (included in Exhibit 5.1 to
this Registration Statement).
24.2 Consent of Morrison Cohen Singer & Weinstein, LLP (included in Exhibit
8.1 to this Registration Statement).
24.2 Consent of accountants.
- ----------
* Previously filed and not filed herewith.
** To be filed by amendment.