AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 2001
REGISTRATION NO. 333-46550
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SHAFFER DIVERSIFIED FUND, LP
(Exact name of registrant as specified in its charter)
DELAWARE 6799 13-4132934
(State or other (Primary Standard (IRS employer
jurisdiction of Industrial Classification identification
incorporation Code Number) number)
or organization)
925 WESTCHESTER AVENUE
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
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT 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
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(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, LP
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 Ratio of Earnings
to Fixed Charges ................ Commodity Futures Trading Commission
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 .................. Location and Telephone Number; -
Termination of the Fund; - Business; -
Administration; Financial Information;
Risk Factors; Conflicts of Interest /
-3-
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 Indemnification
for Securities Act
Liabilities ..................... Summary of the Limited Partnership
Agreement - Indemnification
-4-
SUBJECT TO COMPLETION, DATED __________, 2001
THE INFORMATION 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 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.
PROSPECTUS
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SHAFFER DIVERSIFIED FUND, LP
25,000 UNITS OF LIMITED PARTNERSHIP INTEREST
Shaffer Diversified Fund, LP 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.,
which will serve as the Fund's general partner and commodity trading advisor.
THESE UNITS ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE
OF RISK. A DESCRIPTION OF THE MATERIAL RISK FACTORS RELATING TO
AN INVESTMENT IN THE FUND APPEARS UNDER THE HEADING "RISK
FACTORS" ON PAGE 16 OF THIS PROSPECTUS.
This offering consists of up to 25,000 units of limited partnership
interest of the Fund. The Units are being offered for sale through Berthel
Fisher & Company Financial Services, Inc., the Fund's selling agent, on a best
efforts basis. Berthel Fisher & Company may select other firms that are members
of the NASD and certain foreign dealers and institutions that are not members of
the NASD to participate in this offering.
The initial offering of the Units will extend for 60 days from the date of
this prospectus, subject to the right of Shaffer Asset Management to extend this
offering for up to an additional 60 days. During that 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). After that 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.
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, 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). In some states, however,
greater minimum purchase requirements may be applicable.
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 Shaffer
Asset Management during the initial offering period, 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 Shaffer Asset Management during the initial offering period,
subscribers for Units will be refunded 100% of the purchase price and sales
charges paid, plus their respective pro rata share of any interest earned
thereon, within fifteen days following the expiration of the escrow period.
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PRICE TO PUBLIC* SELLING COMMISSIONS PROCEEDS TO FUND
- ---------------------------------------------------------------- ------------------------ ----------------------
PER INITIAL UNIT .......................... $1,000 $50 $950
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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
- ---------------------------------------------------------------- ------------------------ ----------------------
* The public offering price of the Units has been determined arbitrarily by
Shaffer Asset Management.
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.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE ACCOMPANYING STATEMENT
OF ADDITIONAL INFORMATION. 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 COMMODITY FUTURES TRADING COMMISSION
PASSED ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE ACCOMPANYING
STATEMENT OF ADDITIONAL INFORMATION.
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.
_______________, 2001
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 20
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 25.
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 8.
- - - - - - - - - -
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.
-2-
PART ONE - PROSPECTUS
TABLE OF CONTENTS
PAGE
Summary .................................................................... 1
The Fund........................................................... 1
The Offering....................................................... 3
Potential Advantages of Investment in the Fund..................... 4
Organizational Chart........................................................ 7
Financial Information....................................................... 8
Risk Factors................................................................ 8
Conflicts of Interest / Fiduciary Responsibility of the General Partner.....15
Use of Proceeds.............................................................19
Fees, Compensation and Expenses.............................................20
Summary............................................................20
Description of Fees, Compensation and Expenses.....................22
Estimate of Break-Even Threshhold..................................25
Definitions Used in Calculating Purchase
Price for the Units and Fees,
Compensation and Expenses
Payable by the Fund..............................................27
The General Partner / Advisor...............................................28
Description of the General Partner / Advisor.......................28
Duties of the General Partner / Advisor............................30
Minimum Investment and Net Worth Requirements Imposed
on the General Partner ..........................................31
Trading Philosophy and Methods of the Advisor......................32
Past Performance of the Advisor....................................33
Commodity Brokerage Arrangements............................................44
General............................................................44
Description of the Commodity Broker................................44
Civil, Criminal and Administrative Actions.........................44
Description of Brokerage Arrangements..............................45
Plan of Distribution........................................................46
The Offering.......................................................46
Subscriptions / Investment Requirements............................48
Investments by ERISA Accounts...............................................49
General............................................................49
Special Investment Considerations..................................49
The Fund Should Not Be Deemed to Hold "Plan Assets"................49
Inegible Purchasers................................................50
Distributions and Redemptions...............................................50
Trading Policies............................................................52
Summary of the Advisory Agreement...........................................54
Summary of the Limited Partnership Agreement................................56
Additional Limited Partners........................................56
Amendments; Meetings...............................................56
Certificates for Units.............................................56
Election, Removal and Withdrawal of the General Partner............56
Indemnification....................................................57
Liabilities........................................................57
Limited Partners' Rights...........................................58
Profit and Loss; Distributions.....................................58
Redemptions........................................................58
Reports and Accounting.............................................58
Termination........................................................59
Transfer of Units..................................................60
Capitalization / Selected Financial Data....................................60
Federal Income Tax Considerations...........................................61
Forward-Looking Statements..................................................64
Legal Matters...............................................................65
Experts ...................................................................65
Additional Information......................................................65
Index to Financial Statements...............................................F-1
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
ii
SUMMARY
The following summary is intended to highlight the significant 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.
THE FUND
THE FUND
Shaffer Diversified Fund, LP 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. The Fund will terminate its
existence on December 31, 2025, or upon an earlier date in certain
circumstances.
LOCATION AND TELEPHONE NUMBER
The principal executive offices of the Fund and Shaffer Asset
Management are located at 925 Westchester Avenue, White Plains, New York
10604, and their telephone number at such address is (800) 352-5265
(toll-free).
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
Shaffer Asset Management.
ADMINISTRATION
Shaffer Asset Management, 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. will act as
the Fund's selling agent and ADM Investor Services, Inc. will act as the
Fund's initial commodity broker. See "The General Partner / Advisor" and
"Plan of Distribution".
FEES AND EXPENSES PAYABLE BY THE FUND
The Fund will be required to pay substantial charges, such as
continuing services fees; management fees and possible incentive
allocations; brokerage commissions; legal, accounting, auditing, printing,
recording, filing and other periodic fees and expenses; and extraordinary
expenses. Shaffer Asset Management has agreed, however, to pay all such
expenses that are in the aggregate 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 shall be paid by the Fund. A
complete description of these charges is set forth under the caption "Fees,
Compensation and Expenses".
FEES AND EXPENSES PAYABLE BY THE GENERAL PARTNER
Shaffer Asset Management will pay all organizational and initial
offering expenses of the Fund, exclusive of selling commissions. In
addition, Shaffer Asset Management will pay all operating and other
administrative expenses attributable to the Fund that are in the aggregate
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 shall be paid by the Fund.
BREAK-EVEN THRESHOLD
Charges of the Fund 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 -
Estimate of Break-even Threshold".
DISTRIBUTIONS
Distributions of profits, if any, will be made at the discretion of
Shaffer Asset Management. Investors should be aware, however, that Shaffer
Asset Management does not intend to make any distributions of any profits.
See "Distribution and Redemptions".
REDEMPTION OF UNITS
Limited partners of the Fund 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 Shaffer Asset Management; no
redemption which applies to less than all of a partner's interest in the
Fund can result, however, 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) after the redemption is
effected. See "Distributions and Redemptions".
The Fund will charge an early redemption fee, except on redemptions
effected to provide funds for the 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. See "Fees,
Compensation and Expenses - Description of Fees, Compensation and Expenses
- Early Redemption Fees" and "Distributions and Redemptions".
-2-
FEDERAL TAX TREATMENT
For Federal income tax purposes, the Fund will be treated as a
partnership and not a corporation; however, no ruling from the IRS will be
obtained confirming this tax treatment. The Fund's status as a partnership
means that investors will be subject to tax on their allocable shares of
the Fund's interest income and any gains earned each year, whether or not
they redeem any Units or receive any cash distributions from the Fund
during such year.
Also, an individual who incurs a capital loss in any year may not be
able to deduct (for tax purposes) all of that loss in that same year. The
amount deductible in any one year is subject to an annual limit. The annual
limit is an amount equal to (i) that person's capital gains incurred in the
same year, plus (ii) $3,000. However, the rest of the capital loss can be
deducted in future years, but subject to the same annual limit. See
"Federal Income Tax Consequences".
THE OFFERING
SECURITIES OFFERED
This offering consists of 25,000 units of limited partnership interest
of the Fund. The initial offering of the Units will extend for 60 days from
the date of this prospectus, subject to the right of Shaffer Asset
Management to extend this offering for up to an additional 60 days. During
that 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). After that period, 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--
The Offering".
MINIMUM INVESTMENT AMOUNTS
The minimum investment in the Fund by any one investor 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.
Additional investments may be made in amounts of not less than $1,000. In
some states, however, greater minimum purchase requirements may be
applicable. See "Plan of Distribution--The Offering".
SUITABILITY STANDARDS
Each investor must represent in the Subscription Agreement / Power of
Attorney that is 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 statement of
additional information, and that he or she is able to assume the risks
inherent in an investment in the Fund. See "Plan of Distribution--
Subscriptions/Investment Requirements".
-3-
PLAN OF DISTRIBUTION
The Units are being offered through Berthel Fisher & Company on a best
efforts basis. Before trading can commence, the initial offering under this
prospectus must have concluded, and at least 1,000 Units must have been
sold and accepted by Shaffer Asset Management. All subscriptions received
and accepted by Shaffer Asset Management 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 Shaffer Asset
Management 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. Any subscription may be rejected by Shaffer
Asset Management in whole or in part for any reason, but no subscription
may be revoked by the subscriber. See "Plan of Distribution".
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 ADM Investor Services and/or other banks and commodity brokers
and used to trade in commodity futures contracts and other related
interests pursuant to the instructions of Shaffer Asset Management. See
"Use of Proceeds".
RISKS AND CONFLICTS OF INTEREST
An investment in the Fund involves substantial risks. The risks of
investing in the Fund include, but are not limited 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 of the Fund may lose his or her
entire investment in the Fund, including any profits earned thereon,
whether or not distributed. In addition, reference is made to the existence
of various conflicts of interest. See "Risk Factors" and "Conflicts of
Interest and Fiduciary Responsibility of the General Partner".
POSSIBLE ADVANTAGES
OF INVESTMENT IN THE FUND
PROFESSIONAL COMMODITY TRADING MANAGEMENT
Trading decisions for the Fund will be made by Shaffer Asset
Management pursuant to its trend-following, technical trading 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.
-4-
INVESTMENT DIVERSIFICATION
The Fund allows investors to include commodity futures 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 FUTURES MARKET DIVERSIFICATION
The Fund will be large enough to enable Shaffer Asset Management to
trade in as many different commodity futures markets as it chooses, thereby
reducing risk and increasing the probability of success. Each of the Fund's
limited partners 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.
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 of the
Fund, however, cannot be individually subjected to margin calls or lose
more than his or her investment in the Fund and his or her share of
profits, if any, whether or not distributed.
LIQUIDITY
Limited partners of the Fund can redeem their Units as of the last
business day of each month; no redemption that applies to less than all of
a limited partner's interest in the Fund can result, however, 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). In addition, a redemption fee will be
charged for Units redeemed during the first full twelve calendar months
after their purchase, except for redemptions effected to provide funds for
the payment of taxes on profits. See "Distributions and Redemptions".
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".
-5-
FAVORABLE TAX TREATMENT
A significant portion of substantially all of the Fund's 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. See "Federal Income Tax Consequences".
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.
ADMINISTRATIVE CONVENIENCE
The Fund provides to or obtains for its limited partners 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 its limited partners, and supplying its limited partners
with information necessary for individual Federal tax returns.
-6-
SHAFFER DIVERSIFIED FUND, LP
ORGANIZATIONAL CHART
The following organizational chart illustrates the relationships among
the various service providers of this offering. Shaffer Asset Management is both
the general partner of, and the commodity trading advisor to, the Fund. Berthel
Fisher & Company, the selected dealers and ADM Investor Services are not
affiliated with Shaffer Asset Management or the Fund, except that Daniel S.
Shaffer and Bruce I. Greenberg, the sole officers, directors and shareholders of
Shaffer Asset Management are registered representatives of Berthel Fisher &
Company.
--------------------------
| SELLING AGENT: |
| |
| BERTHEL FISHER & COMPANY |
| FINANCIAL SERVICES, INC. |
| |
--------------------------
|
| Selling Agent Agreement
|
----------------------
| |
| SELECTED DEALERS |
| |
| |
----------------------
|
| Selected Dealers Agreement
|
------------------- --------------------- ----------------
| GENERAL PARTNER /| Advisory| |Customer | COMMODITY |
| ADVISOR: |Agreement| |Agreement| BROKER: |
| |---------| SHAFFER DIVERSIFIED |---------| |
| SHAFFER ASSET | | FUND, LP | | ADM INVESTOR |
| MANAGEMENT, | | | | SERVICES, INC.|
| INC. | | | | |
------------------- --------------------- ----------------
|
| Individual Managed Account
| Agreements
--------------------
| |
| INDIVIDUAL |
| MANAGED ACCOUNT |
| PROGRAM |
| |
--------------------
-7-
FINANCIAL INFORMATION
Balance Sheet of the Fund at December 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 Shaffer Asset
Management and $1,000 by Daniel S. Shaffer, the initial limited partner and
an officer, director and shareholder of Shaffer Asset Management. See
"Financial Statements".
RISK FACTORS
THE FOLLOWING IS, IN THE OPINION OF SHAFFER ASSET MANAGEMENT, A
DESCRIPTION OF ALL MATERIAL RISK FACTORS RELATED TO AN INVESTMENT IN
THE FUND. PROSPECTIVE 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.
Shaffer Asset Management 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 trading techniques utilized by
Shaffer Asset Management are primarily technical in nature, and Shaffer Asset
Management does not ordinarily consider "fundamental" factors except to the
extent that such factors are reflected in the technical input data analyzed by
Shaffer Asset Management. See "The General Partner / Advisor - Trading Methods"
and "Description of Commodity Futures Trading" in the statement of additional
information that accompanies this prospectus.
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 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 of the Fund cannot incur net
losses greater than the amount of his or her investment. See "Limited
Partnership Agreement - Liabilities".
-8-
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. No assurance can be given, however, 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 of the Fund to realize any appreciation in the value of their Units.
In addition, the Fund will allocate to Shaffer Asset Management, on a
quarterly basis, an amount equal to 15% of the Advisory Profits (as hereinafter
defined) generated by Shaffer Asset Management 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 Shaffer Asset
Management 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 Shaffer Asset Management 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, Shaffer Asset Management
would retain the entire amount of such allocation.
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 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
"Conflicts of Interest and Fiduciary Responsibility of the General Partner",
"Fees, Compensation and Expenses", "Commodity Brokerage Arrangements" and
"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 Fund's advisor are contingent on
cumulative Advisory Profits, and all Advisory Losses (as hereinafter defined)
incurred by Shaffer Asset Management following the allocation of any incentive
allocations to it must be recovered by Shaffer Asset Management 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 Units. A decline in the
Fund's cumulative profits
-9-
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. Shaffer
Asset Management 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 Shaffer Asset Management. 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. 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 Shaffer Asset Management may cause the Fund to
establish positions on the wrong side of the price movements caused by external
events.
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.
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 Shaffer Asset Management 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 Shaffer Asset Management has only a limited operating
history.
THE COMMODITY FUTURES TRADING COMMISSION REQUIRES A COMMODITY POOL
OPERATOR TO DISCLOSE TO PROSPECTIVE POOL PARTICIPANTS THE ACTUAL
PERFORMANCE RECORD OF THE POOL FOR WHICH THE OPERATOR IS SOLICITING
PARTICIPANTS. YOU SHOULD NOTE THAT THIS POOL HAS NOT YET BEGUN TRADING
AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
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 Shaffer Asset Management 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
-10-
of this prospectus and the accompanying statement of additional information and
then returned. See "Plan of Distribution".
LIMITED ABILITY OF LIMITED PARTNERS 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 of the Fund only with the consent of Shaffer Asset Management,
which consent may be withheld in its sole discretion. However, a limited partner
of the Fund 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 Shaffer Asset
Management, subject to an early redemption fee for redemptions of Units effected
as of or before the end of the twelfth full calendar month after their purchase,
other than redemptions effected to provide funds for the payment of taxes on
profits. See "Distributions and Redemptions" and "Summary of the Limited
Partnership Agreement - Redemptions".
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 of the Fund
and, as such, will be unable to exercise any management functions with respect
to its operations. The rights and obligations of the Fund's limited partners are
governed by the provisions of the Delaware Revised Uniform Limited Partnership
Act and by the Fund's limited partnership agreement, which provides, in part,
that a majority in interest of the limited partners of the Fund may:
o adopt amendments to the Fund's limited partnership agreement proposed
by Shaffer Asset Management or by limited partners of the Fund owning
at least 10% of the outstanding Units;
o dissolve the Fund;
o remove Shaffer Asset Management as the Fund's general partner;
o elect a new general partner if Shaffer Asset Management withdraws or
is removed; or
o cancel any contract for services with Shaffer Asset Management 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 SEC upon such
entities under the Investment Company Act of 1940, as amended. In addition,
Shaffer Asset Management 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.
Shaffer Asset Management is, however, a commodity pool operator and commodity
trading
-11-
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 Shaffer Asset Management'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 Shaffer Asset Management.
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 Shaffer Asset Management, and
Shaffer Asset Management 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 OF THE FUND 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 Shaffer Asset Management and may be able to exercise such
right in order to provide funds for the payment of taxes and other purposes. 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 purposes which are greater or
less than any actual increase or decrease in the value of their Units. See
"Redemptions" and "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.
-12-
THERE COULD BE A LIMIT ON THE DEDUCTIBILITY OF BROKERAGE AND
PERFORMANCE FEES. Although Shaffer Asset Management expects to treat the
management fees paid to it, and brokerage fees paid to ADM Investor Services,
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,
the tax liability of a limited partner of the Fund 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, the tax liability of a limited partner of the Fund would likely
increase.
CONFLICTS OF INTEREST. There exist inherent and potential conflicts of
interest in the operation of the Fund's business. These include:
o the ability of Shaffer Asset Management to increase the amount of
the management fees payable to it and the continuing services fees
payable to Berthel Fisher & Company (of which the sole officers,
directors and shareholders of Shaffer Asset Management are
registered representatives) by limiting the distributions of
profits, if any, of the Fund;
o competition in making purchases and/or sales of commodity futures
contracts among Shaffer Asset Management / Adviser, Berthel Fisher &
Company, ADM Investor Services and their respective officers,
directors, shareholders, employees, customers and affiliates;
o (i) the limited ability of Shaffer Asset Management to prevent
itself from violating the trading policies of the Fund and from
engaging in excessive trading, and (ii) the potential absence of
arm's length negotiations with respect to the terms of the advisory
agreement entered into between the Fund and Shaffer Asset
Management, each caused by Shaffer Asset Management acting as the
Fund's general partner and commodity trading advisor; and
o the potential absence of arm's length negotiations with respect to
the terms of the selling agent agreement entered into between the
Fund and Berthel Fisher & Company, caused by the sole officers,
directors and shareholders of Shaffer Asset Management being
registered representatives of Berthel Fisher & Company.
For a complete discussion of the inherent and potential conflicts of interest
that may constitute a current risk to potential investors in the Fund, see
"Conflicts of Interest / Fiduciary Responsibility of the General Partner".
OTHER CLIENTS OF THE FUND'S ADVISOR. Shaffer Asset Management and its
sole officers, directors and shareholders, Daniel S. Shaffer and Bruce I.
Greenberg, 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 Shaffer Asset Management 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, Shaffer Asset
Management may vary the trading strategies applicable to the Fund from those
used for its other managed accounts. No assurance is given that the results of
the Fund's trading will be similar to that of other accounts concurrently
managed by Shaffer Asset Management or its principals, employees and affiliates.
However, in its trading for the Fund's account and such other accounts, Shaffer
Asset Management has agreed to use its good faith, best
-13-
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 SHAFFER ASSET MANAGEMENT. The
advisory agreement between the Fund and Shaffer Asset Management is for a one
year term, subject to earlier termination by the Fund or Shaffer Asset
Management and subject to automatic renewal on the same terms and conditions for
an additional one year term, unless Shaffer Asset Management elects against
renewal. Upon the expiration of the advisory agreement, Shaffer Asset
Management, 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
principals of Shaffer Asset Management will continue their association with
Shaffer Asset Management during the term of the advisory agreement or that the
services of Shaffer Asset Management or any of its principals 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.
All commodity accounts controlled by Shaffer Asset Management 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,
Shaffer Asset Management 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. 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. 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.
-14-
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 (i)
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 and (ii) the Fund may not necessarily be profitable or unprofitable during
unfavorable periods for the stock market. 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:
o an "Employee Benefit Plan," as defined in Section 3(3) of
Employee Retirement Security Act of 1974, as amended;
o a plan described in Section 4975(e)(1) of the Internal Revenue
Code; or
o a partnership or other entity whose underlying assets are
considered "Plan assets" by reason of Plan investment in the
entity.
When considering an investment in the Fund, a Plan fiduciary should
consider:
o the definition of "plan assets" under the ERISA;
o whether the investment satisfies the diversification
requirements of ERISA;
o whether the investment satisfies the prudence requirements of
ERISA;
o whether income derived from the Fund could constitute "unrelated
business income" subject to Federal income taxation in the Plan
account; and
o that there may be no market in which the fiduciary can sell or
otherwise dispose of the Units.
Shaffer Asset Management recommends that any purchase of Units be
considered not only by the investor but also the investor's legal, tax and
financial advisers.
LACK OF INDEPENDENT EXPERTS. Shaffer Asset Management 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.
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 Shaffer
Asset Management to the Fund and the limited partners of the Fund as explained
below.
-15-
CONFLICTS OF INTEREST
DISTRIBUTION OF PROFITS. Under the terms of the Fund's limited
partnership agreement, Shaffer Asset Management has discretion as to the
distribution of profits, if any, to the limited partners of the Fund. At
present, Shaffer Asset Management 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 Shaffer Asset Management and the continuing
services fees payable to Berthel Fisher & Company, the selected dealers and
their respective registered representatives (including Daniel S. Shaffer and
Bruce I. Greenberg, the sole officers, directors and shareholders of General
Partner / Advisor who are also registered representatives of Berthel Fisher &
Company), 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
Shaffer Asset Management 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. Shaffer Asset Management and its sole
officers, directors and shareholders, Daniel S. Shaffer and Bruce I. Greenberg,
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 that Shaffer Asset Management will
utilize in making trading decisions for the Fund; and Berthel Fisher & Company,
ADM Investor Services 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 the limited partners of the Fund except to the extent required by
law. In addition, ADM Investor Services 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 ADM Investor Services. 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 Shaffer Asset Management 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.
RELATIONSHIP BETWEEN SHAFFER ASSET MANAGEMENT AND THE FUND'S COMMODITY
BROKER(S). Under the terms of the Fund's limited partnership agreement, Shaffer
Asset Management has the authority to designate commodity broker(s) to execute
trades on behalf of the Fund and, at present, Shaffer Asset Management has
selected ADM Investor Services, Inc. to act as the initial commodity broker for
the Fund. The Fund will initially pay ADM Investor Services 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
-16-
that the brokerage commission rates at which the Fund will pay ADM Investor
Services may be higher than rates charged by ADM Investor Services 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 ADM Investor Services is
non-exclusive so that the Fund will have the right to seek lower commission
rates from other brokers at any time, Shaffer Asset Management believes that the
arrangements between the Fund and ADM Investor Services are fair and reasonable
in view of the nature and quality of the services to be provided by ADM Investor
Services with respect to the execution of transactions. Shaffer Asset Management
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 ADM Investor Services for lower commission rates. Shaffer
Asset Management 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, Shaffer Asset Management 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, Shaffer Asset Management 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 Shaffer Asset Management nor any of its principals directly or
indirectly share in the brokerage commissions paid by the Fund for brokerage
services. Since Shaffer Asset Management and its principals also have no
affiliations or business arrangements, direct or indirect, with any broker or
any principal thereof whereby Shaffer Asset Management 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
Shaffer Asset Management 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 Fund's
limited partnership agreement, Shaffer Asset Management 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 Shaffer Asset Management acts as
both the general partner of, and the trading advisor to, the Fund, it 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 that could cause the Fund to pay substantial brokerage
commissions. However, neither Shaffer Asset Management nor any of its
principal(s) will directly or indirectly 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. Shaffer Asset Management may be deemed to have a conflict of interest
with respect to its responsibility to review the trading performance of Shaffer
Asset Management and to determine whether to terminate the advisory agreement
with Shaffer Asset Management 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 Shaffer Asset Management by the Fund.
-17-
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 Shaffer Asset
Management, Berthel Fisher & Company, 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
Shaffer Asset Management. Approximately 20% of all sales charges shall be paid
to Shaffer Asset Management to reimburse Shaffer Asset Management for the
payment of the Fund's organizational and initial offering and the Fund's
operating expenses that are payable by Shaffer Asset Management and
approximately 80% of all sales charges shall be paid as syndication fees to
Berthel Fisher & Company and as selling commissions to the selected dealers.
Berthel Fisher & Company 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 Berthel Fisher & Company and,
through Berthel Fisher & Company, 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, Shaffer Asset
Management, Berthel Fisher & Company, 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 and Bruce I.
Greenberg, the sole officers, directors and shareholders of Shaffer Asset
Management, are also registered representatives of Berthel Fisher & Company, 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 and Mr. Greenberg's interest in Shaffer Asset Management;
their interest in maximizing their current and on-going compensation; and the
interests of their 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 Berthel Fisher & Company.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
In evaluating these conflicts of interest, prospective investors should
be aware that Shaffer Asset Management has a fiduciary responsibility to the
limited partners of the Fund to exercise good faith and fairness in all dealings
affecting the Fund. In the event that a limited partner of the Fund believes
that Shaffer Asset Management 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 Shaffer Asset
Management. Limited partners of the Fund should be aware that the performance by
Shaffer Asset Management of its responsibilities to the Fund will be measured by
the terms of the Fund's limited partnership agreement, including the authority
of Shaffer Asset Management to enter into the advisory and brokerage agreements,
as well as applicable law. Limited partners of the Fund are afforded certain
rights to institute reparations proceedings under the Commodity Exchange Act, as
amended, for violations of such act or of any rule, regulation or order of the
CFTC by Shaffer Asset Management. Excessive trading of the Fund's account may
constitute a violation of the CE Act. A limited partner of the Fund is also
entitled by statute to bring suit for certain violations of the CE Act. Limited
partners of the
-18-
Fund 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 Shaffer
Asset Management under the Fund's advisory agreement, the authority of Shaffer
Asset Management to enter into such contract under the Fund's limited
partnership agreement and the Fund's subscription agreement / power of attorney,
the exculpatory provisions in the Fund's advisory agreement and the Fund's
limited partnership agreement, and the absence of judicial or administrative
standards defining excessive trading. Although ADM Investor Services provides
various services to the Fund, it accepts no responsibility for verifying that
any instructions received from Shaffer Asset Management / Advisor or any of
their employees or agents are in conformance with Shaffer Asset Management's
authority and ADM Investor Services accepts no responsibility for monitoring the
actions of Shaffer Asset Management in this regard, to ensure that such actions
are not contrary to the provisions of this prospectus or any amendments thereto.
The Fund's limited partnership agreement provides that Shaffer Asset
Management 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 Fund's limited partnership agreement provides that with respect to
any action in which Shaffer Asset Management or any of its shareholders,
directors, officers, employees, affiliates or any person who controls Shaffer
Asset Management 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 Fund's 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 Shaffer Asset Management or any trading advisors; and
that such prohibitions may not be circumvented by any reciprocal business
arrangements.
USE OF PROCEEDS
The gross proceeds of this offering will depend upon the prices at
which the Units are sold. During the initial offering period of sixty days
(which may be extended for up to an additional sixty days at Shaffer Asset
Management's discretion), the Units will be sold for $950 each, plus an initial
sales charge of $50 per Unit; after the initial offering period, 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 the minimum
number of 1,000 Units is sold during the initial offering period at an initial
purchase price of $950 per Unit, the net
-19-
proceeds to the Fund will be $950,000, without giving effect to the
contributions of Shaffer Asset Management and the initial limited partner of the
Fund. Similarly, if the maximum number of 25,000 Units is sold during the
initial offering period at the initial purchase price of $950.00 per Unit, the
net proceeds to the Fund will be $23,750,000, without giving effect to the
contributions of Shaffer Asset Management and the initial limited partner of the
Fund. See "Capitalization".
Gross Proceeds
During Initial Offering Period
------------------------------
Net Proceeds to the Fund*
Minimum Number of Units (1,000): $ 950,000
Maximum Number of Units (25,000): $23,750,000
* Without giving effect to the contributions of Shaffer Asset Management
and the initial limited partner of the Fund.
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 Shaffer Asset Management generally intends to
commit between 10% and 40% of the Fund's net assets as margin for commodity
trading, Shaffer Asset Management 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 ADM Investor Services and/or
other banks or commodity brokers. ADM Investor Services 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 ADM Investor Services, 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 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. Shaffer Asset Management 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:
SHAFFER ASSET MANAGEMENT, INC.
Monthly management fee:
- ----------------------
1/12 of 3.75% of the Net Asset Value per Unit (as defined below) of the
Fund's asset under management at month's end with respect to Units
purchased within the prior 12-
-20-
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 will be paid by the
Fund to Shaffer Asset Management as a monthly management fee.
Quarterly incentive allocation:
- ------------------------------
15% of the Fund's Advisory Profits (as defined below) achieved on the
Fund's assets under management will be allocated by the Fund to Shaffer
Asset Management as a quarterly incentive allocation.
Reimbursement of organizational, initial offering and operating expenses:
- -------------------------------------------------------------------------
1% 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 by the Fund to Shaffer Asset Management to reimburse Shaffer Asset
Management for the payment by Shaffer Asset Management of the Fund's
organizational, initial offering and operating expenses payable by
Shaffer Asset Management.
Other:
- -----
Shaffer Asset Management will share to the same extent as the limited
partners of the Fund 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 Shaffer Asset Management.
BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.
Syndication Fee:
- ---------------
1% of the Net Asset Value per Unit of Units sold will be paid by the
Fund to Berthel Fisher & Company as a syndication fee.
Monthly Continuing Service Fee:
- ------------------------------
1/12 of .25% of the Net Asset Value per Unit (as defined below) 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) with respect to
Units purchased more than 12 months prior thereto will be paid by the
Fund to Berthel Fisher & Company as a monthly continuing service fee.
SELECTED DEALERS AND
THEIR RESPECTIVE REGISTERED REPRESENTATIVES
Selling Commissions:
- -------------------
3% of the Net Asset Value per Unit of Units sold will be paid
to the selected dealers and their respective registered
representatives as a selling commission.
-21-
Monthly Continuing Service Fee:
- ------------------------------
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 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
more than 12 months prior thereto will be paid by the Fund to the
selected dealers and their respective registered representatives as a
monthly continuing service fee.
ADM INVESTOR SERVICES, INC.
Commodity brokerage commissions:
- -------------------------------
Brokerage commissions at an initial rate of $17 per "round-turn" trade
on domestic exchanges will be paid by the Fund to ADM Investor
Services. ADM Investor Services is responsible, however, for all other
charges relating to the Fund's trading, such as exchange, clearing,
transfer and NFA fees.
OTHERS
Legal, accounting, auditing, printing, recording, filing and other periodic fees
- --------------------------------------------------------------------------------
and expenses; and extraordinary expenses:
- -----------------------------------------
Estimated at $95,000 at current price levels, ranging from about 0.4%
of the proceeds of the offering if the maximum number of 25,000 Units
is sold during the initial offering period to about 10% thereof if only
the minimum number of 1,000 Units is sold. Shaffer Asset Management has
agreed to supply and pay for such services as are deemed by Shaffer
Asset Management to be necessary or desirable and proper for the
continuous operations of the Fund that are in the aggregate 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 shall be paid by the Fund. 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 Shaffer
Asset Management to reimburse Shaffer Asset Management for the payment
by Shaffer Asset Management of the Fund's organizational and initial
offering and the Fund's operating expenses that are payable by Shaffer
Asset Management.
DESCRIPTION OF FEES, COMPENSATION AND EXPENSES
1. MANAGEMENT FEES AND INCENTIVE ALLOCATIONS. Pursuant to the terms of
the advisory agreement between the Fund and Shaffer Asset Management, the Fund
has agreed (i) to pay to Shaffer Asset Management 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 Shaffer Asset Management,
on a quarterly basis, an amount equal to 15% of the Fund's Advisory Profits
-22-
(exclusive of any interest earned by the Fund) achieved by Shaffer Asset
Management for such quarter on the Fund's assets under management by Shaffer
Asset Management (see "Certain Definitions: 3. Advisory Profits", below). THE
MONTHLY MANAGEMENT FEES WILL BE PAID, AND THE QUARTERLY INCENTIVE ALLOCATION
WILL BE 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 Shaffer Asset Management.
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
Shaffer Asset Management during the initial offering period, approximately 20%
of all sales charges shall be paid to Shaffer Asset Management to reimburse
Shaffer Asset Management for the payment by Shaffer Asset Management of the
Fund's organizational, initial offering and operating expenses payable by
Shaffer Asset Management and approximately 80% of all sales charges shall be
paid as syndication fees to Berthel Fisher & Company and as selling commissions
to the selected dealers. Berthel Fisher & Company 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. Shaffer Asset Management may increase the sales charge at any time and
from time to time upon sixty days' prior written notice to the limited partners
of the Fund. See "Plan of Distribution".
3. CONTINUING SERVICES FEES. The Fund will pay a monthly continuing
services fee to Berthel Fisher & Company and, through Berthel Fisher & Company,
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 Berthel Fisher & Company and such
selected dealers and their respective registered representatives in return for
their continuing services to the Fund and the limited partners of the Fund
solicited by them. Such services include, without limitation, keeping the
limited partners of the Fund 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. Shaffer Asset Management may
increase the continuing services fee at any time and from time to time upon
sixty days' prior written notice to the limited partners of the Fund. See "Plan
of Distribution".
The continuing services fee will be allocated between Berthel Fisher &
Company 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 that has been outstanding for
twelve or fewer month shall be allocated between Berthel Fisher & Company and
the selected dealers and their respective registered representatives as follows:
-23-
o 20% to Berthel Fisher & Company; and
o 80% to the selected dealers and their respective registered
representatives that solicited the subscription;
and all other continuing services fees shall be allocated as follows:
o 25% to Berthel Fisher & Company; 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 that 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 ADM Investor
Services brokerage commissions initially at the rate of $17.00 per "round-turn"
trade executed on domestic exchanges (i.e., when an open position is closed).
Based upon the historical trading patterns of Shaffer Asset Management, the Fund
may expect to pay brokerage commissions that 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. ADM Investor Services may change its aggregate
commission rates at any time, and a limited partner of the Fund may obtain the
current Fund commission rate schedule from Shaffer Asset Management upon
request. Shaffer Asset Management, 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.
Shaffer Asset Management 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. Thereafter, no redemption fee will be charged. In addition and in order
to assure each of the Fund's limited partners 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. See "Distributions and Redemptions".
6. ORGANIZATIONAL AND INITIAL OFFERING EXPENSES. Shaffer Asset
Management 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 Shaffer Asset Management to reimburse
Shaffer
-24-
Asset Management for the payment by Shaffer Asset Management of the Fund's
organizational and initial offering expenses and the Fund's operating expenses
that are payable by Shaffer Asset Management.
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. Shaffer Asset Management has
agreed to supply and pay for such services as are deemed by Shaffer Asset
Management to be necessary or desirable and proper for the continuous operations
of the Fund that are in the aggregate 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 shall be paid by the Fund.
Shaffer Asset Management will furnish each of the Fund's limited
partners 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 Shaffer Asset Management 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 Shaffer Asset Management; (iii) the continuing
services fees should equal approximately 4% of average Net Asset Value annually;
(iv) the management fees payable to Shaffer Asset Management 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, ADM Investor Services and/or other banks and commodity
brokers. The effect of the incentive allocation, if any, allocable to Shaffer
Asset Management 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 Shaffer Asset
Management. The break-even threshold is calculated as shown in the following
table:
-25-
"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 ............ $750
Value per Unit at the end of one year to equal the
initial offering price
Percentage of assumed initial offering price.................... 7.50%
(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 Shaffer Asset Management (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 Berthel Fisher &
Company and, through Berthel Fisher & Company, 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 Shaffer
Asset Management 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
-26-
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. Shaffer Asset Management has agreed to
supply and pay for such services as are deemed by Shaffer Asset
Management to be necessary or desirable and proper for the continuous
operations of the Fund that are in the aggregate 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 shall be paid by the Fund. This illustration assumes operating
expenses in an amount equal to 0.5% of the average daily Net Asset Value
of the Fund per year.
(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 h-eld in cash,
United States Treasury Bills or in any other form permissible under
applicable laws and regulations. Shaffer Asset Management 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,
ADM Investor Services and/or other banks and commodity brokers.
DEFINITIONS USED IN CALCULATING PURCHASE PRICE FOR THE UNITS AND THE FEES,
COMPENSATION AND EXPENSES PAYABLE BY THE FUND:
The following terms are used in calculating the purchase price for the
Units and the fees, compensation and expenses payable by the Fund described
above.
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
-27-
(but not futures contracts for United States Treasury Bills) 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 Shaffer Asset Management. 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 during a calendar quarter, for
purposes of calculating Shaffer Asset Management's incentive allocation only,
means (i) the net of profits and losses resulting from all commodity interest
trades closed out by Shaffer Asset Management during such quarter, plus (ii) the
net of any profits and losses on commodity interest trades initiated by Shaffer
Asset Management 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
Shaffer Asset Management and carried forward from the preceding quarter (after
deduction for accrued round-turn brokerage commissions), minus (iv) Shaffer
Asset Management'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 Shaffer Asset Management, if any) shall be Shaffer Asset
Management's "Carryforward Loss" for the next quarter.
In accordance with the foregoing formula, the Fund will allocate to
Shaffer Asset Management an incentive allocation whenever it experiences
Advisory Profits. If Shaffer Asset Management experiences Carryforward Losses
thereafter, Shaffer Asset Management will retain all incentive allocations
previously allocated, but no further incentive allocations will be allocable
until Shaffer Asset Management recoups the Carryforward Losses (except losses
attributable to redeemed Units, distributions and reallocations of assets away
from Shaffer Asset Management, if any) and incurs additional Advisory Profits.
Thus, the incentive allocation is allocable to Shaffer Asset Management only on
cumulative profits earned by Shaffer Asset Management. Upon termination or
expiration of Shaffer Asset Management's contract, the Fund may employ other
advisory services, the compensation for which may be calculated without regard
to any losses incurred by Shaffer Asset Management, or the Fund may renew its
relationship with Shaffer Asset Management 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. Shaffer Asset Management is, and has been, registered with the CFTC as
a commodity pool operator since July 7, 2000 and as a commodity trading advisor
since October 2, 1998, 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
-28-
CFTC supervises the business activities engaged in by Shaffer Asset Management.
In addition, Shaffer Asset Management is, and has been, a member of the NFA in
its capacity as a commodity pool operator since July 2000 and as a commodity
trading advisor since October 1998.
Shaffer Asset Management began managing commodity accounts for others
in March 1999. Shaffer Asset Management 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 March 31, 2001, Shaffer Asset Management had approximately
$2.8 million in assets under management. The trading results of these
individual accounts are separately set forth in Tables A, B and C under the
caption "Past Performance of the General Partner / Advisor". Although Shaffer
Asset Management 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 Shaffer Asset Management are located at 925 Westchester
Avenue, White Plains, New York, New York 10604, and its telephone number is
(800) 352-5265.
The background of the sole principals of Shaffer Asset Management are as
follows:
DANIEL S. SHAFFER, age 39. Mr. Shaffer received a Bachelor of Science
degree from Syracuse University in December 1982 with a major in Speech
Communications and a minor in Finance/Accounting. Shortly thereafter, Mr.
Shaffer received a Master of Science degree in Accounting from New York
University in June 1986.
Mr. Shaffer currently is, and has been, a shareholder and director and
the President of Shaffer Asset Management since March 18, 1998. In addition, Mr.
Shaffer currently is, and has been, a registered representative with Berthel
Fisher & Company since May 2000.
Mr. Shaffer's prior experiences include the following:
- --------------------------------------------------------------------------------
July 1998 to May 2000 Registered representative with Nathan &
Lewis Securities, Inc.
- --------------------------------------------------------------------------------
July 1998 to March 2000 Manager with Metropolitan Life Insurance Co.
- --------------------------------------------------------------------------------
March 1997 to December 2000 Sole officer, director and shareholder of Shaffer
Consulting Group, Inc. (a life, disability and
long-term care insurance broker)
- --------------------------------------------------------------------------------
April 1989 to July 1998 Agent with Northwestern Mutual Financial
Network and a Registered Representative with
Robert W. Baird & Co., Inc.
- --------------------------------------------------------------------------------
March 1988 to April 1989 Registered representative with Hambrecht &
Quist
- --------------------------------------------------------------------------------
October 1987 to March 1988 Registered representative with Bear, Stearns
& Co., Inc.
- --------------------------------------------------------------------------------
October 1986 to October 1987 Senior Accountant with Aaron Gottesman,
Public Accountants
- --------------------------------------------------------------------------------
June 1986 to October 1986 Representative with Citicorp Investment
Services, Inc.
- --------------------------------------------------------------------------------
January 1986 to June 1986 Internal Auditor - Special Project with Dean
Witter Reynolds
- --------------------------------------------------------------------------------
-29-
- --------------------------------------------------------------------------------
June 1984 through January 1986 Accountant / Auditor with Coopers &
Lybrand
- --------------------------------------------------------------------------------
February 1983 through June 1984 Registered representative and commodity
broker with Bear, Stearns & Company
- --------------------------------------------------------------------------------
January 1983 through February 1983 Floor trader on the New York Futures
Exchange
- --------------------------------------------------------------------------------
BRUCE I. GREENBERG, age 40. Mr. Greenberg received a Bachelor of Science
degree in Accounting from Brooklyn College in September 1983.
Mr. Greenberg currently is, and has been, (i) a shareholder and director
and the Vice President and Chief Financial Officer of Shaffer Asset Management
and (ii) the sole shareholder and director and the President of Bruce I.
Greenberg, CPA, PC (an accounting and tax firm), since January 2001. Prior to
that, Mr. Greenberg was an employee of Shaffer Asset Management from January
until December 2000. In addition, Mr. Shaffer currently is, and has been, a
registered representative with Berthel Fisher & Company since May 2000. Mr.
Greenberg's prior experiences include the following:
- --------------------------------------------------------------------------------
July 1991 through November 2000 Partner with the accounting and tax firm
of Blaustein, Greenberg & Company
- --------------------------------------------------------------------------------
May 1999 through May 2000 Registered representative with Nathan &
Lewis Securities
- --------------------------------------------------------------------------------
July 1995 through May 1999 Registered Representative with Trusted
Securities Advisors Corp.
- --------------------------------------------------------------------------------
January 1990 through June 1991 Manager with MR Weiser & Company
- --------------------------------------------------------------------------------
December 1987 through December 1999 Manager with Siegel, Rich, Patchman &
Company
- --------------------------------------------------------------------------------
September 1982 through November 1987 Staff Accountant with Solomon, Schneider
& Orenstein
- --------------------------------------------------------------------------------
Messrs. Shaffer and Greenberg currently invest in commodity interests
for their own account, and they may continue to do so in the future. Although
Shaffer Asset Management 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.
There has never been any material civil, criminal or administrative
action pending, on appeal or concluded against Shaffer Asset Management or sole
principals.
DUTIES OF THE GENERAL PARTNER
Under the terms of the Fund's limited partnership agreement, Shaffer
Asset Management is vested with exclusive responsibility for managing the
business and affairs of the Fund. Limited partners of the Fund will not
participate in management decisions affecting the Fund, and they will have no
voice
-30-
in the operation of the Fund. In addition, Shaffer Asset Management is
responsible for the preparation and distribution of monthly and annual reports
to the limited partners of the Fund; 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 of the Fund pursuant to the powers of
attorney granted by the limited partners upon execution of the Fund's limited
partnership agreement; and supervising the liquidation of the Fund.
Shaffer Asset Management will provide suitable facilities and
procedures for handling redemptions, transfers, distributions of profits, if
any, and orderly liquidation of the Fund. In addition, Shaffer Asset Management
will pay all operating and other administrative expenses attributable to the
Fund that are in the aggregate 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 shall be paid by the Fund.
Shaffer Asset Management, in its capacity as the general partner of the
Fund, shall cause itself, in its capacity as the commodity trading advisor to
the Fund, 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, or if the
Net Asset Value per Unit decreases on any business day to or below $350. In
addition, Shaffer Asset Management shall give notice of the occurrence of such
event within ten business days thereof. Included in such notification shall be a
description of the rights of the limited partners of the Fund. See "Trading
Policies" and "Summary of the Limited Partnership Agreement - Reports and
Accounting".
MINIMUM INVESTMENT AND NET WORTH REQUIREMENTS IMPOSED ON THE GENERAL PARTNER
The Fund's limited partnership agreement provides that Shaffer Asset
Management 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 Shaffer Asset Management's capital contribution,
or (ii) $25,000. The application of this formula would require Shaffer Asset
Management to purchase, in the aggregate, approximately 26.32 units of general
partnership interest in the event that the minimum number of 1,000 Units is sold
and accepted by Shaffer Asset Management during the initial offering period,
126.26 units of general partnership interest in the event that the median
number of 12,500 Units is sold and accepted by Shaffer Asset Management during
the initial offering period, and approximately 252.53 units of general
partnership interest in the event that the maximum number of 25,000 Units is
sold and accepted by Shaffer Asset Management during the initial offering
period. Shaffer Asset Management 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
Shaffer Asset Management for $1,000), and thereafter a purchase price equal to
the Fund's then current Net Asset Value per Unit. Shaffer Asset Management will
share Fund losses and profits with the limited partners of the Fund 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, Shaffer Asset
Management 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 of the Fund.
-31-
Except as state above, neither Shaffer Asset Management, Berthel Fisher
& Company or ADM Investor Services 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 Fund's limited partnership agreement, Shaffer Asset
Management 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 Shaffer Asset Management's capital contributions. In
addition, to the extent that Shaffer Asset Management serves as the general
partner of any other limited partnership in addition to the Fund, the Fund's
limited partnership agreement would require Shaffer Asset Management 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 Shaffer Asset Management. Notwithstanding the foregoing,
Shaffer Asset Management's net worth need not exceed $1,000,000. The calculation
of Shaffer Asset Management'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 Fund's
limited partnership agreement attached as Exhibit A to the statement of
additional information that accompanies this prospectus.
Daniel S. Shaffer and Bruce I. Greenberg, the sole officers, directors
and shareholders of Shaffer Asset Management, have undertaken, jointly and
severally, to provide Shaffer Asset Management 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 Shaffer Asset Management acts as
general partner. In addition, each of them has agreed not to make any withdrawal
of capital from Shaffer Asset Management that would cause Shaffer Asset
Management to have an aggregate net worth less than that which they have agreed,
jointly and severally, to provide at the time of such closings.
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.
Shaffer Asset Management 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.
-32-
The principal technical trading strategies used by Shaffer Asset
Management 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 Shaffer Asset
Management 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
Shaffer Asset Management. 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.
Shaffer Asset Management'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 Shaffer Asset Management, 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 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, Shaffer Asset Management 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 of the Fund, if Shaffer Asset Management
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 Shaffer Asset Management'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
Tables A and C, below, set forth the unaudited composite trading
results of all accounts managed by Shaffer Asset Management from March 1999 to
March 31, 2001. The number of accounts managed by the Adviser totaled 1,
11, 17 and 19 in March 1999 and as at December 31, 1999, December
31, 2000 and March 31, 2001, respectively. Through March 31, 2001, 17 of
such
-33-
accounts showed net gains and 2 showed net losses. The profit made by
these accounts showing net gains amounted to approximately $668,882, and the
losses incurred by those account showing net losses amounted to approximately
$1,537. As of March 31, 2001, 4 accounts had been closed with a net gain
of approximately $110,484.
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.
Applicable CFTC regulations require disclosure of the "rate of return"
for each month of all accounts managed by Shaffer Asset Management 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 Tables A or B or as being indicative of any return the Fund may earn
in the future.
The information included in Tables A, B and C, below, has not been
audited but, in the opinion of Shaffer Asset Management, such information, other
than the pro forma results, fairly presents the performance of the accounts
managed by Shaffer Asset Management for the periods shown.
The results set forth in Table A and C, below, are not indicative of
the results that may be achieved by Shaffer Asset Management 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 Tables A and C are based upon individual accounts
and commodity pool accounts managed by Shaffer Asset Management during the
periods shown. Neither Tables A nor C reflect the actual performance of any one
account. Accordingly, investors in specific accounts included in the composite
figures may have had more or less favorable results than Table A and B indicate.
All accounts advised by Shaffer Asset Management 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 Shaffer Asset Management has modified
its trading methods in the past and will continue to modify its trading methods
in the future, the results shown in Tables A and C do not necessarily reflect
the trading methods which will be used by Shaffer Asset Management 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 Shaffer Asset
Management'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 Shaffer Asset
Management'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.
-34-
THE DATA SET FORTH BELOW IS NOT INDICATIVE OF AND HAS NO
BEARING ON ANY RESULTS WHICH MAY BE ATTAINED BY THE FUND OR SHAFFER
ASSET MANAGEMENT IN THE FUTURE. SHAFFER ASSET MANAGEMENT'S SYSTEM HAS
EVOLVED OVER THE YEARS BASED ON ACCUMULATED EXPERIENCE AND FURTHER
TESTING OF DATA. AN ACCOUNT TRADED PURSUANT TO SHAFFER ASSET
MANAGEMENT'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 SHAFFER
ASSET MANAGEMENT'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.
-35-
TABLE A
COMPOSITE PERFORMANCE RECORD OF ACCOUNTS
MANAGED BY SHAFFER ASSET MANAGEMENT, INC.
BASED UPON NOMINAL CLIENT ACCOUNTS
(UNAUDITED)
===================================================================
Gross
Beginning Beginning Realized
Equity - Equity Additions - Withdrawals - Profit
Actual Nominal Nominal Nominal (Loss)
(1a) (1b) (2) (3) (4)
- --------- --------- ---------- ----------- ------------ -----------
1999
Mar 0 0 50,000 0 (457)
Apr 55,156 55,156 100,000 0 3,539
May 174,969 174.969 50,096 0 20,170
Jun 226,970 226,970 300,000 0 (31,771)
Jul 525,992 525,992 0 0 80,573
Aug 586,935 586,935 150,176 0 (7,240)
Sep 658,816 658,816 100,000 0 (141,163)
Oct 929,563 929,563 0 0 237,117
Nov 828,285 828,285 100,360 0 33,138
Dec 1,095,616 1,095,616 160,000 0 (38,950)
2000
Jan 1,228,789 1,228,789 69,315 0 43,202
Feb 1,372,714 1,372,714 90,000 58,094 109,649
Mar 1,454,282 1,454,282 200,000 0 31,032
Apr 1,549,373 1,549,373 120,000 14,651 (47,630)
May 1,728,073 1,728,073 450,000 0 111,704
Jun 2,157,382 2,257,382 0 0 72,829
Jul 2,256,213 2,356,213 0 0 (27,036)
Aug 2,196,941 2,296,941 167,451 0 211,841
Sep 2,577,964 2,677,964 0 0 66,394
Oct 2,495,948 2,595,948 0 102,732 (414,029)
Nov 2,033,175 2,133,175 0 50,716 (43,911)
Dec 1,952,942 2,052,942 75,000 0 239,837
===================================================================
========================================================================================================================
Net Change in Change in
Realized Unrealized Trading Monthly Index
Brokerage Profit Interest Profit Accrued Advisor's Other Net Ending Rate of
Commissions (Loss) Income (Loss) Commission Fees Expenses Performance Equity Return
(5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
- ------------ --------- -------- ---------- ----------- --------- --------- ------------ ----------- ---------- ---------
687 (1,144) 0 7,859 (269) 1,289 0 5,156 55,156 10.31% 1,103
818 2,720 138 23,011 (1,139) 4,918 0 19,812 174,969 12.77% 1,244
2,531 17,639 317 (15,741) 86 396 0 1,904 226,970 0.85% 1,255
4,148 (35,919) 696 35,020 (383) 391 0 (977) 525,992 (0.19)% 1,252
4,829 75,743 1,515 (2,308) 38 14,047 0 60,942 586,935 11.59% 1,397
5,670 (12,910) 1,692 (77,523) (1,756) (12,202) 0 (78,295) 658,816 (10.62)% 1,249
6,939 (148,102) 1,833 352,312 (862) 34,433 0 170,747 929,563 22.50% 1,530
7,754 229,363 2,511 (336,406) 3,252 0 0 (101,278) 828,285 (10.90)% 1,363
10,200 22,937 2,195 161,278 (4,193) 15,246 0 166,971 1,095,616 19.21% 1,625
10,173 (49,124) 2,857 11,661 605 (7,173) 0 (28,826) 1,228,789 (2.41)% 1,586
1999 Compounded Rate of Return (16) 59.58%
6,456 36,745 3,000 52,298 221 17,655 0 74,610 1,372,714 5.92% 1,680
6,059 103,590 4,569 (47,633) 563 11,428 0 49,661 1,454,282 3.54% 1,739
10,674 20,358 5,150 (151,837) 50 (21,368) 0 (104,908) 1,549,373 (6.47)% 1,627
6,703 (54,334) 5,436 136,061 (1,373) 12,437 0 73,351 1,728,073 4.45% 1,699
12,350 99,353 6,908 (10,093) 595 17,454 0 79,309 2,257,382 3.21% 1,754
9,201 63,628 7,122 49,488 494 21,903 0 98,830 2,356,213 4.30% 1,829
4,989 (32,025) 7,503 (34,379) (371) 0 0 (59,272) 2,296,941 (2.64)% 1,781
14,228 197,612 7,980 41,652 1,157 34,832 0 213,571 2,677,964 8.64% 1,935
11,338 55,055 10,792 (171,810) 2,387 (21,558) 0 (82,015) 2,595,948 (2.97)% 1,877
11,769 (425,798) 8,932 59,380 (2,554) 0 0 (360,040) 2,133,175 (14.43%) 1,606
9,425 (53,337) 7,722 17,912 (1,813) 0 0 (29,516) 2,052,942 (0.98)% 1,591
9,908 229,929 6,314 231,069 690 15,984 0 452,018 2,579,912 22.10% 1,942
2000 Compounded Rate of Return (16) 22.46%
=========================================================================================================================
-36-
===================================================================
Gross
Beginning Beginning Realized
Equity- Equity - Additions- Withdrawals- Profit
Actual Nominal Nominal Nominal (Loss)
(1a) (1b) (2) (3) (4)
- --------- --------- --------- ---------- ------------ -----------
2001
Jan 2,479,961 2,579,961 0 149,418 330,727
Feb 2,336,061 2,436,061 100,000 0 47,079
Mar 2,466,458 2,566,458 98,002 0 (37,259)
=======================================================================================================================
Net Change in
Realized Unrealized Change in Trading Monthly
Brokerage Profit Interest Profit Accrued Advisor's Other Net Ending Rate of
Commissions (Loss) Income (Loss) Commission Fees Expenses Performance Equity Return Index
(5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
- ------------ --------- -------- ---------- ----------- --------- --------- ------------ ----------- ---------- ---------
10,786 319,940 3,857 (313,573) (4,033) 673 0 5,518 2,436,061 0.25% 1,947
16,839 30,239 7,194 (3,080) (,1,852) 2,102 0 30,397 2,566,458 1.09% 1,968
18,201 (55,461) 5,701 245,288 (4,459) 37,013 0 154,054 2,818,515 5.62% 2,079
2001 Year to Date Compounded Rate of Return (16) 7.04%
=======================================================================================================================
-37-
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 Shaffer
Asset Management.
Shaffer Asset Management 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
Shaffer Asset Management 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 Shaffer Asset
Management 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.
-38-
(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 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
-39-
informational purposes only. In addition, "Index" may not be
an accurate 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.
-40-
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
- --------------------------------------------------------------------------------------------------------------------------------
March 956 621 335 1,289 783 506
- --------------------------------------------------------------------------------------------------------------------------------
April 1,957 1,272 685 4,918 3,551 1,367
- --------------------------------------------------------------------------------------------------------------------------------
May 2,445 1,589 856 396 697 (301)
- --------------------------------------------------------------------------------------------------------------------------------
June 4,531 2,945 1,586 391 (665) 1,056
- --------------------------------------------------------------------------------------------------------------------------------
July 4,791 3.114 1,677 14,047 13,061 986
- --------------------------------------------------------------------------------------------------------------------------------
August 7,426 4,827 2,599 (12,202) (12,782) 580
- --------------------------------------------------------------------------------------------------------------------------------
September 7,801 5,071 2,730 34,433 33,026 1,407
- --------------------------------------------------------------------------------------------------------------------------------
October 4,502 2,926 1,576 0 (12,779) 12,779
- --------------------------------------------------------------------------------------------------------------------------------
November 14,393 9,355 5,038 15,246 30,061 (14,815)
- --------------------------------------------------------------------------------------------------------------------------------
December 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
- --------------------------------------------------------------------------------------------------------------------------------
January 6,235 4,053 2,182 17,655 17,506 149
- --------------------------------------------------------------------------------------------------------------------------------
February 5,496 3,572 1,924 11,428 12,827 (1,399)
- --------------------------------------------------------------------------------------------------------------------------------
March 10,624 6,906 3,718 (21,368) (16,157) (5,211)
- --------------------------------------------------------------------------------------------------------------------------------
April 8,076 5,249 2,827 12,437 31,800 (19,363)
- --------------------------------------------------------------------------------------------------------------------------------
May 11,755 7,641 4,114 17,454 17,832 (378)
- --------------------------------------------------------------------------------------------------------------------------------
June 8,707 5,660 3,047 21,903 25,123 (3,220)
- --------------------------------------------------------------------------------------------------------------------------------
July 5,360 3,484 1,876 0 (2,129) 2,129
- --------------------------------------------------------------------------------------------------------------------------------
August 13,071 8,496 4,575 34,832 43,870 (9,038)
- --------------------------------------------------------------------------------------------------------------------------------
September 8,951 5,818 3,133 (21,558) (8,833) (12,725)
- --------------------------------------------------------------------------------------------------------------------------------
October 14,323 9,310 5,013 0 (47,549) 47,549
- --------------------------------------------------------------------------------------------------------------------------------
November 11,238 7,305 3,933 0 1,779 (1,779)
- --------------------------------------------------------------------------------------------------------------------------------
December 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)
- --------------------------------------------------------------------------------------------------------------------------------
2001
- --------------------------------------------------------------------------------------------------------------------------------
January 14,819 9,632 5,187 673 9,496 (8,823)
- --------------------------------------------------------------------------------------------------------------------------------
February 18,791 12,214 6,577 2,102 11,734 (9,632)
- --------------------------------------------------------------------------------------------------------------------------------
March 22,660 14,729 7,931 37,316 37,342 (26)
- --------------------------------------------------------------------------------------------------------------------------------
-41-
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.
(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.
-42-
TABLE C
CAPSULE PERFORMANCE OF ACCOUNTS
MANAGED BY THE GENERAL PARTNER / ADVISOR
- ---------------------------------------------------------------------------------------------------------------------------------
Percentage Rate of Return
(computed on a compounded
Worst monthly basis)
Aggregate Current Monthly Worst Peak ----------------------------------
Inception Subscription Total NAV Percent to Valley Year to
Name Type of Trading ($ x 1,000) ($ x 1,000) Drawdown Drawdown 1999 2000 Date
- --------------- ------ ------------- -------------- ------------- ------------- -------------- ---------- ---------- ------------
Individual 1 3/89 2,030 2,819 14.44% 18.22% 58.59% 22.46% 7.04%
Managed 10/00 8/00-11/00 (3 months)
Accounts
- ---------------------------------------------------------------------------------------------------------------------------------
Key to type:
1 = Individually managed accounts
Percentage Rate of Return Month
(computed on a compounded -----------------------------------------------
monthly basis) Year to Date 2000 1999
- --------------------------------------------------------------------------------
January 0.25 5.92
- --------------------------------------------------------------------------------
February 1.09 3.54
- --------------------------------------------------------------------------------
March 5.62 (6.47) 10.31
- --------------------------------------------------------------------------------
April 4.45 12.77
- --------------------------------------------------------------------------------
May 3.21 0.85
- --------------------------------------------------------------------------------
June 4.30 (0.19)
- --------------------------------------------------------------------------------
July (2.64) 11.59
- --------------------------------------------------------------------------------
August 8.64 (10.62)
- --------------------------------------------------------------------------------
September (2.97) 22.50
- --------------------------------------------------------------------------------
October (14.43) (10.90)
- --------------------------------------------------------------------------------
November (0.98) 19.21
- --------------------------------------------------------------------------------
December 22.10 2.41
- --------------------------------------------------------------------------------
Year 7.04 22.46 58.59
- --------------------------------------------------------------------------------
SHAFFER ASSET MANAGEMENT, INC.
INDIVIDUALLY MANAGED ACCOUNT PROGRAM
Inception of Trading: March 1999
Aggregate Deposits: $2,030,225
Current Net Asset Value: $2,818,515
Worst Monthly Percentage Drawdown*: 10/2000; 14.44%
Worst Peak to Valley Drawdown*: 8/2000 - 11/2000; 18.22%
* "Drawdown" means losses experienced by the total aggregate of all accounts
over a specified period.
-43-
COMMODITY BROKERAGE ARRANGEMENTS
GENERAL
Under the Fund's limited partnership agreement, Shaffer Asset
Management is responsible for selecting the Fund's commodity broker(s) and has
selected ADM Investor Services, Inc. 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 ADM Investor Services on
sixty days' prior written notice. From time to time, Shaffer Asset Management
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
ADM Investor Services is a Delaware corporation and wholly owned
subsidiary of Archer Daniels Midland Company. Through its branch office and
introducing broker network, ADM Investor Services 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. ADM Investor Services 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.
ADM Investor Services 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 ADM Investor Services'
application for registration or the qualifications of ADM Investor Services to
act as a futures commission merchant, or that the CFTC supervises the business
activities engaged in by ADM Investor Services. ADM Investor Services is also a
member of the NFA.
ADM Investor Services' 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 ADM Investor Services as a futures commission merchant based
upon a 1996 conviction of ADM Investor Services' 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 ADM Investor Services,
ADM Investor Services accepted an offer of settlement that placed various
restrictions on ADM Investor Services' registration as a futures commission
merchant. In particular, ADM Investor Services 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 ADM Investor Services. In addition, ADM Investor Services
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. ADM Investor Services has advised Shaffer Asset Management that (i)
ADM Investor
-44-
Services was not cited by the CFTC for any alleged or actual violations of the
CE Act or rules and regulations promulgated by the CFTC thereunder, (ii) the
CFTC's action against ADM Investor Services was based entirely on the fact that
ADM Investor Services 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 Investor Services as a futures commission merchant.
OTHER ACTIONS. ADM Investor Services is currently a defendant in
certain lawsuits incidental to its commodities business. ADM Investor Services
has advised Shaffer Asset Management that such actions have not had, and are not
expected to have, a material adverse effect on the activities of ADM Investor
Services 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 ADM
Investor Services 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 ADM Investor Services pursuant to a
brokerage agreement entered into with ADM Investor Services. 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 ADM Investor Services; open positions may be liquidated or new
positions may be rejected if, in the discretion of ADM Investor Services, 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
ADM Investor Services 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
ADM Investor Services 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 ADM Investor
Services or its stockholders, directors, officers, employees or affiliates. ADM
Investor Services 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 Shaffer Asset
Management and/or Shaffer Asset Management's employees or agents. The brokerage
agreement provides that, under no circumstances shall ADM Investor Services
accept any responsibility for verifying that any of such instructions are in
conformance with Shaffer Asset Management's authority and ADM Investor Services
will not undertake to monitor the actions of Shaffer Asset Management 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 Shaffer
Asset Management or its affiliates is permitted for Losses resulting from a
violation by Shaffer Asset Management or any of its affiliates of the Securities
Act of 1933, as amended, or of any applicable state securities laws in
connection with the Registration Statement or the sale of Units. The Fund (or
the limited partners of the Fund) or the other parties thereto may terminate the
brokerage agreements and close the Fund's commodity accounts at any time on
sixty days prior notice.
-45-
The Fund will initially pay brokerage commissions to ADM Investor
Services 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 Shaffer Asset Management, 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. ADM Investor Services 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. Shaffer Asset Management
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.
Shaffer Asset Management 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 ADM Investor Services
and its 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 Shaffer Asset Management'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 ADM Investor Services 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 .
Berthel Fisher & Company 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 Shaffer Asset Management and Berthel
Fisher & Company.
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 60 days
from the date of this prospectus, subject to the right of Shaffer Asset
Management to extend this offering for up to an additional 60 days. At the end
of the initial offering period, if the minimum of 1,000 Units has been sold and
accepted by Shaffer Asset Management, 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
-46-
of each calendar month, plus a sales charge of 5% of the Net Asset Value per
Unit for each Unit purchased.
The minimum investment in the Fund by any one investor 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). Additional investments in
the Fund may be made in amounts of not less than $1,000. In some states, greater
minimum purchase requirements may be applicable. Purchases by investors and
their spouses and by entities, including retirement plan trusts, that 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 Shaffer Asset
Management during the initial offering period, approximately 20% of all sales
charges shall be paid to Shaffer Asset Management to reimburse Shaffer Asset
Management for the payment by Shaffer Asset Management of the Fund's
organizational, initial offering and operating expenses payable by Shaffer Asset
Management and approximately 80% of all sales charges shall be paid as
syndication fees to Berthel Fisher & Company and as selling commissions to the
selected dealers. Berthel Fisher & Company 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 Berthel Fisher &
Company and, through Berthel Fisher & Company, 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 Berthel Fisher & Company and such
selected dealers and their respective registered representatives in return for
their continuing services to the Fund and the limited partners of the Fund that
were solicited by them. Such services include, without limitation, keeping the
limited partners of the Fund 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 Shaffer Asset Management
upon sixty days' prior written notice to the limited partners.
Shaffer Asset Management 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 Shaffer Asset Management 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 Fund upon redemptions of Units
will be paid to Shaffer Asset Management to reimburse Shaffer Asset Management
for the payment by Shaffer Asset Management of the Fund's organizational
-47-
and initial offering expenses and the Fund's operating expenses that are payable
by Shaffer Asset Management. See "Summary - Fees and Expenses Payable by the
General Partner", "Fees, Compensation and Expenses" and "Redemptions".
Berthel Fisher & Company is, and Shaffer Asset Management 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 Berthel Fisher & Company 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 Berthel Fisher & Company for any loss,
liability, damage, cost or expense (including, without limitation, attorneys'
and accountants' fees and disbursements) resulting from a violation by Shaffer
Asset Management 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 that is 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, 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 Shaffer Asset Management, in whole or in part (which is in the sole
discretion of Shaffer Asset Management), the subscription funds or the rejected
portion thereof will be returned to the subscriber without interest. Shaffer
Asset Management will determine whether to accept or reject a subscription as
promptly as possible following its receipt. All subscriptions, once made, are
irrevocable by the subscriber but may be rejected in whole or in part by
Shaffer Asset Management.
Each subscriber must represent and warrant 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, that
o 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
o he or she has reviewed 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 administration of the securities laws of certain states have imposed
greater minimum investment and/or additional suitability requirements on the
residents of such states. 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. See "Subscription
Requirements" attached as Exhibit B 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 Shaffer Asset Management during the
initial offering period, 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.
-48-
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 Internal Revenue 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 Internal
Revenue 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
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 Internal Revenue 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
-49-
statement under the Securities Act of 1933, and the class of
which such security is a part is registered under the Securities
Exchange Act of 1934, 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, Shaffer Asset Management 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 Shaffer Asset Management 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 Shaffer
Asset Management to require that some investors withdraw from the Fund in the
event other investors withdraw. If, in the opinion of Shaffer Asset Management,
a rejection of subscriptions or mandatory withdrawals are necessary to avoid
causing the assets of the Fund to meet the 25% Limitation, Shaffer Asset
Management will effect the rejections or withdrawals in a manner determined in
the sole discretion of Shaffer Asset Management. However, Shaffer Asset
Management will use its best efforts to effect withdrawals on a pro rata basis
among all benefit plan investors.
INELIGIBLE PURCHASERS
In general, Units may not be purchased with the assets of a Plan if
Shaffer Asset Management, Berthel Fisher & Company, ADM Investor Services 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 Shaffer Asset
Management's discretion. Investors should be aware, however, that Shaffer Asset
Management does not intend to make any distributions of any profits. See "Risk
Factors - Partners' Tax Liability May Exceed Distributions", "Conflicts of
Interest
-50-
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 of the Fund 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
Shaffer Asset Management, 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 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 of the
Fund's limited partners 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 Shaffer Asset Management to
reimburse Shaffer Asset Management for the payment by Shaffer Asset Management
of the Fund's organizational and initial offering expenses and the Fund's
operating expenses that are payable by Shaffer Asset Management. 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 Shaffer Asset Management 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
Shaffer Asset Management at least ten days (or such shorter period as may be
acceptable to Shaffer Asset Management) 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
-51-
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 such
percentage may be outside such range from time to time. As a
result, the Fund will not generally be as highly 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
-52-
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 Shaffer Asset Management 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
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 Shaffer Asset Management is currently serving as the general
partner of, and the commodity trading advisor to, the Fund, Shaffer Asset
Management 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 Shaffer Asset Management, in the exercise of
its prudent business judgment, deems appropriate. In addition, Shaffer Asset
Management may change the trading policies described above without notice to or
the approval of the limited partners of the Fund 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. Within ten business days after the date
of the suspension of trading, Shaffer
-53-
Asset Management shall either give notice to the limited partners of the Fund 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
Shaffer Asset Management shall mail notice of such date to each limited partner
of the Fund 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 Shaffer Asset Management 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. See "Risk
Factors".
SUMMARY OF THE ADVISORY AGREEMENT
The Fund has entered into an advisory agreement with Shaffer Asset
Management that provides that Shaffer Asset Management 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 Shaffer Asset
Management'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 Shaffer Asset Management or the Fund upon sixty days' prior written
notice to Shaffer Asset Management. The advisory agreement may also be
terminated at the election of Shaffer Asset Management at any time, upon written
notice to Shaffer Asset Management, in the event that: (i) Shaffer Asset
Management withdraws from the Fund as its general partner; (ii) Shaffer Asset
Management's registration as a commodity trading advisor with the CFTC lapses or
is suspended or terminated; (iii) Shaffer Asset Management, in its sole
discretion, should determine in good faith that Shaffer Asset Management 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 Shaffer Asset Management, becomes incapacitated or
is otherwise not active in the management of the trading programs of Shaffer
Asset Management; (vi) Shaffer Asset Management becomes unable to use its
trading strategies for the benefit of the Fund for any reason; or (vii) Shaffer
Asset Management 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 Shaffer Asset Management 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
Shaffer Asset Management or obtain those services on the same terms as those of
the current advisory agreement. In addition, Shaffer Asset Management 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 that Shaffer Asset Management will
trade for the Fund under the current advisory agreement. The compensation of a
-54-
new trading advisor or Shaffer Asset Management under any advisory agreement
negotiated in the future may be determined without regard to the previous
performance of the Fund. ADM Investor Services has agreed to keep confidential
Shaffer Asset Management'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 Shaffer Asset Management is described under
"Fees, Compensation and Expenses".
The business of Shaffer Asset Management 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 Shaffer Asset Management 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. The limited partners of the Fund will have no right to inspect the
trading records or evaluate the performance of such accounts except to the
extent required by law. Shaffer Asset Management 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 Shaffer
Asset Management or any of its principals or affiliates. In addition, in its
trading for the Fund's account and such other accounts, Shaffer Asset Management
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 Shaffer Asset Management'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 Shaffer Asset
Management. See "Conflicts of Interest / Fiduciary Responsibility of the General
Partner".
The advisory agreement provides that Shaffer Asset Management, 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 Shaffer Asset Management 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 (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 Shaffer Asset Management
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 Shaffer Asset Management and
its affiliates under certain
-55-
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 Shaffer Asset Management 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 Shaffer Asset Management a management fee and
allocate to Shaffer Asset Management an incentive allocation as described under
the caption "Fees, Compensation and Expenses".
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The rights and duties of Shaffer Asset Management and the limited
partners of the Fund are governed by the provisions of the Delaware Revised
Uniform Limited Partnership Act and by the Fund's 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
Shaffer Asset Management 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 Fund's limited partnership agreement may be amended in any respect
(except to change the Fund to a general partnership, to change the liability of
Shaffer Asset Management or any limited partners, to remove Shaffer Asset
Management, 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
Shaffer Asset Management), either pursuant to a written vote or at a duly called
meeting of the limited partners of the Fund. An amendment may be proposed or a
meeting may be called by Shaffer Asset Management or by the holders of at least
10% of the outstanding Units. It is not expected that Shaffer Asset Management
will call any annual meetings of the Fund's limited partners.
CERTIFICATES FOR UNITS
The Fund's 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 of the Fund with respect to Units
purchased by them.
ELECTION, REMOVAL AND WITHDRAWAL OF THE GENERAL PARTNER
Shaffer Asset Management may be removed by a vote of the holders of at
least seventy five percent of the outstanding Units (not including Units held by
Shaffer Asset Management, 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 Shaffer Asset Management, if any). Shaffer Asset
Management may withdraw as the general partner of the Fund upon ninety days'
notice to the limited partners of the Fund.
-56-
INDEMNIFICATION
The Fund's limited partnership agreement provides that with respect to
any action in which Shaffer Asset Management 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 Shaffer Asset Management or its affiliates
involving the management of the internal affairs of the Fund, the Fund shall
indemnify and hold harmless Shaffer Asset Management 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 Shaffer Asset Management 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 Shaffer Asset Management 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 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 of the Fund 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 the
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 of the Fund 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 Shaffer Asset Management.
-57-
LIMITED PARTNERS' RIGHTS
Each limited partner of the Fund 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 Shaffer Asset
Management, if any) may (a) adopt amendments to the Fund's limited partnership
agreement proposed by Shaffer Asset Management or limited partners of the Fund
owning at least 10% of the outstanding Units, (b) elect new general partner(s)
if Shaffer Asset Management 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
Shaffer Asset Management, if any) may (a) remove Shaffer Asset Management, (b)
cancel any contract for services with Shaffer Asset Management or its affiliates
for any reason on sixty days' notice or (c) terminate the Fund. In addition,
limited partners of the Fund must approve any material change in the Fund's
trading policies. See "Trading Policies".
PROFIT AND LOSS; DISTRIBUTIONS
Shaffer Asset Management may, but need not and, in fact, does not
intend to, distribute any portion of the capital or profits of the Fund. Shaffer
Asset Management may declare distributions in additional Units of the Fund, in
which event limited partners of the Fund 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. For
purposes of calculating Net Asset Value, any distribution shall become a
liability of the Fund as of the date of its declaration. See "Redemption".
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 Fund's limited partnership agreement provides that the Fund's
limited partners may redeem all or a portion of their Units as of the close of
business on the last business day of each calendar month upon at least ten days'
prior written notice to Shaffer Asset Management, subject to certain
restrictions and in some instances to early redemption fees during the first
full twelve calendar months following the purchase of the Units. Notwithstanding
the foregoing, partial redemptions shall be in whole Units except as Shaffer
Asset Management may permit. See "Redemptions".
Limited partners of the Fund 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 Shaffer Asset Management and each limited partner
of the Fund 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:
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(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 of the Fund, 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. In addition, limited partners of the
Fund will be furnished with such additional information as Shaffer Asset
Management, in its sole discretion, deems appropriate, as well as any
information required to be provided to the limited partners of the Fund by any
governmental authority having jurisdiction over the Fund. Shaffer Asset
Management will also furnish each limited partner of the Fund, 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 of the Fund 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 Shaffer Asset Management 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 Shaffer Asset Management, if any), to revise the Fund's 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
Shaffer Asset Management, if any) to (i) replace or revise the Fund's
arrangements with Shaffer Asset Management or (ii) to terminate the Fund.
Shaffer Asset Management shall maintain a list of the names and
addresses of, and the number of Units owned by, all limited partners of the Fund
at the Fund's principal office. Such list shall be made available for the review
of any limited partner of the Fund or his representative at reasonable times and
upon request, either in person or by mail. Shaffer Asset Management shall
furnish a copy of such list to a limited partner of the Fund 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:
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(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
Shaffer Asset Management, provided, however, that the holders
of a majority of outstanding Units (not including Units held
by Shaffer Asset Management, if any) may elect, within the
ninety day period following Shaffer Asset Management'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 Shaffer
Asset Management, 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 Fund's limited
partnership agreement be respected for Federal income tax purposes, a limited
partner of the Fund 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 Shaffer Asset Management, it is unlikely that any
limited partner of the Fund 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 Shaffer Asset Management. However, the assignee
shall become a substituted limited partner of the Fund only upon the consent of
Shaffer Asset Management, 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 become a substituted limited
partner of the Fund 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 Fund's limited partnership agreement provides that Shaffer Asset
Management must make a capital contribution to the Fund equal to at least the
greater of (i) 1% of the aggregate amount of capital contributions to the Fund
by the partners (including Shaffer Asset Management's capital
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contribution), or (ii) $25,000. As shown in the following table, the application
of this formula would require Shaffer Asset Management to purchase, in the
aggregate, $25,000 in units of general partnership interest valued at $950.00
per unit (26.32 units of general partnership interest) in the event that the
minimum number of 1,000 Units is sold and accepted by Shaffer Asset Management
during the initial offering period, 126.26 in units of general partnership
interest (1% of $11,994,949) valued at $950.00 per unit in the event that the
median number of 12,500 Units is sold and accepted by Shaffer Asset Management
during the initial offering period, and 252.53 units of general partnership
interest (1% of $23,989,898) in the event that the maximum number of 25,000
Units is sold and accepted by Shaffer Asset Management during the initial
offering period. Accordingly, 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), median (12,500) 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 26.32 126.26 252.53
- ----------------------------------------------------------------------------------------------------------------------
Units of Limited Partnership Interest 1 1,000 12,500 25,000
- ----------------------------------------------------------------------------------------------------------------------
Total Partners' Contribution (including $2,000 $975,000 $11,994,949 $23,989,898
Shaffer Asset Management's capital
contribution)
- ------------------------------------------- -------------------- ------------------ ------------------ ---------------
(1) One Unit of limited partnership interest has been issued to
Daniel S. Shaffer, an officer, director and shareholder of
Shaffer Asset Management and the initial limited partner of
the Fund, for $1,000 to permit the Fund to be organized, and
Shaffer Asset Management 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. 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. See "Plan of Distribution".
The Fund was recently organized on August 29, 2000 and has no financial
history. Its total assets, consisting entirely of a cash account, and total
partners' equity as of December 31, 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.
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 Shaffer Asset Management, 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.
-61-
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 of the Fund 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 of the
Fund 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 of the Fund 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 of the Fund can deduct Fund losses from taxable
income. However, a limited partner of the Fund cannot offset losses from
"passive activities" against Fund gains.
CASH DISTRIBUTIONS AND UNIT REDEMPTIONS
A limited partner of the Fund 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
-62-
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 of the Fund could still be required to pay taxes on
his share of the Fund's interest income.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
Shaffer Asset Management does not consider the management and brokerage
fees, as well as other ordinary expenses of the Fund, to be investment advisory
expenses. Accordingly, Shaffer Asset Management treats these expenses as
ordinary business deductions not subject to the material deductibility
limitations that apply to investment advisory expenses. The IRS could contend
otherwise and, to the extent the IRS recharacterizes these expenses, a limited
partner of the Fund 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 of the Fund is entitled to any
deduction for syndication expenses, nor can these expenses be amortized by the
Fund or any limited partner of the Fund even though the payment of such expenses
reduces net asset value. The IRS could take the position that a portion of the
brokerage fees paid by the Fund to ADM Investor Services or part or all of any
redemption fees paid by a limited partner of the Fund 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 of the Fund 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.
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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. Shaffer Asset Management 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 of the Fund's 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 its 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 of 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 of
the Fund, 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 of 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.
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.
Shaffer Asset Management 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
-64-
associated with leverage, changes in general economic conditions and the risks
discussed in "Risk Factors" beginning on page 8.
LEGAL MATTERS
Certain legal matters in connection with this offering and the
securities being offered hereby will be passed upon for Shaffer Asset Management
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) Shaffer Asset Management
as of December 31, 1998 and 1999 and for the period from its inception on 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 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.
-65-
SHAFFER ASSET MANAGEMENT, INC.
SHAFFER DIVERSIFIED FUND, LP
INDEX TO FINANCIAL STATEMENTS
SHAFFER ASSET MANAGEMENT, INC.
Independent Auditors' Report....................................... F-2
Financial Statements:
Balance Sheets as of December 31, 2000, 1999 and 1998........ F-3
Statements of Operations and Retained Earnings (Deficit)
for the Years Ended December 31, 2000 and 1999 and
for the Period from Inception (March 16, 1998) to
December 31, 1998 .................................... F-4
Statements of Cash Flows for the Years Ended December
31, 2000 and 1999 and for the Period from Inception
(March 16, 1998)to December 31, 1998.................. F-5
Notes to the Financial Statements............................ F-6
SHAFFER DIVERSIFIED FUND, LP
Independent Auditors' Report.......................................... F-8
Financial Statements:
Statement of Financial Condition as of December 31, 2000........... F-9
Notes to the Statement of Financial Condition......................F-10
F-1
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, 2000, 1999 and 1998 and the related
statements of operations and retained earnings (deficit) and cash flows for the
years ended December 31, 2000 and 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 auditing standards generally
accepted in the United States of America. 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, 2000, 1999 and 1998 and the results of its
operations and its cash flows for the years and period, respectively, then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Anchin, Block & Anchin LLP
-----------------------------
New York, New York
March 19, 2001
F-2
SHAFFER ASSET MANAGEMENT, INC.
BALANCE SHEETS
December 31,
---------------------------------
2000 1999 1998
-------- ------- -------
ASSETS
CURRENT ASSETS:
Cash $ 139 $ 4,516 $ 54
Fees receivable 15,985 8,073 --
-------- -------
Total Current Assets 16,124 12,589 54
-------- ------- -------
FIXED ASSETS:
Office equipment 3,392 3,392 --
Computer software 6,000 6,000 --
------- ------- -------
9,392 9,392 --
------- ------- -------
Less: Accumulated depreciation and amortization (3,023) (339) --
------- ------- -------
Total Fixed Assets 6,369 9,053 --
------- ------- -------
OTHER ASSETS:
Deferred offering costs 220,774 -- --
Due from stockholder 66,781 -- --
Security deposit 2,675 -- --
------- ------- -------
Total Other Assets 290,230 -- --
------- ------- -------
TOTAL ASSETS $312,723 $21,642 $ 54
======== ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $212,089 $11,399 $ --
Lines of credit payable 96,345 -- --
Loan payable - stockholder -- -- 5,710
------- ------- -------
Total Current Liabilities 308,434 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 oustanding 100 100 100
Retained earnings (deficit) 4,189 10,143 (5,756)
-------- ------- -------
Total Stockholder's Equity (Deficiency) 4,289 10,243 (5,656)
-------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $312,723 $21,642 $ 54
======== ======= =======
See the accompanying Notes to the Financial Statements.
F-3
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
Period from
March 16, 1998
Years Ended (Inception) to
December 31, December 31,
---------------------- ---------------
2000 1999 1998
------ ------ ------
INCOME FROM FEES $88,670 $51,446 $ --
------- ------- ------
EXPENSES:
Automobile expense 12,088 12,901
Computer expense 2,859 --
Depreciation 2,684 339
Dues and subscriptions 4,804 4,278
Insurance 6,597 -- --
Interest expense 5,188 --
Office supplies and expense 7,003 2,261 521
Organization costs 2,500 --
Printing and reproduction 1,241 5,583 319
Professional development 1,357 3,432 --
Professional fees 17,452 -- 2,653
Rent 17,032 -- --
Travel and entertainment 9,611 2,265 222
Other expenses 4,208 4,488 2,041
-------- ------- ------
Total Expenses 94,624 35,547 5,756
NET INCOME (LOSS) (5,954) 15,899 (5,756)
RETAINED EARNINGS (DEFICIT):
Balance, beginning of period 10,143 (5,756) --
-------- ------- ------
Balance, end of period $ 4,189 $10,143 $(5,756)
======== ======= ======
See the accompanying Notes to the Financial Statements.
F-4
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
March 16, 1999
Years Ended (Inception) to
December 31, December 31,
--------------------- ---------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,954) $ 15,899 $(5,756)
-------- --------- --------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,684 339 --
Increase in:
Deferred offering costs (220,774) -- --
Fees receivable (7,912) (8,073) --
Security deposit (2,675) -- --
Increase in:
Accounts payable and accrued expenses 205,190 6,899 --
-------- --------- --------
Total adjustments (23,487) (835) --
-------- --------- --------
Net Cash Provided by (Used in)
Operating Activities (29,441) 15,064 (5,756)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets -- (4,892) --
Advances to stockholder (100,261)
Payments from stockholder 33,480 -- --
-------- --------- --------
Net Cash Used in Investing Activities (66,781) (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
Increase in lines of credit 136,295 -- --
Repayments on lines of credit (39,950) -- --
Repayment of liability for acquisition of computer software (4,500) -- --
-------- --------- --------
Net Cash Provided by (Used in)
Financing Activities 91,845 (5,710) 5,810
-------- --------- --------
NET INCREASE (DECREASE) IN CASH (4,377) 4,462 54
CASH:
Beginning of period 4,516 54 --
-------- --------- --------
End of period $ 139 $ 4,516 $ 54
======== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 5,188 $ -- $ --
Income taxes $ 400 $ 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.
F-4
SHAFFER ASSET MANAGEMENT, INC.
NOTES TO 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. In addition the Company will receive
additional fees for services performed as General Partner in a Commodity Fund
(See Note 4).
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 are 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, which are five years for office equipment and three years for computer
software.
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.
Deferred Offering Costs:
The Company has incurred costs related to the initial offering of units
of a Partnership (see Note 3). Once the initial offering occurs the deferred
offering costs will be amortized over a twelve month period. A liability, which
is in dispute of approximately $159,000, has been recorded for offering costs
and is included in accounts payable and accrued expenses on the balance sheet.
F-6
SHAFFER ASSET MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
Included in accounts payable and accrued expenses is approximately
$197,000 of accrued legal fees in connection with the offering.
NOTE 2 - RELATED PARTY TRANSACTIONS:
The loan to the stockholder is non-interest bearing and is payable on
demand.
NOTE 3 - LINES OF CREDIT PAYABLE:
The Company has lines of credit from two financial institutions in the
amount of $98,500. The lines of credit bear interest at rates ranging from 1% to
3.9% over the prime rate and are guaranteed by a stockholder. The average rate
of interest was 12.4% during the year ended December 31, 2000. Management
believes the fair value of the debt is equivalent to the recorded amount based
on its short term nature and the interest rates which fluctuate with prime.
NOTE 4 - AGREEMENT WITH SHAFFER DIVERSIFIED FUND, LP:
The Company will be the trading advisor of a newly formed commodity
pool, Shaffer Diversified Fund, LP (the "Partnership"). The Company became the
general partner of the Partnership and made a capital contribution of $1,000
during the year ended December 31, 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% of the monthly value of the investments during the first
twelve months after an investment is made and 1% thereafter. 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, as defined. Additionally, the Company will
be responsible for expenses (excluding continuing services fees, management
fees, incentive allocations, brokerage commissions and extraordinary expenses)
in the aggregate in excess of 0.5% of the average monthly net assets of the
Partnership and expenses associated with the organization of the Partnership and
initial offering costs.
As the General Partner of the Partnership, the Company has entered into
a net worth agreement with two officers/stockholders of the Company. The
officers have agreed within five days following the consummation of the initial
offering of units of the Partnership to contribute funds to the Company as
capital amounts sufficient so that the Company will at all times have a net
worth equal to not less than the greater of 5% of the aggregate capital
contributions made by the partners to the Partnership or $50,000. The
officers/stockholders also agree to provide the Company with sufficient capital
to enable the Company to purchase and maintain units of interest in the
Partnership in an amount equal to not less than the greater of one percent of
the aggregate capital contributions made by all partners to the Partnership or
$25,000.
F-7
SHAFFER DIVERSIFIED FUND, LP
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF
SHAFFER DIVERSIFIED FUND, LP:
We have audited the accompanying statement of financial condition of
Shaffer Diversified Fund, LP as of December 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 auditing standards generally
accepted in the United States of America. 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, LP at December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Anchin, Block & Anchin LLP
-------------------------------
New York, New York
March 19, 2001
F-8
SHAFFER DIVERSIFIED FUND LP
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2000
ASSETS:
Cash $1,916
======
PARTNERS' CAPITAL $1,916
======
See the accompanying Notes to the Statement of Financial Condition.
F-9
SHAFFER DIVERSIFIED FUND, LP
NOTES TO STATEMENT OF FINANCIAL CONDITION
ORGANIZATION Shaffer Diversified Fund, LP (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 and related
instruments. As of December 31, 2000, the Partnership
has not commenced operations.
The Partnership will continue until December 31, 2025
unless earlier terminated. However, if the
Partnership's investments experience a substantial
decline in value, as defined in the Partnership
Agreement, (the "Agreement") the Partnership will be
dissolved.
The Partnership is presently in registration 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 government which regulates most aspects
of the commodity futures 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.
RELATED PARTY The General Partner of the Partnership is Shaffer
TRANSACTIONS 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 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 12 months after an investment is made and 1% to
the General Partner and 4% to the selling agents
thereafter for various services performed on an
ongoing basis.
Investors will be charged a 5% sales commission of
which the General Partner will receive approximately
20%.
F-10
SHAFFER DIVERSIFIED FUND, LP
NOTES TO STATEMENT OF FINANCIAL CONDITION
RELATED PARTY The General Partner will share in all Partnership
TRANSACTIONS (CONTINUED) income and losses to the extent of its interest in the
Partnership. 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, as defined in the Partnership
Agreement.
The General Partner has agreed to maintain a minimum
net worth of not less than the greater of $50,000 or
5% of contributions made to the Partnership as further
defined in the Agreement. The General Partner will
also be required to maintain a minimum capital
contribution to the Partnership of the greater of
$25,000 or 1% of contributions made to the Partnership
as further defined in the Agreement.
The General Partner will pay all expenses associated
with the organization of the Partnership and the
initial offering of the Units ("Units") of the limited
and general partnership interest in the Partnership.
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 will be reimbursed by the General
Partner.
REDEMPTIONS A limited partner may request and receive redemption
of its Units owned, subject to restrictions in the
Agreement of Limited Partnership. Early redemption
fees charged to the limited partner apply through the
first twelve months following purchase ranging from 1%
to 4% based on length of investment. After twelve
months following purchase of a Unit, no redemption
fees will be charged. These fees will be paid to the
General Partner.
TRADING ACTIVITIES The Partnership will engage in the speculative trading
AND RELATED RISKS 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.
F-11
SHAFFER DIVERSIFIED FUND, LP
NOTES TO STATEMENT OF FINANCIAL CONDITION
TRADING ACTIVITIES AND Purchase and sale of futures contracts requires margin
RELATED RISKS (CONTINUED) deposits with the broker. In the event of a broker's
insolvency, it is possible that the recovered amount
of margin deposits could be less than the total
property deposited.
The amount of required margin and good faith deposits
with the broker usually ranges from 10% to 40% of net
asset value.
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.
F-12
STATEMENT OF ADDITIONAL INFORMATION
SHAFFER DIVERSIFIED FUND, LP
(A DELAWARE LIMITED PARTNERSHIP)
25,000 UNITS OF LIMITED PARTNERSHIP INTEREST
925 WESTCHESTER AVENUE
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, LP 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 or a limited
partner of the Fund 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, 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 predetermined lots and quantities
such as bushels, pounds, or bales, are fungible (admit of free
3
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 (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.
COMMODITY POOL OPERATOR. The sponsor or administrator of a commodity
pool such as the Fund. Shaffer Asset Management/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, political developments,
population, floods, drought, labor problems, the economy, acreage yields,
substitutes, and so on.
4
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. ADM Investor Services
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 Shaffer Asset
Management during the initial offering period, approximately 20% of all sales
charges shall be paid to Shaffer Asset Management to reimburse Shaffer Asset
Management to reimburse Shaffer Asset Management for the payment of the Fund's
organizational and initial offering and the Fund's operating expenses that are
payable by Shaffer Asset Management and approximately 80% of all sales charges
shall be paid as syndication fees to Berthel Fisher & Company Financial
Services, Inc.; and as selling commissions to certain other firms that are
members of the NASD and certain foreign dealers and institutions which are not
members of the NASD that are participating in the offering. Berthel Fisher &
Company 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 Shaffer Asset Management 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.
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
7
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 that 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 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. See "Mechanics of Commodity Futures Trading",
below.
A speculator is a person or entity that 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. 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.
See "Mechanics of Commodity Futures Trading, below.
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 rises to $7.50 per
bushel, then a profit of $2.50 per bushel has been achieved. Conversely, if the
price of
8
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. 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 ADM
Investor Services 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 ADM Investor
Services.
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.
9
REGULATION
Congress enacted the Commodity Exchange Act, as amended, 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 CFTC is an independent agency that 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, is a "commodity pool operator" and a "commodity
trading advisor" and ADM Investor Services, Inc. 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 Shaffer
Asset Management 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 Shaffer
Asset Management as a commodity trading advisor was similarly suspended or
revoked, Shaffer Asset Management would not be permitted to advise the Fund.
Should the registration of ADM Investor Services as a futures commission
merchant be suspended or revoked, the Fund would no longer be able to maintain
its account with ADM Investor Services, and a new futures commission merchant
would be retained by Shaffer Asset Management.
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 Shaffer Asset
Management and ADM Investor Services 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 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.
10
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 Shaffer Asset Management 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 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. Shaffer Asset
Management/Advisor and ADM Investor Services 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 Shaffer Asset Management, 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.
11
EXHIBIT A
SHAFFER DIVERSIFIED FUND, LP
(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, LP (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 ADM Investor Services and to cause the Partnership to pay to ADM Investor
Services 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,
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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.
(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
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jurisdiction, and (iii) the General Partner agrees to reimburse the
Partnership, together with the applicable 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
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upon the withdrawal of or redemption by any Partner. The General Partner may
declare distribution in 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
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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.
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
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Unit of General Partnership Interest after the Initial Offering Period shall be
the then current Net Asset Value per Unit.
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
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transfer, assignment or disposition, the Partnership would no longer be treated
as a partnership rather than 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
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applicable redemptions fees due under Section 3.6(f) hereof. Redemption payments
shall be made within 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
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fee. Such redemption may be effected from time to time in any manner deemed
reasonable in the sole 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
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make such list available for review by any Limited Partner or his personal
representative at the offices of 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;
(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.
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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.
(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.
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(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 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
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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 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
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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 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
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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 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
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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;
(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
A-20
(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 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.
A-21
(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.
(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
A-22
EXHIBIT B
SUBSCRIPTION REQUIREMENTS
GENERAL REPRESENTATIONS AND WARRANTIES
By executing the Subscription Agreement / Power of Attorney for Shaffer
Diversified Fund, LP (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 ADM Investor Services 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 ADM Investor Services 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, ADM Investor Services,
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, LP (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.
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, LP
(A DELAWARE LIMITED PARTNERSHIP)
SUBSCRIPTION AGREEMENT / POWER OF ATTORNEY
DATED _______________, 200__
Shaffer Diversified Fund, LP
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, LP (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, LP" 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: __________________________________________
__________________________________________
__________________________________________
C-4
8. Mailing address (if different):
___________________________________________
___________________________________________
___________________________________________
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, LP
(A DELAWARE LIMITED PARTNERSHIP)
REQUEST FOR REDEMPTION
____________________, 20___
(Please date)
PLEASE SEND ORIGINAL TO:
Shaffer Asset Management, Inc.,
as General Partner
Shaffer Diversified Fund, LP
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, LP, 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
SUBJECT TO COMPLETION, DATED __________, 2001
PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION
SHAFFER DIVERSIFIED FUND, LP
(A DELAWARE LIMITED PARTNERSHIP)
25,000 UNITS OF LIMITED PARTNERSHIP INTEREST
***
- - - - - - - - - -
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.
D-3
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.
23.1 Form of Consent of Kurzman Karelsen & Frank, LLP (included
in Exhibit 5.1 to this Registration Statement).
23.2 Form of Consent of Morrison Cohen Singer & Weinstein, LLP
(included in Exhibit 8.1 to this Registration Statement).
23.3 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.
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
II-3
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. 2 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 April 6,
2001.
SHAFFER DIVERSIFIED FUND, LP
By: Shaffer Asset Management, Inc.
General Partner
By: /s/ Daniel S. Shaffer
---------------------
Daniel S. Shaffer
President
By: /s/ Bruce I. Greenberg
---------------------
Bruce I. Greenberg
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Pre-Effective Amendment No. 2 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 April 6, 2001
(chief executive officer)
/s/ Bruce I. Greenberg Bruce I. Greenberg Vice President and Chief April 6, 2001
Financial Officer of General
Partner (chief accounting
officer)
II-4
SHAFFER DIVERSIFIED FUND, LP
(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.
23.1 Form of Consent of Kurzman Karelsen & Frank, LLP (included
in Exhibit 5.1 to this Registration Statement).
23.2 Form of Consent of Morrison Cohen Singer & Weinstein, LLP
(included in Exhibit 8.1 to this Registration Statement).
23.3 Consent of Anchin Block & Anchin LLP.
- -------------
* Previously filed and not filed herewith.
** To be filed by amendment.