SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 333-46550
SHAFFER DIVERSIFIED FUND, LP
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(Exact name of Registrant as specified in its Charter)
Delaware 13-4132934
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(State of formation) (I.R.S Employer Identification No.)
925 Westchester Ave
White Plains, New York 10604
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 800-352-5265
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ ] No [ X ]
We have not been subject to the filing requirements for 90 days.
SHAFFER DIVERSIFIED FUND, LP
INDEX
PART I - FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Statement of Financial Position 3
as of September 30, 2001 (unaudited)
and December 31, 2000 audited
Statements of Operations (unaudited) for the 4
Nine Months ended September 30, 2001, for the
Three Months ended September 30, 2001 and from
inception August 29, 2000 to September 30, 2000
Statements of Cash Flows (uaudited) for the 5
Nine Months Ended September 30, 2001 and from
inception August 29, 2000 to September 30, 2000
Statements of Changes in Partners' Capital 6
(unaudited) for the Nine Months Ended September 30,
2001 and from inception August 29, 2000 to
September 30, 2000
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION 12
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Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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SHAFFER DIVERSIFIED FUND, LP
Statement of Financial Condition
September 30, 2001 (Unaudited)
and December 31, 2000 (Audited)
September 30, December 31,
2001 2000
ASSETS
Cash and cash equivalents $ 684 $ 1,916
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PARTNERS' CAPITAL $ 684 $ 1,916
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See accompanying notes to financial statements.
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SHAFFER DIVERSIFIED FUND, LP
Statement of Operations
Nine Months Three Months Inception
Ended Ended Aug 29, 2000 -
September 30, September 30, September 30,
2001 2001 2000
INCOME
Futures trading gains (losses)
Realized $ 0 $ 0 $ 0
Gain (loss) from futures trading 0 0 0
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$ 0 $ 0 $ 0
OPERATING EXPENSES
General and administrative 1,316 633 0
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NET INCOME (LOSS) $ (1,316) $ (633) $ 0
================= ================ ======================
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNERS UNITS
(based on weighted average number of
units outstanding during the period) $ (1,316) $ (633) $ 0
================= ================ ======================
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNITS $ (1,316) $ (633) $ 0
================= ================ ======================
See accompanying notes to financial statements
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SHAFF SHAFFER DIVERSIFIED FUND, LP
Statements of Cash Flows
Inception
Nine Months Ended Aug 29, 2000 -
Sept 30, 2001 Sept 30, 2000
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net Income (loss) $ (1,316) $ 0
Adjustments to reconcile net income (loss)
to net cash (for) operating activities
Net change in unrealized 0 0
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Net cash (for) operating activities (1,316) 0
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES 0 0
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0 0
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Proceeds of units issued 0 2,000
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Net cash from financing activities 0 2,000
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Net increase (decrease) in cash (1,316) 2,000
and cash equivalents
CASH AND CASH EQUIVALENTS
Beginning of period 2,000 0
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End of period $ 684 $ 2,000
=============== ======================
See accompanying notes to financial statements
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SHAFFER DIVERSIFIED FUND, LP
Statement of Changes in Partners' Capital (Net Asset Value)
For the Nine Months Ended September 30, 2001 and
Inception August 29, 2000 to September 30, 2000
PARTNERS' CAPITAL
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GENERAL LIMITED TOTAL
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UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
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NINE MONTHS ENDED SEPTEMBER 30, 2001
Balances at December 31, 2000 1 1,000 1 1,000 2 2,000
Net income (loss) for the nine months
ended September 30, 2001 (658) 0 (658) 0 (1,316)
Additions 0 0 0 0 0 0
Redemptions 0 0 0 0 0 0
Offering costs 0 0 0
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Balances at September 30, 2001 1 342 1 342 2 684
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INCEPTION AUGUST 29, 2000 to SEPTEMBER 30, 2000
Additions 1 1,000 1 1,000 2 2,000
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Balances at September 30, 2000 1 1,000 1 1,000 2 2,000
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Net Asset Value Per General and Limited Partner Unit
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September 30, September 30,
2001 2000
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342 342
=============== ==============
See accompanying notes to financial statements.
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SHAFFER DIVERSIFIED FUND, LP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
The financial statements are unaudited (except for the balance sheet information
as of December 31, 2000, which is derived from the Fund's audited financial
statements) and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The financial statements should be read in conjunction with the notes
thereto, together with management's discussion and analysis of financial
condition and results of operations. The results of operations for the nine
months ended September 30, 2001 are not necessarily indicative of the results
for the entire fiscal year ending December 31, 2001, or any future interim
period.
Note 1. 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.
The Partnership filed a registration statement with the Securities and Exchange
Commission on September 25, 2000 and the SEC declared the registration effective
on October 16, 2001. The Partnership 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 ("US")
government which regulates most aspects of the commodity future industry; the
rules of the National Futures Association, an industry self-regulatory
organization; and the requirements of the various commodity exchanges where the
Partnership executes transactions. Additionally, the Partnership will be subject
to the requirements of Futures Commission Merchants or Brokers through which the
Partnership will trade.
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 Partnership will be
dissolved.
Note 2. Related Party Transactions
The General Partner of the Partnership is Shaffer Asset Management, Inc. (the
"General Partner"), which will conduct and manage the business of the
Partnership. The General Partner is also the commodity-trading advisor of the
Partnership.
The Partnership will pay for management and servicing at an annual rate of 5% of
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%.
The General Partner will share in all Partnership income and losses to the
extent of its interest in the Partnership. The General Partner will also receive
on a quarterly basis an incentive 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 Partnership 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
Partnership Agreement.
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The General Partner will pay all expenses associated with the organization of
the Partnership and the initial offering of the Units of the limited and general
partnership interest in the Partnership. Partnership operating expenses,
(excluding continuing service 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.
Note 3. Redemptions
A limited partner may request and receive redemption of its units owned, subject
to restrictions in the Partnership Agreement. 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 charges. These fees will
be paid to the General Partner.
Note 4. Trading Activities and Related Risks
The Partnership will engage in the speculative trading of US 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.
Purchase and sale of futures contracts requires margin deposits with the
Commodity 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.
Note 5. Income Taxes
The Partnership is not subject to income taxes. The partners report their
allocable share of income, expense and trading gains or losses on their own tax
returns.
Note 6. Subsequent Event
The fund is currently in its initial offering period and will not commence
trading until release of funds from escrow.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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 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 by Shaffer Asset Management and by
Daniel S. Shaffer, the initial limited partner. The Fund has no operating
history.
LIQUIDITY
The Fund will deposit its assets with the commodity brokers in a separate
futures trading account established for the trading advisor, which assets are
used as margin to engage in trading. The assets are held in either
non-interest-bearing bank accounts or in securities and instruments permitted by
the CFTC for investment of customer segregated or secured funds. The Fund's
assets held by the commodity broker may be used as margin solely for the Fund's
trading. Since the Fund's sole purpose is to trade in futures, it is expected
that the Fund will continue to own such liquid assets for margin purposes.
The Fund's investment in futures may, from time to time, be illiquid. Most U.S.
futures exchanges limit fluctuations in prices during a single day by
regulations referred to as "daily price fluctuations limits" or "daily limits."
Trades may not be executed at prices beyond the daily limit. If the price for a
particular futures contract has increased or decreased by an amount equal to the
daily limit, positions in that futures contract can neither be taken nor
liquidated unless traders are willing to effect trades at or within the limit.
Futures prices have occasionally moved the daily limit for several consecutive
days with little or no trading. These market conditions could prevent the Fund
from promptly liquidating its futures contract and result in restrictions on
redemptions.
CAPITAL RESOURCES
The Fund does not have, or expect to have, any capital assets. Redemptions,
exchanges and sales of additional units in the future will affect the amount of
funds available for investments in futures interests in subsequent periods. It
is not possible to estimate the amount and therefore the impact of future
redemptions.
FINANCIAL INSTRUMENTS
The Fund will be a party to financial instruments with elements of off-balance
sheet market and credit risk. The Fund may trade futures in interest rates,
currencies, energies, grains and precious metals. In entering into these
contracts, the Fund will be subject to the market risk that such contracts may
be significantly influenced by market conditions, such as interest rate
volatility, resulting in such contracts being less valuable. If the markets
should move against all of the positions held by the Fund at the same time, and
if the trading advisor was unable to offset positions of the Fund, the Fund
could lose all of its assets and investors would realize a 100% loss.
In addition to market risk, in entering into futures contracts there is a credit
risk to the Fund that the counterparty on a contract will not be able to meet
its obligations to the Fund. The ultimate counterparty or guarantor of the Fund
for futures contracts traded on the U.S. exchanges in which the Fund trade is
the clearinghouse associated with such exchange. In general, a clearinghouse is
backed by the membership of the exchange and will act in the event of
non-performance by one of its members or one of its member's customers, which
should significantly reduce this credit risk. For example, a clearinghouse may
cover a default by drawing upon a defaulting member's mandatory contributions
and/or non-defaulting members' contributions to a clearinghouse guarantee fund,
established lines or letters of credit with banks, and/or the clearinghouse's
surplus capital and other available assets of the exchange and clearinghouse, or
assessing its members.
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There is no assurance that a clearinghouse or exchange will meet its obligations
to the Fund, and the general partner and commodity brokers will not indemnify
the Fund against a default by such parties. Further, the law is unclear as to
whether a commodity broker has any obligation to protect its customers from loss
in the event of an exchange or clearinghouse defaulting on trades effected for
the broker's customers.
Shaffer Asset Management will deal with these credit risks of the Fund in
several ways. It will monitor the Fund's credit exposure to each exchange on a
daily basis, calculating not only the amount of margin required for it but also
the amount of its unrealized gains at each exchange, if any. The commodity
brokers will inform the Fund, as with all their customers, of its net margin
requirements for all its existing open positions, but do not break that net
figure down, exchange by exchange.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Fund is a commodity pool involved in the speculative trading of futures. The
Fund has not commenced trading activities. The market sensitive instruments to
be held by the Fund will be acquired for speculative trading purposes only and,
as a result, all or substantially all of the Fund's assets will be at risk of
trading loss. Unlike an operating company, the risk of market sensitive
instruments is central, not incidental, to the Fund's main business activities.
The futures traded by the Fund involve varying degrees of market risk. Market
risk is often dependent upon changes in the level or volatility of interest
rates, exchange rates, and prices of financial instruments and commodities.
Fluctuations in market risk based upon these factors result in frequent changes
in the fair value of the Fund's open positions, and, consequently, in its
earnings and cash flow.
The Fund's total market risk will be influenced by a wide variety of factors,
including the diversification among the Fund's open positions, the volatility
present within the markets, and the liquidity of the markets. At different
times, each of these factors may act to increase or decrease the market risk
associated with the Fund.
Any attempt to numerically quantify a Fund's market risk is limited by the
uncertainty of its speculative trading. The Fund's speculative trading may cause
future losses and volatility (i.e. "risk of ruin") that far exceed any
reasonable expectations based upon historical changes in market value.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
There are no exhibits to this Form 10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Shaffer Diversified Fund, LP
By: Shaffer Asset Management, Inc.
General Partner
Date: November 16, 2001
By: /s/ Bruce Greenberg
-----------------------------------
Bruce Greenberg
Chief Financial Officer
VP/Treasurer/Director
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