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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 2000
REGISTRATION NO. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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)
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<S> <C> <C>
DELAWARE 6799 13-4132934
(State or other jurisdiction of (Primary Standard Industrial (IRS employer
incorporation or organization) Classification Code Number) identification number)
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70 WEST RED OAK LANE
WHITE PLAINS, NY 10604
(800) 352-5265
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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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:
John J. Sullivan, Esq.
Kathryn Beller, Esq.
McDermott, Will & Emery
50 Rockefeller Plaza
New York, NY 10020
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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, 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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PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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Units of limited partner interest ......................... $15,000,000 $3,960.00
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(1) Estimated, pursuant to Rule 457(o) under the Securities Act, solely for
purposes of calculating the registration fee.
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.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE FUND
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS 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 IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 2000
PROSPECTUS
SHAFFER DIVERSIFIED FUND, LP
15,000 UNITS OF LIMITED PARTNER INTEREST
This is an initial public offering of 15,000 units of limited partner
interest in Shaffer Diversified Fund, LP. The fund trades speculatively in the
US commodity futures markets. Shaffer Asset Management, Inc., which serves the
fund as general partner and commodity trading advisor, intends to allocate the
assets of the fund across a broad spectrum of commodity markets.
The fund is offering up to 15,000 units of limited partner interest,
initially valued at $1,000 per unit. The fund will sell at least 1,000 units
before it begins trading. Units will be continuously offered for purchase on the
last business day of each month at the then net asset value per unit. The units
will not be listed on any national securities exchange or quoted by the Nasdaq
Stock Market.
Trustees, IRAs and other tax-exempt accounts and NASD-registered
broker-dealers must initially purchase at least $5,000 in units. Other investors
must initially purchase at least $10,000 in units. Investors are required to
make representations and warranties in connection with their investment. Each
investor is encouraged to discuss the investment with his or her own financial,
legal and tax advisors.
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 statement of additional information prior to making an
investment.
INVESTING IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS
OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
SHAFFER ASSET MANAGEMENT, INC.
General Partner
, 2000
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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.
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 8 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 10.
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 3.
TABLE OF CONTENTS
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PAGE
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Summary ......................................................................................... 1
Risk Factors .................................................................................... 3
Forward-Looking Statements ...................................................................... 8
Charges to the Fund ............................................................................. 9
Use of Proceeds ................................................................................. 12
Capitalization .................................................................................. 12
Selected Financial Data ......................................................................... 13
Management's Discussion and Analysis of Financial Condition and Results of Operations ........... 14
Business ........................................................................................ 16
Shaffer Asset Management, Inc. .................................................................. 19
Principal Partners .............................................................................. 22
Conflicts of Interest ........................................................................... 23
The Commodity Broker ............................................................................ 25
Distributions and Redemption .................................................................... 26
Summary of Agreement of Limited Partnership ..................................................... 27
Federal Income Tax Considerations ............................................................... 31
Investment by ERISA Accounts .................................................................... 36
Plan of Distribution ............................................................................ 38
Legal Matters ................................................................................... 40
Experts ......................................................................................... 40
Index to Financial Statements ................................................................... F-1
EXHIBITS
Agreement of Limited Partnership ................................................................ A-1
Request for Redemption .......................................................................... B-1
Subscription Requirements ....................................................................... C-1
Subscription Instructions; Subscription Agreement and Power of Attorney ......................... D-1
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SUMMARY
Shaffer Diversified Fund, LP allows investors to participate in the
United States commodity futures markets. Shaffer Asset Management, Inc., the
general partner and commodity trading advisor of the fund, uses its
computerized, trend-following, technical trading and risk-control methods to
seek substantial medium-term and long-term capital appreciation. At the same
time, SAM seeks to control risk and volatility. SAM provides advisory services
to individually managed accounts that are similar to the services that it will
provide to the fund.
Futures are standardized contracts traded on commodity exchanges that
call for the future delivery of commodities at specified times and places.
Futures contracts are traded on a wide variety of commodities. The fund will
trade futures positions on margin, which means that it will utilize leverage in
its trading.
The principal executive offices of the fund are located at 70 West Red
Oak Lane, White Plains, New York 10604. The telephone number of the fund is
(800) 352-5265.
SAM
Shaffer Asset Management, Inc. serves the fund as general partner and
commodity trading advisor. SAM administers the fund, directs its trading and has
sole authority and responsibility for investment and reinvestment of the assets
of the fund. Daniel S. Shaffer, the principal of SAM, has over 13 years of
experience trading in the futures markets. As of August 31, 2000, SAM managed
over $2.6 million in the futures markets.
SAM uses a computerized, trend-following, technical trading and
risk-control approach. This approach incorporates quantitative portfolio
management analysis and seeks to identify and profit from sustained price
trends. SAM currently uses a single trading model in all markets in which it
trades. The model analyzes market movements and internal market and price
configurations. The model also employs a proprietary, volatility-based system to
allocate capital among markets within a portfolio. SAM structures a
risk-balanced portfolio by assigning a dollar risk value to each trade, based on
contract size and volatility.
WHO MAY INVEST
An investment in the fund is speculative and involves a high degree of
risk. The fund is not suitable for all investors, nor is it a complete
investment program. The fund is designed as a diversification opportunity in the
context of a larger investment portfolio. Investors should invest only a limited
portion of their portfolio in the fund. To invest in the fund, an investor must
have, at a minimum:
- net worth of at least $150,000, exclusive of home, furnishings
and automobiles; or
- net worth, similarly calculated, of at least $45,000 and an
annual gross income of at least $45,000.
Some jurisdictions in which the units will be offered impose higher
minimum financial standards on prospective investors. In each case, these
standards are only regulatory minimums. Even if an investor meets the
suitability standards described above, an investment in the units may not be
suitable for him or her. Only the investor can make that determination. AN
INVESTOR MAY NOT INVEST MORE THAN 10% OF HIS OR HER NET WORTH, EXCLUSIVE OF
HOME, FURNISHINGS AND AUTOMOBILES, IN THE FUND.
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In the subscription agreement and power of attorney, the form of which
is attached as an exhibit to this prospectus, investors must to make
representations and warranties relating to their suitability to purchase the
units. Please read the subscription agreement and power of attorney carefully.
MINIMUM INVESTMENT
Trustees, IRAs and other tax-exempt accounts and NASD-registered
broker-dealers must initially purchase at least $5,000 in units. Other investors
must initially purchase at least $10,000 in units. Investors may purchase
additional units in a minimum amount of $1,000. SAM may accept subscriptions for
lesser amounts in its discretion.
HOW TO SUBSCRIBE
Units will initially be valued at $1,000 each. After the initial
closing of this offering, units will be offered at a price equal to their then
net asset value. The net assets of the fund are its assets less its liabilities
as determined in accordance with the agreement of limited partnership. The net
asset value per unit equals the net assets of the fund divided by the number of
units outstanding on the date of determination.
Investors must submit subscriptions at least five business days prior
to the last business day of a month. Subscriptions will be accepted once
payments have cleared. The fund will accept subscriptions throughout the
offering period. SAM may terminate the offering at any time but has no present
intention to terminate the offering. The selling agents will use their best
efforts to sell the units but have no firm underwriting commitment.
CHARGES TO THE FUND; BREAKEVEN THRESHOLD
Charges to the fund are substantial. Charges that not offset by trading
gains and interest income will deplete the assets of the fund. In order to
"break even" at the end of one year of trading, each $10,000 invested must earn
profits of approximately $250 or 2.5%. See "Charges to the Fund."
DISTRIBUTIONS AND REDEMPTION
The fund is intended to be a medium-term to long-term investment.
Investors should expect to invest for three to five years. While units are
transferable, no market currently exists for their sale and none is expected to
develop. SAM does not intend to make any distributions to investors from the
fund. Monthly redemptions are permitted upon 10-days prior written notice to
SAM. Redemption fees apply during the first 12 months following purchase.
FEDERAL INCOME TAX CONSIDERATIONS
SAM has been advised that for federal income tax purposes, assuming
that the fund operates in the manner described in this prospectus, the fund will
be treated as a partnership and not as an association taxable as a corporation
or a publicly traded partnership in any taxable year as long as 90% or more of
the gross income of the fund in that year consists of "qualifying income" for
federal income tax purposes. The fund has not obtained a ruling from the
Internal Revenue Service confirming this tax treatment, and SAM does not intend
to request a ruling. If the partnership is treated as a partnership, US
taxpayers will be taxed each year on interest income earned and any gains
recognized by the fund, whether or not the taxpayer redeems any units or
receives any distributions.
Taxpayers who are individuals may deduct capital losses only to the
extent of their capital gains plus $3,000. Taxpayers may carry forward capital
losses that cannot be deducted in the current taxable year. Accordingly, even if
the fund suffers significant losses, an investor may be required to pay taxes on
his or her share of the ordinary income of the fund.
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RISK FACTORS
THE FOLLOWING RISK FACTORS ARE NOT THE ONLY RISKS THAT ARE RELATED TO
AN INVESTMENT IN THE FUND. INVESTORS SHOULD READ THE ENTIRE PROSPECTUS BEFORE
DETERMINING WHETHER TO INVEST IN THE UNITS AND SHOULD CONSULT WITH THEIR OWN
FINANCIAL AND TAX ADVISORS.
RISKS RELATED TO THE FUND
AN INVESTOR COULD POSSIBLY LOSE HIS OR HER TOTAL INVESTMENT IN THE
FUND.
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. SAM has from time to time incurred
substantial losses in trading on behalf of its customers. An investor may lose
all or substantially all of his or her investment in the fund.
THE FUND HAS NO OPERATING HISTORY.
The Commodity Futures Trading Commission (CFTC) requires SAM to
disclose to investors the actual performance record of the fund. The fund has
not begun trading and does not have any performance history.
SAM, THE GENERAL PARTNER AND COMMODITY TRADING ADVISOR OF THE FUND, HAS A
LIMITED OPERATING HISTORY AND LIMITED ASSETS.
SAM has been registered as a commodity trading advisor with the CFTC
since October 1998. SAM has been a member of the National Futures Association
(NFA) as a commodity trading advisor since October 1998 and as a commodity pool
operator since July 2000. SAM has managed commodity accounts for others since
March 1999. For information about the operating history of SAM, see "Shaffer
Asset Management, Inc.-Performance Information Regarding Directed Accounts
Managed by SAM."
SAM is a corporation with limited assets. In addition, the agreement of
limited partnership of the fund provides that SAM is not personally liable for
the return or repayment of all or any portion of the capital or profits of any
investor and that any return of capital or profits will be made solely from the
assets of the fund, which will not include a right of contribution from SAM. As
a result, investors should not rely upon the assets of SAM when evaluating an
investment in the fund. For additional information, see the financials
statements of SAM included elsewhere in this prospectus.
INVESTORS SHOULD NOT RELY ON THE PAST PERFORMANCE OF SAM IN EVALUATING AN
INVESTMENT IN THE UNITS.
The performance of the fund cannot be predicted. The fund may not
perform successfully in the future. The past performance of SAM does not
necessarily indicate future results. SAM has never managed a commodity pool like
the fund.
THE FUND IS HIGHLY LEVERAGED.
Typically the fund will deposit with the commodity broker only 2% to
10% of the total value of a futures contract as margin funds in order to enter
into a futures contract. The ratio of margin funds to the market value of the
futures contracts is typically 20% to 30% but may range from 10% to 40%. As a
result, the fund will be able to hold positions that equal several times the
value of its net assets. As a result of this leverage, even a small movement in
the price of a contract may create large losses.
3
<PAGE> 7
THE UNITS ARE NOT LIQUID INVESTMENTS.
At times, futures positions cannot be liquidated at the desired price.
For example, it is difficult to execute a trade at a specific price if the
volume of buy and sell orders in a market is small. Market disruptions also make
it more difficult to liquidate a position. Unexpected lack of market liquidity
has caused major losses in recent years. The fund may experience a lack of
market liquidity at any time and from time to time.
There is no secondary market for the units. The redemption rights of
the units are limited, and fees may be assessed. For example, redemptions may
occur only at the end of a month. If a large number of redemption requests are
received at once, the fund may be required to liquidate its futures contracts to
satisfy the redemption requests. A forced liquidation may significantly decrease
the value of the assets of the fund and, consequently, the net asset value of
the units.
Transfers of the units are subject to restriction, such as 30-days
prior written notice. In addition, SAM may deny a request to transfer if it
determines that the transfer may result in adverse legal or tax consequences for
the fund. See "Summary of Agreement of Limited Partnership-Dispositions."
AN INVESTMENT IN THE FUND MAY NOT DIVERSIFY AN OVERALL PORTFOLIO.
Historically, managed futures have generally not correlated with the
performance of other asset classes, such as stocks and bonds. Non-correlation
means that there is no statistically valid relationship between the past
performance of futures contracts on the one hand and stocks or bonds on the
other hand. Non-correlation should not be confused with negative correlation,
where the performance of two asset classes is exactly opposite. For example,
non-correlation means that the fund may not necessarily be profitable or
unprofitable during unfavorable periods for the stock market. The futures
markets are fundamentally different from the securities markets because, for
every gain in futures trading, there is an equal and offsetting loss. If the
fund does not perform in a manner that is not correlated with the general
financial markets or does not perform successfully, an investor will obtain no
diversification benefits by investing in the units. In addition, an investor may
have no gains from the fund to offset losses in the rest of his or her
portfolio.
PARTIES TO THE FUND HAVE CONFLICTS OF INTEREST.
SAM has a conflict of interest because it serves as the general partner
and as sole commodity trading advisor to the fund. As a result, it is very
unlikely that SAM will cause the fund to terminate its advisory contract with
SAM. Trading for the fund will not be reviewed or overseen by an independent
manager. The compensation payable to SAM by in the fund was established by SAM
and were not the subject of arms-length negotiation.
SAM and the commodity broker, and their respective principals and
affiliates, may trade in the futures markets for their own accounts and may take
positions opposite or ahead of those taken for the fund. SAM manages accounts
for customers other than the fund and may have incentives to favor some accounts
over the fund.
Selling agents will be entitled to ongoing compensation if their
customers remain in the fund, so a conflict exists between the interest of an
agent in maximizing its compensation and in advising its customers to make
investment decisions that may be in the best interests of the customers.
The fund has not established any formal procedures to resolve the
conflicts of interest that are discussed. There is no independent control over
the method by which these conflicts of interests will be resolved. See
"Conflicts of Interest."
4
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THE FUND RELIES ON SAM AND ITS PRINCIPAL.
SAM serves as general partner and commodity trading advisor to the fund
and directs futures trading for the fund. The results of operations of the fund
highly depend on the expertise of Daniel S. Shaffer, the principal of SAM. If
SAM or Mr. Shaffer is unable to continue to manage the fund, the fund may be
unable to replace these services on favorable terms or at all.
FEES AND COMMISSIONS WILL BE CHARGED REGARDLESS OF PROFITABILITY AND ARE SUBJECT
TO CHANGE.
The fund will incur substantial charges without regard to
profitability. Charges not related to profitability include brokerage fees,
transaction fees and operating expenses. The agreement of limited partnership
permits SAM to increase brokerage fees upon 60-days prior written notice.
REGULATORY CHANGE IS IMPOSSIBLE TO PREDICT.
The futures markets are subject to comprehensive statutes, regulations
and margin requirements. In addition, the CFTC and the exchanges on which
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 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.
TRANSFER AND REDEMPTION OF THE UNITS IS RESTRICTED.
An investor may not transfer or assign units except in compliance with
the agreement of limited partnership, which requires the consent of SAM and
30-days prior written notice.
An investor may request the fund to redeem any or all of his or her
units as of the last business day of each month at the then net asset value per
unit, less applicable redemption fees. Redemption requires 10-days prior written
notice to SAM, and the redemption value of units may differ significantly from
their value when purchased or when redemption is requested.
A SINGLE-ADVISOR FUND MAY BE MORE VOLATILE THAN A MULTI-ADVISOR FUND.
A single commodity trading advisor, SAM, manages the fund. Many managed
futures funds are structured as multi-advisor funds in an attempt to control
risk and reduce volatility by combining advisors whose historical performance
records have exhibited a significant degree of non-correlation with each other.
As a single-advisor managed fund, the fund may have increased performance
volatility and a higher risk of loss.
INVESTORS WILL NOT BE ABLE TO VIEW FUND HOLDINGS ON A DAILY BASIS.
SAM makes all trading decisions for the fund. While SAM receives daily
trade confirmations from the commodity broker, trading results are reported to
investors monthly. As a result, an investor will be unable to review all
investment positions daily.
THE COMMODITY BROKER MAY FAIL AND HAS BEEN SUBJECT TO LEGAL PROCEEDINGS.
The Commodity Exchange Act (CEA) requires a commodity broker to
segregate funds received from customers from its own proprietary assets. If the
commodity broker fails to do so, the assets of the fund may not be fully
protected if the commodity broker becomes bankrupt. In the event of a commodity
broker bankruptcy, the fund may recover only its pro rata share of available
funds segregated on behalf of the combined customer accounts of the commodity
broker. This result may occur even though property,
5
<PAGE> 9
such as US Treasury billed deposited as margin, may be specifically traced to
the fund. In addition, the commodity broker of the fund has been the subject of
legal proceedings. See "The Commodity Broker."
THERE ARE NO INDEPENDENT EXPERTS WHO REPRESENT INVESTORS.
SAM has consulted with independent counsel, accountants and other
experts regarding the formation and operation of the fund. The fund has not
engaged separate counsel to represent investors in this offering. Each investor
should consult his or her own legal, tax and financial advisors regarding the
desirability of an investment in the fund.
THE FUND IS NOT A REGULATED INVESTMENT COMPANY.
The fund is not a registered investment company or "mutual fund"
subject to the Investment Company Act of 1940. Accordingly, investors are not
afforded the protections of that law, which requires, for example, that
registered investment companies have a majority of disinterested directors and
which regulates the relationship between the investment adviser and the
investment company.
THE FUND MAY TERMINATE BEFORE THE EXPIRATION OF ITS TERM.
SAM may withdraw as general partner of the fund upon 120-days prior
written notice. Neither SAM nor the commodity broker will continue to provide
services to the fund if its registration with the CFTC or membership in the NFA
is revoked or suspended. Other events, such as a long-term substantial loss
suffered by the fund, could cause the fund to terminate before the expiration of
its stated term. An early termination may cause a forced liquidation and may
upset the overall maturity and timing of the investment portfolio of an
investor.
RISKS RELATED TO TRADING
SAM WILL ANALYZE ONLY TECHNICAL MARKET DATA AND NOT OTHER ECONOMIC FACTORS.
The trading systems used for the fund will be technical,
trend-following methods. The profitability of trading under these systems
depends on, among other things, the occurrence of significant price trends that
are sustained upward or downward movements in futures prices. In the past, there
have been periods without price trends, and trends may not develop in the
future. The net asset value of the units may decrease materially during periods
in which events external to the markets themselves have an important impact on
prices. During these periods, the historic price analysis used by SAM may cause
the fund to establish positions on the wrong side of the price movements caused
by external events.
INCREASED COMPETITION FROM OTHER TREND-FOLLOWING TRADERS MAY REDUCE THE
PROFITABILITY OF THE FUND.
The past decade has witnessed a sharp increase in the value of assets
managed by trend-following trading systems like the system utilized by SAM. In
1980, the assets in the managed futures industry were estimated at approximately
$300 million. By 1998, this estimate had risen to approximately $40 billion. SAM
believes that over half of all managed futures trading advisors now rely
primarily on trend-following systems. This trend results in increased trading
competition. In addition, it may become more difficult for the fund to implement
its trading strategy if other trading advisors using technical systems are
simultaneously attempting to initiate or liquidate futures or otherwise alter
trading patterns.
SPECULATIVE POSITION LIMITS MAY ALTER TRADING DECISIONS FOR THE FUND.
The CFTC limits the maximum net long or net short positions that any
person may hold or control in some futures contracts. Exchanges establish
similar limits. All accounts controlled by SAM are combined with the fund for
purposes of these speculative position limitations. If the combined
6
<PAGE> 10
positions managed by SAM approach the level speculative position limits, SAM may
be required to modify its trading decisions for the fund or to liquidate some
futures positions.
AN INCREASE IN ASSETS UNDER MANAGEMENT MAY AFFECT TRADING DECISIONS BY SAM.
The value of the assets now managed by SAM is at or near its record
level. SAM has not agreed to limit the amount of additional equity that it may
manage and actively seeks new accounts. If SAM manages more equity, it will take
larger positions. It may be more difficult for SAM to trade larger positions
profitably. As a result, increases in equity managed may require SAM to modify
its trading decisions.
TAX RISKS
US TAXPAYERS WILL BE TAXED ON PROFITS OF THE FUND, WHETHER OR NOT DISTRIBUTED.
US taxpayers will be subject to federal income tax each year based on
their allocable share of the income or gain or the fund, if any, even if the
fund does not make distributions on account of the units. SAM does not intend to
make any distributions to investors. The tax liability due because of any
trading profits may be substantial, particularly if the fund achieves its
rate-of-return objectives. Investors may be required to redeem units or use
funds from other sources to discharge their tax liability.
INVESTORS MAY OWE TAX ON THEIR SHARE OF THE ORDINARY INCOME OF THE FUND EVEN IF
THE FUND HAS OVERALL LOSSES.
Investors may be required to pay tax on their allocable shares of the
ordinary income of the fund, even if the fund incurs overall losses. Capital
losses may only be used to offset capital gain and up to $3,000 of ordinary
income each year. Thus, it is possible for investors to have a financial loss
but taxable income from their investment in the fund.
THE DEDUCTIBILITY OF BROKERAGE FEES MAY BE LIMITED.
SAM will treat the brokerage fees paid to it and the other expenses of
the fund as ordinary and necessary business expenses. Upon audit by the Internal
Revenue Service, the fund may be required to treat brokerage fees as "investment
advisory fees" because the trading activities are not considered to constitute a
trade or business for tax purposes. If these fees are considered investment
advisory expenses, the tax liability of an investor would likely increase. In
addition, a portion of the brokerage fees may be treated as non-deductible
syndication costs and may reduce the capital gain or increase the capital loss
of the fund. If the brokerage fees are treated as a syndication cost, the tax
liability of an investor would likely increase.
7
<PAGE> 11
FORWARD-LOOKING STATEMENTS
This prospectus 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.
SAM 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. 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 may
not occur. Risks, uncertainties and assumptions that may affect the business,
financial condition and results of operations of the fund include changes in the
financial markets generally, increased competition, risks associated with
leverage, changes in general economic conditions and the risks discussed in
"Risk Factors" beginning on page 3.
8
<PAGE> 12
CHARGES TO THE FUND
The following table describes the type and amount of all charges to be
incurred by the fund. This list includes all compensation, fees, special
allocations and other benefits that the general partner, the commodity trading
advisor, the selling agents, the commodity broker and affiliates of these
parties may earn or receive in connection with this offering and the operation
of the fund. Charges to the fund are substantial. Charges that not offset by
trading gains and interest income will deplete the assets of the fund. In order
to "break even" at the end of one year of trading, each $10,000 invested must
earn profits of approximately $250.
<TABLE>
<CAPTION>
TYPE AMOUNT
---- ------
<S> <C>
TRADING FEES
Brokerage fees 4% per year of net assets, payable in a lump
sum for units purchased during the first 12 months
after the initial closing of this offering and
payable monthly commencing in the thirteenth month;
75% of the brokerage fee is paid to selling agents,
12.5% is paid to SAM as general partner and 12.5% is
paid to SAM as commodity trading advisor
Transaction fees Actual transaction fees, estimated at 1% of net
assets per year; includes commodity broker fees per
round-turn trade per contract
SPECIAL ALLOCATION 20% per year of appreciation in the net asset value
of the units, excluding the effect of interest income
and as adjusted for subscriptions and redemptions;
allocated to SAM monthly
OFFERING EXPENSES Reimbursed by the fund to SAM over a 30-month period
following the initial closing of this offering, not
to exceed 2.5% of the aggregate subscriptions
accepted
OTHER EXPENSES Administrative, legal and accounting fees, up to a
maximum of 0.5% of net assets per year
</TABLE>
The brokerage fee may be increased upon 60-days prior written notice to
investors, as long as the notice explains the redemption and voting rights
available to investors.
BROKERAGE FEES
Each unit will be charged a single asset-based fee for all brokerage
services. During the first 12 full calendar months after the initial closing of
this offering, the fee is equal to 4% of the aggregate subscription amount for
the units. If a unit is purchased after the initial closing of this offering but
during the first 12 full calendar months after the initial closing, the amount
of the brokerage fee payable with respect to the unit will be prorated based on
the number of months remaining in the initial period. Commencing with the
thirteenth full calendar month after the initial closing of this offering, the
brokerage fee will be paid monthly based on 1/12 of 4% of the month-end net
asset value of the units. The fund will pay 75% of the brokerage fee to the
selling agents, 12.5% to SAM for acting as general partner and 12.5% to SAM for
acting as commodity trading advisor.
SAM'S SPECIAL ALLOCATION
The agreement of limited partnership specially allocates profit to the
capital account of SAM, as general partner of the fund, in the amount of 20% per
year of any aggregate cumulative appreciation in the net asset value of the
units, excluding the effect of interest income and as adjusted for subscriptions
and redemptions. For these purposes, aggregate cumulative appreciation means the
total increase in net asset value per unit from the commencement of trading,
minus the total increase in unit value for all prior months, multiplied by the
number of units outstanding on a weighted average basis. SAM's special
allocation will accrue,
9
<PAGE> 13
and the fund will distribute cash in the amount of the net accrual, on a
monthly basis.
If the fund distributes cash to SAM in the amount of profit allocated
to Sam in connection with the special allocation, and the net asset value of the
units subsequently declines, SAM will retain the amount previously distributed.
Thus, SAM may receive a distribution during a year in which the fund incurs
overall net losses. The decline in the net asset value of the units will be
carried forward, however, and the fund will make no further distributions on
account of SAM's special allocation until the prior decline in net asset value
has been recovered.
If the fund has specially allocated profit to SAM with respect to
months prior to the month in which a particular unit is purchased due to
appreciation in net asset value of the units achieved prior to purchase, the net
asset value per unit on the date of purchase will already reflect the accrual.
If the net asset value of the units declines after the purchase of a particular
unit, the net amount accrued on account of SAM's special allocation will
decrease. This decease will affect all units equally, including units that were
purchased at a net asset value per unit that fully reflected the earlier
accrual.
FEES TO COMMODITY BROKER
The commodity broker will receive a commission of $17 per round-turn
trade per contract, which is estimated at 1% of net assets per year. The
commodity broker is responsible for all trading transactional costs, such as pit
brokerage, exchange, NFA, "give-up," transfer and clearing fees. The
compensation to the commodity broker is competitive with rates paid by other
trading funds having assets and structure similar to the fund. The compensation
to be paid to the commodity broker will not exceed the guidelines established by
the North American Securities Administrators Association, Inc. (NASAA). The
amount of the fee to be paid to the commodity broker will be evaluated from time
to time based on the amount of trading for the fund that the commodity broker is
required to clear.
FEES TO SELLING AGENTS
Each selling agent will receive from the fund, as part of the brokerage
fee, a selling commission of 75% of the brokerage fee, or 3% of the subscription
amount, for each subscription for units obtained by the selling agent during the
first 12 full calendar months after the initial closing of this offering. If a
unit is purchased after the initial closing of this offering but during the
first 12 full calendar months after the initial closing, the amount of the
brokerage fee payable with respect to the unit will be prorated based on the
number of months remaining in the initial period. Commencing in the thirteenth
full calendar month after the initial closing of this offering and in return for
ongoing services to investors, the fund will pay a monthly fee to selling agents
or their assignees who are registered at the time with the NFA as "futures
commission merchants" or "introducing brokers." This fee will be 1/12 of 3% of
the month-end net asset value of the units that relate to subscriptions obtained
by the selling agent. This compensation may be deemed to create a conflict of
interest in that selling agents have a disincentive to advise investors to
redeem their units. See "Conflicts of Interest."
OFFERING EXPENSES
SAM will pay all of the expenses for this offering, which are estimated
at $ for the nine months following the date of this prospectus. These expenses
include all fees and expenses in connection with the distribution of the units,
including legal, accounting, printing, mailing and filing fees. Subject to the
limits described below, the fund will reimburse SAM for these offering expenses,
without interest, in 30 monthly installments commencing after the initial
closing of the offering. Expenses incurred after the initial closing of this
offering will be reimbursed over the remainder of the 30-month period. In no
event will the reimbursement exceed 2.5% of the total subscriptions accepted,
which represents a maximum of 1% of net assets per year based on the 30-month
amortization period.
10
<PAGE> 14
Some state securities administrators require the fund to disclose that
its "organization and offering expenses" for purposes of the NASAA guidelines
will not exceed 15% of the total subscriptions accepted. The fund will not
reimburse SAM for any expenses in excess of 2.5% of total subscriptions. As a
result, the NASAA guideline limit of 15% of total subscriptions will not be
reached even if selling commissions are added.
OTHER EXPENSES
The fund will pay its ongoing operating expenses, including without
limitation administrative, legal and accounting fees, and any taxes or
extraordinary expenses. These expenses are estimated to be 0.5% of the net
assets of the fund per year. Of this amount, 1/12 of 0.3% will be paid to SAM
directly each month to cover administrative expenses incurred on behalf of the
fund, such as salaries, rent, travel and other overhead. SAM will pay any
operating expenses that exceed 0.5% per year of the net assets of the fund.
ESTIMATE OF BREAKEVEN THRESHOLD
In order for an investor to "break even" on his or her investment in
the first year of trading, assuming an initial investment of $10,000, the fund
must earn $250 or 2.50%. The break-even level is calculated as shown in the
following table. The effect of SAM's special allocation is not included in the
calculation of the break-even level, since all fees and expenses of the fund
will be offset before any profits are generated for purposes of the special
allocation.
<TABLE>
<CAPTION>
<S> <C>
Initial purchase (1) ..................................................................... $ 10,000
Less: Brokerage fee ..................................................................... 400
Transaction fees (2) .............................................................. 100
Offering expense reimbursement (3) ................................................ 100
Other expenses (4) ................................................................ 50
Redemption fee (5) ................................................................ 100
Plus interest income ..................................................................... (500)
Amount of trading income required for the net asset value per unit at the end
of one year to equal the initial selling price per unit ................................. $ 250
Percentage of assumed initial selling price per unit ..................................... 2.50%
</TABLE>
(1) Units may be purchased at a price of $1,000 per unit until the initial
closing occurs and the fund begins to trade. After that time, units may
be purchased at the net asset value per unit as of the close of
business on the last business day of a month. This illustration assumes
that an investor purchases one unit at the initial closing of this
offering.
(2) Estimated at 1% of net assets per year.
(3) The maximum offering expense reimbursement is 2.5% of the total
subscription amount.
(4) Other expenses are subject to a limit of 0.5% of net assets per year.
(5) The redemption fee used to calculate the break-even level is 1%.
Redemption fees during the first year may range from 1% to 4% and are
charged against redeeming investors and paid to the fund. After the
first 12 months, no redemption fee will apply.
11
<PAGE> 15
USE OF PROCEEDS
The entire offering proceeds, without deduction, will be credited to
the bank and brokerage accounts of the fund to engage in trading activities or
as reserves for trading. The fund expects to meet its margin requirements by
depositing US Treasury bills with the commodity broker. In this way, 90% or more
of the assets of the fund, whether used as margin for trading purposes or
reserves for trading, may be invested in US government securities and deposits
with US banks. Maintaining the assets of the fund in US government securities
and banks does not reduce the risk of loss from trading futures contracts. The
fund will receives all interest earned on its assets. No other person will
receive any interest or other economic benefits from the deposit of fund assets.
Approximately 10% to 40% of the assets of the fund will typically be
committed as margin for futures contracts and held by the commodity broker,
although the amount committed may vary significantly. These assets are
maintained in segregated accounts with the commodity broker in compliance with
the CEA and related rules and regulations. The remaining 60% to 90% of the
assets of the fund normally will be invested in US Treasury bills.
The assets of the fund will not be commingled, directly or indirectly,
with the property of any other person in violation of law or invested with or
loaned to SAM or any affiliated entities.
CAPITALIZATION
The fund was formed on August 29, 2000. The table below shows the
capitalization of the fund as of August 31, 2000 on an actual basis and as
adjusted for the sale of the 15,000 units being offered.
<TABLE>
<CAPTION>
TITLE OF CLASS ACTUAL AS ADJUSTED
-------------- ------ -----------
<S> <C> <C>
General partner interest............................. $ 1,000 $ 1,000
Units of limited partner interest.................... 1,000 15,000,000
Total partners' capital.............................. $ 2,000 $ 15,001,000
</TABLE>
This table assumes that the sale of all units of limited partner
interest is made at a net asset value of $1,000 per unit. The number of units
outstanding and the net asset value of the units will vary during the offering.
To organize the fund, SAM purchased a general partner interest for
$1,000, and the initial limited partner purchased one unit of limited partner
interest for $1,000. The fund will redeem the unit purchased by the initial
limited partner at the initial closing of this offering.
12
<PAGE> 16
SELECTED FINANCIAL DATA
Investors should read this selected financial data in conjunction with
the financial statements and related notes included elsewhere in this prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The information as of September 7, 2000 is derived from, and
qualified by reference to, the audited statement of financial condition of the
fund included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 7, 2000
<S> <C>
Total assets........................................... $2,000
Total partners' capital................................ $2,000
</TABLE>
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The fund was organized as a limited partnership under the laws of the
State of Delaware on August 29, 2000. To date, its only transactions have been
the preparation of this offering. Therefore, the financial statements of the
fund included in this prospectus are not indicative of future operating results.
These results will depend in large part on the commodity markets in general, the
performance of SAM and the amount and timing of unit redemptions. Because of the
nature of these factors and their interaction, it is difficult to predict the
future operating results, financial position and cash flow of the fund.
THIS FUND HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE
HISTORY. This prospectus does not contain any actual performance records or
performance information for the fund. For information regarding the performance
of directed accounts managed by SAM, see "Shaffer Asset Management, Inc. --
Performance Information Regarding Directed Accounts Managed by SAM."
CAPITAL RESOURCES
The fund will raise additional capital only through the sale of units
and does not intend to raise any capital through borrowing. Because of the
nature of the business of the fund, the fund will make no capital expenditures
and will have no capital assets that are not operating capital or assets.
LIQUIDITY
Most US commodity exchanges limit fluctuations in commodity futures
contract prices during a single day by regulations referred to as "daily price
fluctuation limits" or "daily limits." During a single trading day, no trades
may be executed at prices beyond the daily limit. Once the price of a futures
contract has reached the daily limit for that day, positions in that contract
may neither be taken nor liquidated. Commodity futures prices have occasionally
moved to the daily limit for several consecutive days with little or no trading.
Similar occurrences could prevent the fund from promptly liquidating unfavorable
positions and may subject the fund to substantial losses that could exceed the
margin initially committed to the trades. In addition, even if commodity futures
prices do not move to the daily limit, the fund may not be able to execute
futures trades at favorable prices, if little trading in the relevant contracts
is taking place. Other than these limitations on liquidity, which are inherent
in the commodity futures trading operations of the fund, SAM expects that the
assets of the fund will be highly liquid.
CREDIT RISK
In addition to market risk, futures contracts involve a credit risk
that a counterparty will not be able to meet its obligations under the contract.
The counterparty for futures contracts traded in the United States is the
clearinghouse associated with a commodity exchange. In general, the corporate
members of the clearinghouse share any financial burden resulting from
non-performance by one of their members. A consortium of banks or other
financial institutions typically backs clearinghouses that are not backed by the
clearing members.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. The
fund is a speculative commodity pool. The market sensitive instruments to be
held by the fund will be acquired for speculative trading purposes, and all or
substantially all of the assets of the fund will be subject to the risk of
trading loss. The risk of market-sensitive instruments is integral, not
incidental, to the main line of business of the fund.
14
<PAGE> 18
Market movements will result in frequent changes in the fair market
value of the open positions of the fund and, consequently, in its earnings and
cash flow. The market risk experienced by the fund will be influenced by a wide
variety of factors. These factors include the level and volatility of exchange
rates, interest rates, equity price levels, the market value of financial
instruments and contracts, the diversification effects among the open positions
of the fund and the liquidity of the markets in which it trades.
The fund will rapidly acquire and liquidate both long and short
positions in a wide range of different markets. Consequently, it is not possible
to predict how a particular future market scenario will affect performance, and
the past performance of SAM is not necessarily indicative of the future results
of the fund. In addition, because the fund has no operating history, it is not
possible to quantify the market risk that the fund has incurred in the past.
The following qualitative disclosures regarding the market risk
exposures to be experienced by the fund constitute 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. The primary market risk exposures of the
fund, as well as the strategies used and to be used by SAM to manage these
exposures, are subject to numerous uncertainties, contingencies and risks, any
of which could cause the actual results of risk controls to differ materially
from the objectives of the strategies. Illiquid markets, the emergence of
dominant fundamental factors, changes in historical price relationships, an
influx of new market participants, increased regulation and many other factors
could result in material losses and material changes to the risk exposures and
the risk management strategies of the fund. The market exposure and risk
management strategies of the fund may change materially, and these strategies
may be ineffective in either the short term or long term. Investors should be
prepared to lose all or substantially all of their investment in the fund.
The primary energy market exposure to the fund is gas and oil price
movements, often resulting from political developments in the Middle East. SAM
expects that crude oil, unleaded gas and gas oil will be the dominant energy
market exposures of the fund. Gas and oil prices can be volatile, and
substantial profits and losses have been and are expected to continue to be
experienced in this market.
The metals market exposure is to fluctuations in the price of gold,
silver and copper.
The primary agricultural exposure is to soft commodity and grains price
movements, which are often directly affected by severe or unexpected weather
conditions. SAM expects that corn and wheat will account for the substantial
bulk of the agricultural exposure of the fund.
The fund will experience non-trading market risk as a result of
investing a substantial portion of its available assets in US Treasury bills.
The fund will hold Treasury bills with a duration no longer than six months.
Material fluctuations in interest rates could cause immaterial mark-to-market
losses on these Treasury bills, although substantially all of these short-term
investments will be held to maturity. SAM believes that the market risk
represented by these investments is immaterial.
The means by which SAM will attempt to manage the risk of the open
positions of the fund is essentially the same in all market categories traded.
SAM applies risk management policies to its trading that generally limit the
total exposure that may be taken per "risk unit" of assets under management. In
addition, SAM will follow diversification guidelines, which are often formulated
in terms of the balanced volatility between markets and correlated groups, and
impose "stop-loss" points at which open positions are closed out. SAM will
attempt to control the risk of the non-trading instruments held by the fund,
which consist of US Treasury bills held for cash management purposes, by
limiting the duration of these instruments to no more than six months.
15
<PAGE> 19
BUSINESS
FUTURES CONTRACTS
Futures contracts are standardized agreements traded on commodity
exchanges that call for the future delivery of the commodity or financial
instrument at a specified date, time and place. A futures trader who enters into
a contract to take delivery of the underlying commodity is "long" the contract
or has "bought" the contract. A trader that is obligated to make delivery is
"short" the contract or has "sold" the contract. Actual delivery on the contract
rarely occurs. Futures traders usually offset or liquidate their contract
obligations by entering into equal but offsetting futures positions. For
example, a trader who is long one September 2000 Treasury bond contract on the
Chicago Board of Trade may offset the obligation by entering into a short
position in a September 2000 Treasury bond contract on that exchange. Futures
positions that have not yet been liquidated are known as "open" contracts or
positions.
Futures contracts are traded on a wide variety of commodities,
including agricultural products, metals, livestock products, government
securities, currencies and stock market indices. Options on futures contracts
are also traded on US commodity exchanges. Among the principal US commodity
exchanges are the Chicago Board of Trade, the Chicago Mercantile Exchange and
the New York Mercantile Exchange, Inc.
MARGIN
In order to establish and maintain a futures position, a trader makes a
good-faith deposit with its commodity broker, known as "margin," of
approximately 2% to 10% of contract value. Minimum margins are established for
each futures contract by the exchange on which the contract is traded. The
exchanges alter their margin requirements from time to time, sometimes
significantly. For their protection, commodity brokers may require higher
margins than the exchange minimums.
There are two types of margin. "Initial" margin is the amount a trader
is required to deposit with its broker to open a futures position. The other
type of margin is "maintenance" margin. If the contract value of a futures
position falls below a specified percentage, typically about 75%, of its value
when the trader established the position, the trader is required to deposit
additional margin in an amount equal to the loss in value.
VALUE OF DIVERSIFYING INTO MANAGED FUTURES
Modern portfolio theory suggests that a diverse portfolio with assets
that have little or no correlation with each other should have higher returns
and lower risk than a less diversified portfolio. The Nobel Prize for Economics
in 1990 was awarded to Dr. Harry Markowitz for demonstrating that total return
can increase, and/or risk can be reduced, when portfolios have positively
performing asset categories that are not correlated. Seemingly diverse
portfolios may actually be quite correlated. For instance, over time alternative
investment classes, such as real estate and international stocks and bonds, may
correlate closely with domestic equities as the global economy expands and
contracts.
Historically, managed futures investments have had very little
correlation to the stock and bond markets. SAM believes that the performance of
the fund should also exhibit a substantial degree of non-correlation with the
performance of traditional equity and debt portfolio components, in part because
of the ease of selling futures short. The ability to sell or buy a futures
position with similar ease means that profit and loss from futures trading,
unlike many debt and equity instruments, is not dependent upon economic
prosperity or stability. SAM attributes this non-correlation to its belief that
that some factors that affect equity and debt prices may affect the fund
differently and that some factors which affect the former may not affect the
latter. The net asset value per unit may decline or increase more or less than
equity and debt instruments during both strong and weak markets.
16
<PAGE> 20
However, non-correlation will not provide any diversification
advantages unless the non-correlated assets are outperforming other portfolio
assets, and there is no guarantee that the fund will outperform other sectors of
an investor's portfolio or not produce losses. Additionally, although adding
managed futures funds to a portfolio may provide diversification, managed
futures funds are not a hedging mechanism. There is no guarantee that managed
futures funds will appreciate during periods of inflation or stock and bond
market declines.
Non-correlated performance should not be confused with negatively
correlated performance. Negatively correlation means that the fund would be
profitable if general equity and debt markets are unprofitable, or vice versa.
Non-correlation means only that the performance of the fund will likely have no
relation to the performance of equity and debt instruments. SAM does not expect
that the performance of the fund will be negatively correlated to general debt
and equity markets.
POTENTIAL ADVANTAGES OF FUTURES FUND INVESTMENTS
The futures markets and funds investing in those markets offer many
structural advantages that make managed futures an efficient way to participate
in global markets. SAM believes that the following advantages may result from an
investment in the units:
- Profit potential. Futures contracts can easily be leveraged,
which magnifies their potential profit and loss.
- Interest credit. Unlike some "alternative investment" funds,
the fund will not borrow money to obtain leverage. As a
result, the fund will not incur any interest expense. Margin
deposits will be maintained in cash equivalents, such as US
Treasury bills.
- Ability to profit or lose in a rising or falling market
environment. The fund may establish short positions and
thereby profit from declining markets as easily as it may
establish long positions. This potential to make money whether
markets are rising or falling makes managed futures
particularly attractive to sophisticated investors. Of course,
if markets go higher while an investor has a short position,
the investor will lose money when the short position is
liquidated.
- Liquidity. In most cases the futures markets have excellent
liquidity. While there can be cases in which there may be no
buyer or seller for a particular market, SAM will select
markets for investment based upon, among other things,
perceived liquidity. Commodity exchanges impose limits on the
amount that a futures price can move in one day. Situations in
which markets have moved the limit for several days in a row
have not been common. In addition, investors may redeem all or
a portion of their units on a monthly basis, subject to a
redemption fee during the first year of ownership. See
"Distributions and Redemption."
- Limited liability. The liability of an investor is limited to
the amount of his or her investment in the fund. Investors
will not be required to contribute additional capital to the
fund.
- Professional trading experience. SAM's trading approach
emphasizes the following elements:
-- Disciplined money management. SAM will allocate
between 1% and 5% of portfolio equity to any single
market position. However, no guarantee is provided
that losses will be limited to these percentages.
17
<PAGE> 21
-- Balanced risk. SAM will allocate the assets of the
fund among more than 16 markets. Among the factors
that will be considered for determining the portfolio
mix are market volatility, liquidity and trending
characteristics.
-- Capital management. When proprietary risk/reward
indicators reach predetermined levels, SAM may
increase or decrease commitments in some markets in
an attempt to reduce performance volatility.
GOVERNMENT REGULATION
The US futures markets are regulated under the Commodity Exchange Act
by the Commodity Futures Trading Commission, which was established in 1974. The
CFTC is the federal agency charged with preventing price manipulation and
excessive speculation and promoting orderly and efficient commodity futures
markets. CFTC regulations require, among other things, that futures trading take
place on exchanges designated as contract markets and that all trading on
exchanges be done by or through exchange members. The CEA regulates futures
trading in all commodities traded on domestic exchanges.
The CFTC has exclusive jurisdiction to regulate the activities of
"commodity pool operators" and "commodity trading advisors." The CFTC licenses
and regulates commodity exchanges, commodity pool operators, commodity trading
advisors and commodity brokers, also known as futures commission merchants. The
CFTC has licensed SAM as a commodity pool operator and commodity trading
advisor. The National Futures Association, a self-regulatory organization for
the futures industry that supervises the dealings between futures professionals
and their customers, also regulates futures professionals. If SAM's CFTC
licenses or NFA membership were to lapse, be suspended or be revoked, SAM would
be unable to act as a commodity pool operator and commodity trading advisor.
The CFTC has adopted disclosure, reporting and record-keeping
requirements for commodity pool operators and disclosure and record-keeping
requirements for commodity trading advisors. The reporting rules require SAM to
furnish to investors a monthly statement of account, showing the income or loss
of the fund and changes in net asset value, and an annual financial report
audited by an independent certified public accountant.
The CFTC and the exchanges have pervasive powers over the futures
markets, including the emergency power to suspend trading and to limit trading
to liquidation of existing positions. The exercise of these powers could
adversely affect trading for the fund.
PROPERTIES
Because of the nature of the business of the fund, the fund will own or
lease no properties and will have no capital assets that are not operating
capital or assets.
LEGAL PROCEEDINGS
There have been no administrative, civil or criminal actions pending,
on appeal or concluded against the fund.
18
<PAGE> 22
SHAFFER ASSET MANAGEMENT, INC.
Shaffer Asset Management, Inc., a New York corporation organized on
March 16, 1998, serves as general partner of the fund and its commodity trading
advisor. The principal office of SAM is located at 70 West Red Oak Lane, White
Plains, New York, New York 10604, and its telephone number is (800) 352-5265.
SAM offers trading advice to customers with respect to futures contracts that
are traded on US exchanges and markets in energy, metals, agriculturals and
other markets. As of August 31, 2000, SAM managed over $2.6 million in the
futures markets. SAM has been registered as a commodity trading advisor with the
CFTC since October 1998. SAM has been a member of the NFA as a commodity trading
advisor since October 1998 and as a commodity pool operator since July 2000. SAM
has managed commodity accounts for others since March 1999.
Daniel S. Shaffer, age 39, is the president and sole principal of SAM.
Mr. Shaffer holds a bachelor's degree in speech communications from Syracuse
University and a master's degree in accounting from New York University. Mr.
Shaffer began his commodity futures career as a floor trader on the New York
Futures Exchange in January 1983. Mr. Shaffer obtained his certified public
accounting designation in May 1989 and is currently on inactive status in the
State of New York. He obtained the chartered life underwriter designation in
1991 and a chartered financial consultant designation in 1992. He is currently a
registered representative of an independent broker-dealer for securities. He
also holds agent and broker contracts with various insurance companies.
THE ADVISORY AGREEMENT
SAM has the sole authority and responsibility to direct the investment
and reinvestment of the assets of the fund. The advisory agreement between the
fund and SAM runs for successive one-year terms. It is unlikely that the
advisory agreement will be terminated other than upon dissolution of the fund.
The advisory agreement does not alter any fiduciary duties that otherwise be
imposed on SAM as general partner of the fund.
SAM'S SPECIAL ALLOCATION
The agreement of limited partnership specially allocates profit to SAM,
as general partner of the fund, in the amount of 20% per year of any aggregate
cumulative appreciation in the net asset value of the units, excluding the
effect of interest income and as adjusted for subscriptions and redemptions. For
these purposes, aggregate cumulative appreciation means the total increase in
net asset value per unit from the commencement of trading, minus the total
increase in unit value for all prior months, multiplied by the number of units
outstanding on a weighted average basis. The fund accrues SAM's special
allocation monthly. See "Charges to the Fund -- SAM's Special Allocation."
TRADING PROGRAM
SAM's trading program in commodity speculation stems from quantitative
scientific trading research methods created from an extensive knowledge of
mathematics, computer science, natural sciences and statistics. The program
enables SAM to use of a broad range of analytical techniques in the study of
price movements. All SAM trading deals with commodity futures contracts only.
SAM has not traded forward contracts or options contracts and does not intend to
do so in the future. No foreign futures markets are traded.
The SAM trading strategy begins with the extensive, rigorous and
quantitative study of a large database of historical prices of physical and
financial commodity futures. These historical data are applied to current market
situations. SAM develops trading strategies by analyzing the historical data
19
<PAGE> 23
using software based on statistical probability functions. SAM reviews for
feasibility each market opportunity identified by computer analysis. SAM's
systems monitor the US futures markets and each SAM position, and the profit or
loss of each trade is continually updated. The computer system reviews exit
points for optimal risk-reward parameters, so that SAM may make adjustments
appropriate to changing situations. Margin requirements, market volatility
analysis and money management rules are used to limit losses and preserve
capital.
SAM continues to emphasize the development of new ideas and
technological innovations. SAM may refine or change trading methods and
strategies, including technical and fundamental trading factors or analyses,
commodity interests traded and money management principles utilized, at any time
without prior notice to or approval by the fund. Investors will have no right to
vote or consent to the trading approaches used by SAM, which may not yield
profitable results.
Goal of trading. SAM has developed proprietary methods for analyzing
price movements over time. SAM's approach focuses on short-term and
intermediate-term moves. SAM may trade in any type of commodity interest offered
for trading on or in US exchanges or markets. Because the fund has not commenced
trading, it is not possible to estimate the percentage of the assets of the fund
that will be used to trade in different market sectors.
SAM considers its proprietary and customer accounts as aggregates of
diversified positions. SAM believes that exposure to a broad variety of markets
will enhance diversification within defined risk-reward parameters. SAM may in
its sole discretion narrow or otherwise modify its exposure to any market or
markets at any time. SAM may also at its sole discretion exit all markets and
hold no open positions from time to time.
Use of technical analysis. SAM uses technical analysis to examine price
movements, often in an attempt to identify pending trends. Technical analysis,
as conducted on SAM's proprietary analytical systems, may identify promising
situations and suggest optimal entry and exit points. Technical analysis is
based on the theory that the study of the commodities markets themselves
provides a means of anticipating the external factors that affect the supply and
demand of a particular commodity in order to predict future prices. Technical
analysis operates on the theory that market prices at any given point in time
reflect all known factors affecting supply and demand for a particular
commodity. Consequently, SAM believes that only a detailed analysis of, among
other things, actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest are of predictive value when determining
the future course of price movements. SAM's trading recommendations are
generally based on mathematical, computer-generated signals.
Emphasis on risk management. SAM believes that its approach toward risk
and money management is structured and disciplined. SAM looks for trading
opportunities that offer the potential for asymmetrically large profits relative
to the level of risk assumed. SAM's program employs stop-loss orders in both
losing and winning positions, based on technical factors and money management
guidelines. Margin utilization is closely monitored. In general,
margin-to-equity ratios have averaged between 20% and 25% in SAM's managed
accounts. In some market conditions, margin levels have reached 50% or more.
INVESTMENT BY SAM AND ITS PRINCIPAL
Neither SAM nor its sole principal intends to purchase units of limited
partner interest in this offering. SAM owns a general partner interest in the
fund and will be specially allocated profit if the net asset value of the units
increases. See "Charges to the Fund -- SAM's Special Allocation."
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<PAGE> 24
Mr. Shaffer is the initial limited partner of the fund. The fund will
automatically redeem the unit purchased by the initial limited partner for its
purchase price upon the initial closing of this offering.
PERFORMANCE INFORMATION REGARDING OTHER COMMODITY POOLS OPERATED BY SAM
NEITHER SAM NOR ANY OF ITS TRADING PRINCIPALS HAS PREVIOUSLY OPERATED
ANY OTHER COMMODITY POOL. CFTC regulations require that this prospectus include
performance information for each pool operated by SAM. As of the date of this
prospectus, SAM does not operate any other commodity pool.
PERFORMANCE INFORMATION REGARDING DIRECTED ACCOUNTS MANAGED BY SAM
SAM operates a managed account program pursuant to which it directs the
speculative purchase and sale of commodity interests for the accounts of
customers in accordance with the trading program described above. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The following
unaudited performance information relates to the managed account program.
<TABLE>
<S> <C>
Name of commodity trading advisor: Shaffer Asset Management, Inc.
Name of program: SAM (Diversified)
Acceptance date of first customer account: March 1999
Number of open accounts: 19
Aggregate assets (including "notional" equity) in program
as of August 31, 2000: $2,677,964
Number of accounts closed while profitable: 1
Number of accounts closed while unprofitable: 0
Largest monthly draw-down for any single account: 18.26% (October 1999)
Largest peak-to-valley draw-down for any single account: 18.26% (October 1999 to November 1999)
</TABLE>
This table sets forth the unaudited monthly rate of return of SAM's
managed account program between March 1999 and August 2000. The compounded
annual rate of return is calculated on the basis of ten months for 1999 and
eight months for 2000.
<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
January n/a 5.92
February n/a 3.54
March 10.31 (6.47)
April 12.77 4.45
May 0.85 3.21
June (0.19) 4.30
July 11.59 (2.64)
August (10.62) 8.64
September 22.50
October (10.90)
November 19.21
December (2.41)
Compounded annual rate of return 58.59% 21.99%
</TABLE>
LEGAL PROCEEDINGS
There have been no material administrative, civil or criminal actions
pending, on appeal or concluded against SAM or its principal during the past
five years.
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<PAGE> 25
PRINCIPAL PARTNERS
The following table sets forth information known to the fund with
respect to the beneficial ownership of general partner interests and units of
limited partner interest as of September 7, 2000, as adjusted to reflect the
sale of 15,000 units in this offering, by:
- each partner known to us to hold beneficially more than 5% of
the partner interests in the fund;
- each director of the general partner;
- the executive officers of the general partner; and
- all directors and executive officers as a group.
Beneficial ownership has been determined in accordance with the rules
of the Securities and Exchange Commission. Unless otherwise indicated, the
persons and entities included in the table have sole voting and investment power
with respect to all general partner interests and units of limited partner
interest beneficially owned. The agreement of limited partnership gives SAM full
control over the management of the fund and gives no management role to
investors. See "Summary of Agreement of Limited Partnership."
<TABLE>
<CAPTION>
PERCENTAGE OF
PARTNER INTEREST OWNED
BEFORE AFTER
NAME OF BENEFICIAL OWNER UNITS OWNED OFFERING OFFERING
<S> <C> <C> <C>
Shaffer Asset Management, Inc. (1)(2) -- 50% *
Daniel S. Shaffer (1)(3) 1 50% *
All directors and executive officers as a group (1 person) 1 50% *
</TABLE>
* Less than 1%.
(1) The address is 70 West Red Oak Lane, White Plains, New York 10604.
(2) SAM owns a general partner interest rather than units of limited
partner interest. SAM contributed $1,000 to the fund in exchange for
its interest. The percentage of partner interest owned does not take
into account SAM's special allocation of profit. See "Charges to the
Fund -- SAM's Special Allocation."
(3) Mr. Shaffer serves the initial limited partner of the fund for purposes
of its organization. In this capacity, Mr. Shaffer purchased one unit
of limited partner interest. This unit will be automatically redeemed
upon the initial closing of this offering. Mr. Shaffer is president and
the sole director of SAM and, in these capacities, may be deemed to
share voting and investment power with respect to the general partner
interest in the fund held by SAM. Mr. Shaffer disclaims beneficial
ownership of the general partner interest held by SAM.
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<PAGE> 26
CONFLICTS OF INTEREST
SAM
Conflicts exist between the interests of Shaffer Asset Management, Inc.
and its responsibilities to the fund. Conflicts are inherent in SAM's serving as
both general partner and commodity trading advisor to the fund. The conflicts
and the potential detriments to investors are described below.
SAM's selection of itself as commodity trading advisor is not
objective, since SAM is also the general partner of the fund. In addition, it
has a disincentive to replace itself as the commodity trading advisor. The
advisory agreement between the fund and SAM, including the fee arrangement, and
the terms of SAM's special allocation of profit by the fund were not negotiated
at arms length. SAM believes that its compensation terms are fair to the fund
and competitive with comparable arrangements in commodity pools involving
independent managers and advisors. SAM will review its compensation terms
annually to determine whether the terms continue to be competitive with other
commodity pools for similar services. SAM will lower the brokerage fee if it
concludes, in good faith, that the fee is too high. SAM will not receive
per-trade compensation directly or indirectly from the fund.
Neither SAM nor its principal devotes time exclusively to the fund. SAM
or its principal may manage commodity pools other than the fund and serve as
commodity trading advisor to other accounts. These other pools and accounts may
compete with the fund for SAM's services. Thus, SAM may have a conflict between
its responsibilities to the fund and to other pools and accounts. SAM believes
that it has sufficient resources to discharge its responsibilities in this
regard in a fair manner.
SAM may receive higher advisory fees from some other accounts than it
receives from the fund. SAM trades all accounts of the fund in a substantially
similar manner, given the differences in size and timing of the capital
additions and withdrawals. In addition, SAM may find that futures positions
established for the benefit of the fund, when aggregated with positions in other
commodity pools and accounts managed by SAM, approach the speculative position
limits in a particular commodity. SAM may address this situation by liquidating
the position of the fund in a futures contract.
SAM's principal may trade futures and related contracts and securities
for his own account. A conflict of interest exists if proprietary trades are in
the same markets and at the same time, using the commodity broker to be used by
the fund. There are written procedures that govern proprietary trading by
principals. Trading records for all proprietary trading are available for review
by investors upon reasonable notice.
When SAM executes an order in the market, the order is typically placed
on an aggregate basis for all accounts for which SAM trades. The order is
subsequently broken up and allocated among accounts. To the extent that
executions are grouped together and then allocated among accounts held at the
commodity broker, the fund may receive less favorable executions than other SAM
accounts. SAM's policy is to allocate trade executions objectively so that each
account has the same likelihood of receiving favorable or unfavorable executions
over time. A potential conflict may occur if SAM or its principal trades
proprietary accounts more aggressively or if SAM or its principal takes
positions in proprietary accounts that are opposite or ahead of the positions
taken by the fund.
THE COMMODITY BROKER
The commodity broker and the affiliates and personnel of the commodity
broker may trade futures contracts for their own accounts. This trading may
create conflicts of interest with the fund. The commodity broker also may serve
as a broker for other commodity pools, which could give rise to conflicts of
interest between its responsibility to the fund and to those commodity pools and
accounts.
23
<PAGE> 27
THE SELLING AGENTS
On a monthly basis commencing in the thirteenth full calendar month
after the initial closing of this offering, selling agents or their assignees
that are registered "futures commission merchants" or "introducing brokers" will
receive ongoing compensation, as part of the brokerage fee, of approximately
1/12 of 3% of the net asset value of the units then outstanding. Consequently,
in advising customers whether they should redeem their units or purchase
additional units, the selling agents will have a conflict of interest between
maximizing their ongoing compensation and giving their customer the financial
advice that is in the best interests of the customer.
FIDUCIARY DUTY AND REMEDIES
As general partner of the fund, SAM has a responsibility to investors,
as limited partners of the fund, to exercise good faith and fairness in all
dealings affecting the fund. The fiduciary responsibility of a general partner
to limited partners is a rapidly developing and changing area of the law, and
investors who have questions concerning the duties of SAM as general partner
should consult their own counsel. If an investor believes that SAM has violated
its fiduciary duty to the limited partners of the fund, the investor may seek
legal relief individually or on behalf of the fund under applicable laws,
including partnership and commodities laws, to recover damages from or require
an accounting by SAM. The law of the State of Delaware governs the agreement of
limited partnership, and Delaware law will generally govern any alleged breach
of SAM's fiduciary duty under the agreement of limited partnership. The
agreement of limited partnership does not limit SAM's fiduciary obligations
under Delaware or common law. However, SAM may assert as a defense to claims of
breach of fiduciary duty that the conflicts of interest and compensation payable
to SAM have been disclosed in this prospectus.
Investors may also have the right, subject to applicable procedural and
jurisdictional requirements, to bring partnership class actions in US federal
court to enforce their rights under the federal securities laws and relevant
rules and regulations. Investors who have suffered losses in connection with the
purchase or sale of units may be able to recover the losses from SAM if the
losses resulted from a violation by SAM of the federal securities laws. State
securities laws may also provide remedies, such as the ability to bring civil
liability lawsuits, to investors. The CEA affords investors rights to institute
reparation proceedings for violations by SAM of the CEA or any rule, regulation
or order of the CFTC.
INDEMNIFICATION AND STANDARD OF LIABILITY
SAM and its controlling persons may not be liable to the fund or
investors for errors in judgment or other acts or omissions that are not the
result of negligence or misconduct by SAM because of the exculpatory and
indemnification provisions contained in the agreement of limited partnership.
Investors may have more limited rights of action than they would absent these
provisions. See "Summary of Agreement of Limited Partnership --Exculpation and
Indemnification."
24
<PAGE> 28
THE COMMODITY BROKER
ADM Investor Services, Inc., a Delaware corporation, will be the
commodity broker or futures commission merchant for the fund. The principal
office of the commodity broker is located at 1600A Board of Trade Building, 141
West Jackson Boulevard, Chicago, Illinois 60604, and its telephone number is
(312) 435-7000. The commodity broker is a clearing member of all principal US
futures exchanges. It is registered with the CFTC as a futures commission
merchant and is a member of the NFA in this capacity.
The commodity broker will clear all futures trades made on behalf of
the fund. The commodity broker is not affiliated with the fund or SAM. The
commodity broker did not sponsor the fund and is not responsible for the
activities of SAM. It will act only as the commodity broker.
From time to time, SAM may engage another or an additional firm as
commodity broker or futures commission merchant for the fund. SAM has no current
intention to engage a firm other than ADM Investor Services, Inc.
LEGAL PROCEEDINGS
The commodity broker is a defendant in lawsuits incidental to its
commodities business. After consulting with outside counsel, the commodity
broker does not believe that the resolution of these matters will result in any
material adverse effect on the commodity broker.
On May 16, 1997, the CFTC filed Statutory Disqualification SD 97-5
against the commodity broker and simultaneously accepted an offer placing
restrictions on the futures contract merchant registration of the commodity
broker. This action was taken based on a 1996 conviction of the parent company
of the commodity broker, Archer Daniels Midland Company, for violations of the
Sherman Antitrust Act. On October 15, 1996, the parent company had pleaded
guilty to charges that it participated in a conspiracy to fix the prices of
lysine and citric acid. As part of its guilty plea, the parent company agreed to
pay fines totaling $100 million.
Pursuant to a settlement agreement with respect to SD 97-5, the CFTC
prohibited the commodity broker from employing any person who was directly or
indirectly involved in the conduct of the parent company in the alleged
conspiracy. In addition, for four years following the settlement, the commodity
broker may not employ any individual employed by the parent company, except for
the current president of the commodity broker. In addition, the commodity broker
is required to conduct a weekly review of all trading conducted by or on behalf
of the parent company for consistency with the CEA and CFTC regulations. The
commodity advisory has advised SAM that it was not cited by the CFTC for any
alleged or actual violations of the CEA or CFTC regulations in connection with
SD 97-5. The commodity broker has further advised SAM that the action taken
against the commodity broker was based entirely on the fact that the parent
company owned the commodity broker. To date there have been no material actions
taken against the commodity broker related to its conduct under the CEA and CFTC
regulations. Additionally, the fund has been advised that the filing of SD 97-5
by the CFTC has not had and is not expected in the future to have a material
impact on the activities of the commodity broker.
25
<PAGE> 29
DISTRIBUTIONS AND REDEMPTION
DISTRIBUTIONS
SAM is not required to make any distributions to investors. While SAM
has the sole authority to make distributions to investors, it does not intend to
do so in the foreseeable future. SAM believes that distributions of fund assets
to investors serve no useful purpose, since investors may redeem any or all of
their units on a monthly basis. Because of the potential volatility of futures
markets, especially in the short term, the fund is recommended only for those
investors who seek a medium-term to long-term investment. Investors should plan
to invest for three to five years.
If the fund realizes profits during any year, these profits will
constitute taxable income to investors based on the number of units held,
whether or not cash or other property has been distributed to investors.
Distributions, if made, may be inadequate to cover taxes payable by investors.
REDEMPTION
An investor may request that the fund redeem any or all of his or her
units at the net asset value of a unit as of the last business day of a month,
subject to the applicable redemption fee. An investor must transmit a written
request of redemption to SAM not less than 10 days prior to the last business
day of the month in which redemption is requested. If the redemption request is
received less than 10 days before the last business day of the month, then the
redemption will be effected on the last business day of the following month. The
fund will redeem particular units of an investor on a first-in, first-out basis.
The fund will not redeem units that are subject to a pledge or otherwise
encumbered in any fashion. A request for redemption must specify the number of
units for which redemption is sought. The form of the request for redemption is
included as an exhibit to this prospectus.
Redemption payments will generally be made within 20 days following the
date of redemption. SAM may delay payment in its sole discretion with respect to
all or a portion of the redemptions effected as of the last business day of a
month. SAM expects to delay payments if, for example, the fund is unable to
liquidate its commodity positions or if payments due the fund from commodity
brokers, banks or other persons or entities have been delayed. If SAM delays
redemption payments for any reason, SAM will cause payments to resume as soon as
practicable and will make redemption payments in the order in which the requests
for redemption were received. SAM will notify any investor or assignee who
requests redemption within 10 days after the date of redemption if payment will
be delayed. While the fund may encounter difficulty in liquidating futures
contracts if a request for redemption is made, under normal market conditions
SAM does not expect to experience difficulty in liquidating futures contracts.
REDEMPTION FEES
Redemption fees are payable to the fund by redeeming investors through
the first 12 month-ends following purchase as follows:
- 4% of net asset value per unit redeemed through the third month-end;
- 3% of net asset value per unit redeemed through the sixth month-end;
- 2% of net asset value per unit redeemed through the ninth month-end;
and
- 1% of net asset value per unit redeemed through the twelfth month-end.
Following the twelfth month-end following purchase of a unit, no redemption fee
will apply. Because the purchase date counts as of the first month-end in
determining whether a redemption fee applies, no redemption fee would be due in
respect of a unit redeemed on the first anniversary of its purchase.
26
<PAGE> 30
SUMMARY OF AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the agreement of limited partnership, a
copy of which is included as an exhibit to this prospectus and incorporated by
reference. Investors will become limited partners of the fund and will agree to
the terms of the agreement of limited partnership. Investors should read the
agreement of limited partnership in its entirety prior to investing in the
units.
ORGANIZATION AND LIMITED LIABILITY
The fund is organized as a limited partnership under the Delaware
Revised Uniform Limited Partnership Act. In general, a liability of a limited
partner under the Delaware statute is limited to the amount of his or her
capital contribution in the fund and his or her share of any undistributed
profits.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The agreement of limited partnership gives SAM full control over the
management of the fund and gives no management role to investors. To facilitate
administration of the fund, investors will execute a power of attorney, the form
of which is included in an exhibit to this prospectus.
SAM'S SPECIAL ALLOCATION
The agreement of limited partnership specially allocates profit to SAM,
as general partner of the fund, in the amount of 20% per year of any aggregate
cumulative appreciation in the net asset value of the units, excluding the
effect of interest income and as adjusted for subscriptions and redemptions. For
these purposes, aggregate cumulative appreciation means the total increase in
net asset value per unit from the commencement of trading, minus the total
increase in unit value for all prior months, multiplied by the number of units
outstanding on a weighted average basis. The fund accrues SAM's special
allocation monthly. See"Charges to the Fund -- SAM's Special Allocation."
SHARING OF PROFITS AND LOSSES
Each investor has a capital account. Initially, the balance in the
capital account of an investor will equal the amount of his or her initial
contribution to the fund paid in exchange for units. This balance is then
proportionately adjusted monthly to reflect his or her portion of the gains or
losses of the fund for the month.
At year-end, the fund will determine the total taxable income
or loss for the year. Subject to the special allocation of net capital gain or
loss to redeeming investors, the taxable gain or loss will be allocated to each
investor in proportion to his or her capital account. Each investor will be
responsible for his or her share of the tax liability.
Net capital gain and loss will be allocated as of each December 31 in
the following order and priority:
- first, to partners who have redeemed or withdrawn all of their
units or general partner interest during the taxable year, to
the extent of the excess of the amount received upon
redemption over the basis attributable to the redeemed units
or general partner interest;
- second, to partners who have not completely redeemed or
withdrawn but who have redeemed units or withdrawn capital
during the taxable year, to the extent of the excess of the
amount received upon withdrawal over the basis attributable to
the redeemed units or general partner interest;
27
<PAGE> 31
- third, among the partners whose capital accounts exceed their
respective basis to the extent of the excess; and
- finally, pro rata among all partners based on their respective
capital accounts, provided that no capital account will be
reduced below zero.
NET ASSET VALUE
The net asset value of a unit is the sum of all capital accounts of all
investors, divided by the number of units outstanding. The net asset value of
the units will vary from time to time, based on the value of the net assets of
the fund. The net asset of the fund on any date means the total assets of the
fund, including all cash, US Treasury bills valued at cost plus accrued
interest, and the market value of all open commodity positions and other assets
of the fund, less all liabilities of the fund and any net amount accrued on
account of SAM's special allocation. Net assets will be determined in accordance
with the principles set forth in the agreement of limited partnership. If no
principle is specified in the agreement of limited partnership, net asset value
will be calculated in accordance with generally accepted accounting principles
under the accrual basis of accounting.
DISSOLUTION AND TERMINATION OF THE FUND
The fund will terminate and be dissolved upon the earliest of:
- the expiration of the stated term of the fund on December 31,
2025;
- a vote by investors owning more than 50% of the outstanding
units to dissolve the fund;
- the withdrawal of the general partner, including without
limitation as a result of its insolvency or dissolution;
- a determination by SAM that the purpose of the fund cannot be
fulfilled; and
- any event that causes the dissolution of a limited partnership
by operation of law or otherwise makes it unlawful for the
existence of the fund to be continued.
Dissolution of the fund, payments made to creditors and liquidating
distributions of fund assets will be effected in accordance with the Delaware
limited partnership statute. SAM, each investor and any assignee of units will
share in the assets of the fund pro rata in the ratio that the capital account
of the investor or assignee bears to the total of all capital accounts, less any
amount owing by the investor or assignee to the fund.
AMENDMENTS AND MEETINGS
SAM may amend the agreement of limited partnership if the investors
owning more than 50% of the outstanding units concur. SAM may make minor changes
to the agreement of limited partnership without the approval of investors. These
minor changes may clarify inaccuracies or ambiguities, make modifications in
response to changes in the tax code or regulations or effect other minor changes
that SAM deems advisable.
However, without the consent of all investors, no amendment will:
- change or alter the provisions governing amendments and
modifications of the agreement of limited partnership;
- extend the term of the fund;
- reduce the capital account of any investor;
28
<PAGE> 32
- modify the limitations on assignment of the units;
- modify the percentage of profits, losses or distributions to
which any investor is entitled.
In addition, a reduction of the capital account of any assignee of units or a
modification of the percentage of profits, losses or distributions to which an
assignee of units is entitled may not be effected by amendment to the agreement
of limited partnership without the consent of the assignee.
Investors owning at least 10% of the outstanding units may call a
meeting of the fund. At that meeting, investors owning a majority of the
outstanding units may:
- amend the agreement of limited partnership without the consent
of SAM;
- dissolve the fund;
- remove and replace SAM as general partner;
- elect a new general partner if SAM withdraws as general
partner of the fund
- terminate contracts with SAM or its affiliates on 60-days
prior written notice; and
- approve the sale of all of the assets of the fund.
REPORTS TO INVESTORS
SAM will maintain books and records relating to the business of the
fund at the principal office of the fund. Investors will have access to and the
right to copy the books and records of the fund. An investor may obtain a list
of all limited partners, together with the number of units owned by each limited
partner.
The fund books will be audited annually by an independent certified
public accountant. The fund will use its best efforts to cause each investor to
receive within 90 days after the close of each calendar year audited financial
statements for the year then ended and tax information necessary for the
preparation of federal income tax returns by investors.
SAM will provide to investors a monthly statement of account that
includes:
- the value of the units of the investor as of the end of the
month and as of the end of the previous month;
- the aggregate brokerage fees and administrative expenses
incurred or accrued by the fund during the month;
- the aggregate realized and unrealized profit or loss for the
month;
- any change in the identity of the principals of SAM; and
- other information as the CFTC may require.
29
<PAGE> 33
In addition, if the net asset value per unit as of the end of any
business day declines by 50% or more from either the prior year-end or the prior
month-end unit value, SAM will notify all investors of the relevant facts within
seven business days and declare a special redemption period.
DISPOSITIONS
Each investor may transfer or assign his or her units upon 30-days
prior written notice to the fund and subject to SAM's consent. SAM intends to
consent if it believes that the transfer complies with applicable laws and will
not result in the termination of the fund for federal income tax purposes. An
assignee of units not admitted to the fund as a limited partner will have only a
limited right to share the profits and capital of the fund and a limited
redemption right.
Any assignee of units must expressly agree that he or she is purchasing
the units for investment and not with a view to the assignment, transfer or
disposition of any portion of the units. In addition, an assignee of units must
agree not to assign, transfer or otherwise dispose of, by gift or otherwise, any
of the units or all or any part of his or her right, title and interest in the
capital or profits of the fund without the prior written consent of SAM. SAM in
its absolute discretion may withhold this consent.
EXCULPATION AND INDEMNIFICATION
Exculpation. Neither SAM nor its controlling persons will be liable to
the fund or any investors for any loss suffered by the fund that arises out of
SAM's actions if SAM determined, in good faith, that the course of conduct was
in the best interests of the fund, if SAM was acting on behalf of or performing
services for the fund and if the liability or loss was not the result of
negligence or misconduct by SAM.
Indemnification of SAM. The fund will indemnify, defend and hold
harmless SAM, its controlling persons and a general partner that has withdrawn
from the fund from and against any loss, liability, damage, cost or expense,
including legal fees and expenses incurred in defense of any demands, claims or
lawsuits, arising from actions or omissions concerning business or activities
undertaken by or on behalf of the fund, if SAM determined, in good faith, that
the course of conduct that caused the loss or liability was in the best
interests of the fund, if the person seeking indemnification was acting on
behalf or performing services for the fund and if the liability or loss was not
the result of negligence or misconduct by the person seeking indemnification.
Notwithstanding the above, no person will be indemnified by the fund
for claims arising out of alleged violations of federal or state securities laws
unless:
- there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the
particular indemnitee;
- the claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular
indemnitee; or
- 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.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of some of the federal income tax
consequences to investors based upon the Internal Revenue Code and the rules,
regulations and existing interpretations relating thereto, any of which could be
changed at any time. A complete discussion of all federal, state and local tax
aspects of an investment in the fund is beyond the scope of this prospectus, and
investors should consult their own tax advisors on these matters. This summary
is not intended as a substitute for careful tax planning, particularly since the
income tax consequences of an investment in the fund may not be the same for all
taxpayers. INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS BEFORE DECIDING
WHETHER TO INVEST.
PARTNERSHIP TAX STATUS
SAM has been advised that for federal income tax purposes, assuming
that the fund operates in the manner described in this prospectus, the fund will
be treated as a partnership and not as an association taxable as a corporation
or a publicly traded partnership in any taxable year as long as 90% or more of
the gross income of the fund in that year consists of "qualifying income" as
defined in section 7704 of the tax code. This belief is based on the agreement
of limited partnership and the application of the federal income tax law and
regulations as interpreted by the Internal Revenue Service, as in effect on the
date of the advice. The fund has not obtained a ruling from the IRS confirming
this tax treatment, and SAM does not intend to request a ruling. The following
discussion assumes that the fund will be treated as a partnership for federal
income tax purposes.
TAXATION OF INVESTORS ON PROFITS OR LOSSES OF FUND
The fund, as an entity, is not subject to federal income tax. With the
exception of investors who generally are not subject to US income taxation, each
investor is required for federal income tax purposes to include, in his or her
taxable year with which or within which a taxable year of the fund ends, his or
her distributive share of all items of fund income, gain (including unrealized
gain from specified futures contracts), loss or deduction for the taxable year
of the fund. An investor must include these items even if the fund does not make
any distributions to the investor during his or her taxable year. The
distributive share of the investor in these items generally is determined by the
allocations made pursuant to the agreement of limited partnership, unless the
items allocated do not have "substantial economic effect" or are not in
accordance with the relative unit ownership of the investors in the fund. If the
allocation of any item is determined not to have substantial economic effect and
not to be in accordance with the relative unit ownership of the investors in the
fund, the allocation will not be recognized for federal income tax purposes and
the distributive share of the item with respect to each investor will be
determined on the basis of his or her interest in the fund, taking into account
all relevant facts and circumstances. Under some circumstances, this result
could create adverse tax consequences. For a discussion of considerations
relating to investors who generally are not subject to US income taxation, see "
-- Foreign Investors" below.
LIMITATIONS ON DEDUCTIBILITY OF FUND LOSSES BY INVESTORS
The amount of any loss of the fund, including capital loss, that an
investor may deduct is limited to his or her tax basis in the units as of the
end of the fund taxable year in which the loss occurred. Generally, the adjusted
tax basis of an investor in his or her units is the amount paid for the units
reduced (but not below zero) by his or her share of any fund distributions,
losses and expenses and increased by his or her share of fund income, including
gains. Because of the limitations imposed upon the deductibility of capital
losses, the distributive share of an investor in any net capital losses of the
fund will not materially reduce the federal income tax on ordinary income
allocated to him or her by the fund. In fact, it is possible for investors to
have a financial loss but taxable income from their investment in the fund. See
" -- Capital Gains and Losses" below.
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TREATMENT OF INCOME AND LOSS UNDER PASSIVE ACTIVITY LOSS RULES
The tax code contains rules designed to prevent the deduction of losses
from "passive activities" against income not derived from these activities,
including income from investment activities not constituting a trade or
business, such as interest and dividends and salary. Under temporary regulations
relating to these rules, the trading activities of the fund will not constitute
a passive activity. As a result, income derived from trading activities will
constitute portfolio income or other income not from a passive activity. Losses
resulting from the other passive activities of an investor may not be offset
against this income. Net losses from fund operations will be deductible in
computing the taxable income of an investor, subject to other limitations on the
deductibility of these losses.
LIMITED DEDUCTION FOR SOME EXPENSES
The tax code provides that expenses of producing income, including
investment advisory fees, are aggregated with unreimbursed employee business
expenses and other expenses. The aggregate amount of these expenses is
deductible only to the extent that the amount exceeds 2% of the adjusted gross
income of a taxpayer who is not a corporation. In addition, the amount of these
expenses that exceeds the 2% threshold, when combined with other specified
itemized deductions, is subject to a reduction generally equal to 3% of the
adjusted gross income of the taxpayer in excess of a threshold amount. Moreover,
these expenses are not deductible by a taxpayer who is not a corporation in
calculating alternative minimum tax liability.
The IRS could contend that the brokerage fees and other compensation
payable to SAM and third parties constitute "investment advisory fees." If this
contention were sustained, the pro rata share of the amounts so characterized
would be deductible by a taxpayer who is not a corporation only to the extent
that the aggregate expenses described in the preceding paragraph exceed 2% of
the adjusted gross income of the taxpayer and, when combined with other
specified itemized deductions, exceed the 3% reduction. In addition, a portion
of the brokerage fees may be treated as non-deductible syndication costs and may
reduce the capital gain or increase the capital loss of the fund. If the
brokerage fees are treated as a syndication cost, the tax liability of an
investor would likely increase.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE POTENTIAL CHARACTERIZATION OF INVESTMENT ADVISORY FEES. THIS ISSUE IS A
MATTER OF UNCERTAINTY AND MAY HAVE A MATERIAL IMPACT ON THE TOTAL TAX PAYABLE AS
A RESULT OF AN INVESTMENT IN THE FUND.
DISTRIBUTIONS ON AND REDEMPTION OF UNITS
Cash received from the fund by an investor as a distribution with
respect to his or her units or in redemption of less than all of his or her
units generally is not reportable as taxable income by an investor. Rather, the
distribution reduces (but not below zero) the total tax basis of the units held
by the investor after the distribution or redemption. Although SAM does not
intend to make any cash distributions to investors, any cash distribution in
excess of the adjusted tax basis of an investor in his or her units will be
taxable to him or her as gain from the sale or exchange of the units.
Complete redemption of units for cash will result in the recognition of
gain or loss for federal income tax purposes. The gain or loss will be equal to
the difference, if any, between the amount of the redemption proceeds and the
adjusted tax basis of the investor in the units. This adjusted tax basis
includes the distributive share of the investor in the income or loss of the
fund for the year in which the redemption occurs.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
The tax code distinguishes between "section 1256 contracts" and other
interests in property. Section 1256 contracts include commodity futures
contracts traded on US exchanges that provide for a system of
"marking-to-market." Under the mark-to-market system of taxation of section 1256
contracts:
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- gain or loss on a section 1256 contract is deemed to consist
of 60% long-term capital gain or loss and 40% short-term
capital gain or loss, regardless of the period for which the
section 1256 contract is held and regardless of whether the
section 1256 contract is a long or a short position; and
- any unrealized profit or loss on positions in a section 1256
contract which is open as of the end of the fiscal year of a
taxpayer is treated as if the profit or loss had been realized
for tax purposes as of the end of the year, regardless of the
fact that the position remains open.
All US exchange-traded futures contracts traded by the fund will be section 1256
contracts or otherwise taxed on a mark-to-market basis.
CAPITAL GAINS AND LOSSES
Long-term capital gain consists of net gain on capital assets held more
than one year and 60% of the gain on section 1256 contracts. Long-term capital
gains are taxed at a maximum rate of 20%. Short-term capital gains consists of
net gain on capital assets held for not more than one year and 40% of the gain
on section 1256 contracts. Short-term capital gains are subject to tax at the
same rates as ordinary income. The maximum rate is currently 39.6% for
individuals.
Taxpayers who are individuals may deduct capital losses only to the
extent of their capital gains plus $3,000. Taxpayers may carry forward capital
losses that cannot be deducted in the current taxable year. Accordingly, even if
the fund suffers significant losses, an investor may be required to pay taxes on
his or her share of the ordinary income of the fund.
If an individual taxpayer incurs a net capital loss for a year, any
portion of the loss that consists of a net loss on section 1256 contracts may,
at the election of the taxpayer, be carried back against the preceding three
years. Losses so carried back may be deducted against net capital gain for a
year only to the extent that the gain includes gains on section 1256 contracts
included in the income of the taxpayer for the year. Losses so carried back will
be deemed to consist of 60% long-term capital loss and 40% short-term capital
loss. To the extent that the losses are not used to offset gains on section 1256
contracts in a carryback year, the losses will carry forward.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS
Interest paid or accrued on indebtedness properly allocable to property
held for investment is "investment interest." Interest expense incurred by an
investor to purchase or carry units and other investments and interest expense,
if any, incurred by the fund to conduct trading will also constitute investment
interest. Investment interest is generally deductible by taxpayers who are not
corporations only to the extent that it does not exceed "net investment income."
Generally, net investment income equals (1) gross income from interest,
dividends, rents and royalties, which would include the share of an investor in
the interest income of the fund, plus (2) gains from the disposition of
investment property minus (3) the expenses directly connected with the
production of investment income. The net capital gain from the disposition of
investment property of an investor who is not a corporation will be included in
clause (2) only to the extent that the investor elects to make a corresponding
reduction in the amount of capital gain that is subject to tax at the lower
capital gains rates. Any investment interest expense disallowed as a deduction
in a taxable year solely by reason of the above limitation will be treated as
investment interest paid or accrued in the succeeding taxable year.
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FOREIGN INVESTORS
An investor who is a nonresident alien individual, foreign corporation,
foreign partnership, foreign trust or foreign estate generally is not subject to
US federal income taxation on capital gains from commodity trading for a taxable
year, so long as:
- if an individual, the foreign investor does not spend more
than 182 days in the United States during his or her taxable
year; and
- the foreign investor is not engaged in a trade or business
within the United States during a taxable year in which
income, gain, loss or deduction of the fund is treated as
effectively connected.
An investment in the fund should not, by itself, cause a foreign investor to be
engaged in a trade or business within the United States for these purposes, so
long as:
- the fund trades commodities for its own account;
- the fund is not a dealer in commodities; and
- the commodities traded are of a kind customarily traded on an
organized commodity exchange and the transactions are of a
kind customarily consummated at such a place.
SAM intends to conduct the activities of the fund in a manner that meets these
requirements. If the fund engages in activities within the United States other
than investing in commodities, the fund may be treated as engaged in a trade or
business within the United States. If the fund were found to be engaged in a US
trade or business, a foreign investor would be required to file a US federal
income tax return for the year and pay tax at full US rates. In addition, if the
foreign investor is a foreign corporation, an additional 30% branch profits tax
may be imposed. The fund would also be required to withhold taxes from the
income or gain allocable to foreign investors under section 1446 of the tax
code. Since particular foreign investors may be affected in different ways by
state and local taxes, each foreign investor should consult with his or her
personal tax advisors regarding the state and local tax consequences of an
investment in the fund.
A foreign investor is not subject to US tax on some types of interest
income, including income attributable to (1) original issue discount on US
Treasury bills having a maturity of 183 days or less or (2) commercial bank
deposits, in each case so long as the foreign investor is not engaged in a trade
or business within the United States during a taxable year. Additionally, a
foreign investor who is not engaged in a trade or business within the United
States is not subject to US tax on interest income, other than contingent
interest attributable to obligations issued after July 18, 1984 that are in
registered form, if the foreign investor provides the fund with a Form W-8 or
its equivalent.
TAX-EXEMPT INVESTORS
SAM has been advised that income earned by the fund on its general
futures trading should not constitute "unrelated business taxable income" under
section 511 of the tax code to tax-exempt entities, so long as the units
purchased by these entities are not "debt financed" within the meaning of
section 514 of the tax code. NEVERTHELESS, THE PERSON WITH INVESTMENT DISCRETION
ON BEHALF OF A TAX-EXEMPT INVESTOR SHOULD CONSULT HIS OR HER ATTORNEY WITH
REGARD TO WHETHER INCOME EARNED BY THE FUND COULD CONSTITUTE UNRELATED BUSINESS
TAXABLE INCOME.
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FUND AUDITS
The tax treatment of fund-related items is determined at the fund level
rather than at the investor level. SAM has been appointed as "tax matters
partner" with the authority to determine the response of the fund to an audit,
except that SAM does not have the authority to settle tax controversies on
behalf of any investor who files a statement with the IRS stating that SAM has
no authority to settle fund tax controversies on his or her behalf. The statute
of limitations for the assessment of deficiencies and claims for refunds with
respect to items related to the fund generally runs three years after the fund
return for the taxable year in question is filed. SAM may extend this period
with respect to all investors. If an audit results in an adjustment, all
investors may be required to pay additional taxes, interest and possibly
penalties, and the tax returns of investors may also be audited. Adjustments to
these returns may be made as a result of an audit.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the
fund and the investors may be subject to various state, local and municipal
taxes. If applicable, these taxes may have a significant effect on the amount of
tax payable in respect of an investment in the fund. The distributive share of
the profits of the fund attributable to an investor may be required to be
included in determining reportable income for state or local tax purposes, and
state and local taxation of gains and losses from section 1256 contracts may be
different than the treatment of these gains and losses for federal income tax
purposes.
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INVESTMENT BY ERISA ACCOUNTS
This section describes consequences under the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code. A fiduciary of an
"employee benefit plan" as defined in and subject to ERISA or of a "plan" as
defined in section 4975 of the Internal Revenue Code who has investment
discretion should consider this discussion before deciding to invest the assets
of the plan in the fund. The statements in this section are based on the
provisions of ERISA and the Internal Revenue Code as currently in effect and the
administrative and judicial interpretations existing on the date of this
prospectus. Administrative, judicial or legislative changes may occur that make
these statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY SAM OR ANY OTHER PARTY THAT AN INVESTMENT IN THE FUND MEETS
THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR
PLAN OR THAT THE INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON
WITH INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISORS AS TO THE PROPRIETY OF ANY INVESTMENT IN THE FUND IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN.
SPECIAL INVESTMENT CONSIDERATION
A plan fiduciary should 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 overall investment
portfolio of the plan. Before deciding to invest in the fund, a plan fiduciary
should be satisfied that the investment is prudent for the plan, that the
investments of the plan, including the investment 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.
ERISA plan assets. A regulation issued under ERISA contains rules for
determining when an investment by a plan in a limited partnership will cause the
underlying assets of the limited partnership to be treated as assets of the
plan. The plan assets regulation provides that assets of a limited partnership
will be plan assets of a plan that purchases an interest in the limited
partnership unless specified exceptions apply. This result is called the
"look-through" rule.
One exception to the look-through rule will apply if a plan invests in
a "publicly offered security" of the limited partnership. Under the plan assets
regulation, a "publicly offered security" is a security that is freely
transferable, part of a class of securities that is widely held and part of a
class of securities that is registered under the Securities Exchange Act of 1934
or sold pursuant to an effective registration statement under the Securities Act
of 1933 and then registered under the Securities Exchange Act of 1934. A class
of securities is freely transferable even if there is a prohibition against a
transfer or assignment to an ineligible investor, or a prohibition against any
transfer or assignment that would result in a reclassification of the limited
partnership for tax purposes, and notwithstanding the fact that a reasonable
transfer or administrative fee must be paid in connection with the transfer or
assignment. A class of securities is widely held if it is owned by 100 or more
investors who are independent of the issuer and of each other, and the number of
independent investors may fall below 100 after an initial offering as a result
of events beyond the control of the issuer.
Another exception to the look-through rule will apply if investment in
the limited partnership by "benefit plan investors" is not "significant." The
term "benefit plan investors" includes all employee benefit plans as defined in
ERISA, all plans as defined in section 4975 of the Internal Revenue Code and all
entities that hold plan assets due to investments made by other benefit plan
investors. An investment by benefit plan investors will not be deemed
significant if the benefit plan investors own, in the aggregate, less than 25%
of the total capital of each class of equity interest of the limited
partnership, determined by excluding the investments of persons with
discretionary authority or control over the assets of the limited
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partnership, any person who provides investment advice for a fee with respect to
limited partnership assets and "affiliates" of these persons within the meaning
of the plan assets regulation.
If the fund does not qualify as a result of the look-through rule for
the publicly offered security exemption, SAM intends to limit aggregate
investment by benefit plan investors to less than 25% of the total capital of
each class of equity interest of the fund that are not owned by affiliates. This
limitation may restrict additional investments by benefit plan investors and
cause SAM to require that some investors withdraw from the fund in the event
that other investors withdraw. If the rejection of subscriptions or mandatory
withdrawals are necessary, in SAM's view, to avoid causing the assets of the
fund to be deemed plan assets, SAM will effect the rejections or withdrawals in
the manner determined by SAM in its sole discretion.
Ineligible purchasers. In general, units may not be purchased with plan
assets if SAM, the commodity broker, any cash manager, any selling agent or any
of their respective affiliates:
- has investment discretion with respect to the investment of
the plan assets;
- 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 the advice
will serve as a primary basis for investment decisions with
respect to the plan assets and that the advice will be based
on the particular investment needs of the plan; or
- is an employer maintaining or contributing to the plan.
A person described in the first two clauses is a fiduciary under ERISA with
respect to the plan, and any purchase of units by an ERISA fiduciary, may result
in a "prohibited transaction" under ERISA or the Internal Revenue Code.
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PLAN OF DISTRIBUTION
THE OFFERING
The fund will offer the units to qualified investors at the net asset
value per unit as of each closing date on which subscriptions are accepted. SAM
may terminate the offering at any time.
The initial offering period will begin on the date of this prospectus
and end on the earlier of , 2000 and the date on which acceptable subscriptions
for at least 1,000 units are received. An initial closing will be held as soon
as practicable. If 1,000 units are not sold by , 20 , the offering will
terminate and all subscription amounts will be returned to investors without
interest.
Units will be sold for $1,000 each during the initial offering period.
SAM arbitrarily determined the offering price. The initial price is not based on
past or expected earnings. Neither the fund nor SAM represents that the units
have or will have a market value equal to the initial price or that they may be
resold or liquidated at that price. After the initial closing and the
acquisition by the fund of a portfolio of futures positions, the monthly
purchase price for units will equal the net asset value per unit as of the close
of business on the last business day of each month.
Investors must submit subscriptions at least five business days prior
to the applicable closing date. Subscription will be considered once payment has
cleared in the escrow account maintained for the fund at The Chase Manhattan
Bank, . SAM will accept or reject subscriptions within five
business days of receipt. Subscriptions are irrevocable by the investor once
payment is deposited in escrow.
Investors whose subscriptions are accepted will be issued fractional
units, calculated to three decimal places, in an amount equal to the interest
earned on their subscription amounts. Amounts for subscriptions that are not
accepted will be promptly refunded with interest. No charges will be assessed on
any subscription amount while held in escrow, whether the subscription is
accepted or rejected. The escrow agent will invest the subscription funds in
short-term US Treasury bills or comparable instruments.
The units will be offered on a "best efforts" basis without any firm
underwriting commitment through selling agents, each of which will be a
registered broker-dealer and member of the National Association of Securities
Dealers, Inc. Subscriptions from customers of a selling agent may also be made
by authorizing the selling agent to debit the customer securities account of the
subscribing customer with the selling agent. Promptly after debiting a customer
securities account, the selling agent will send the subscription amount to the
escrow agent.
HOW TO INVEST
To invest, an investor who meets the suitability standards discussed
below should complete, sign and deliver to the selling agent a copy of the
subscription agreement and power of attorney, the form of which is included as
an exhibit to this prospectus. In addition, the investor should send to the
escrow agent a check payable to "Shaffer Diversified Fund, LP Escrow Account"
for the full purchase price for the units or arrange for payment through the
selling agent.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF INVESTORS
The subscription agreement and power of attorney contains various
representations, warranties, agreements and acknowledgments. Investors should
carefully read the subscription agreement and power of attorney before signing
it. By executing and delivering the subscription agreement and power of
attorney, an investor represents and warrants, among other things, that he or
she:
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- has received a copy of this prospectus and the statement of
additional information, in each case as amended or
supplemented; and
- meets all applicable financial standards described in the
prospectus, including the age, net worth and annual income
requirements.
In addition, the investor will consent to the execution and delivery of the
advisory agreement with SAM and to the payment of compensation to SAM as
described in this prospectus. If not a citizen or resident of the United States
for federal income tax purposes and not a dealer in commodities, the investor
agrees to pay or reimburse the fund for any taxes imposed as a result of his or
her status as a limited partner.
By requiring investors to make representations and warranties, the fund
intends to ensure that only persons for whom an investment is suitable invest in
the fund. The fund will not accept subscriptions if it has reason to believe
that the investor may not be qualified to invest or remain invested in the fund.
AN INVESTOR DOES NOT WAIVE RIGHTS UNDER THE SECURITIES ACT OF 1933 BY EXECUTING
THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.
MINIMUM INVESTMENT
In general, investors must purchase at least $10,000 in units.
Trustees, IRAs and other tax-exempt accounts and NASD-registered broker-dealers
must purchase at least $5,000 in units. Investors may increase their investment
in the fund with additional purchases of $1,000 or more in units. The monthly
price per unit during the continuing offering period will vary depending upon
the month-end net asset value per unit. Investors may be also be subject to
minimum purchase and investor suitability requirements under various state laws.
SAM may accept subscriptions for lesser amounts in its discretion.
INVESTOR SUITABILITY
An investment in the fund is speculative and involves a high degree of
risk. The fund is not suitable for all investors, nor is it a complete
investment program. The fund is designed as a diversification opportunity in the
context of a larger investment portfolio. Investors should invest only a limited
portion of their portfolio in the fund. To invest in the fund, an investor must
have, at a minimum:
- net worth of at least $150,000, exclusive of home, furnishings
and automobiles; or
- net worth, similarly calculated, of at least $45,000 and an
annual gross income of at least $45,000.
Some jurisdictions in which the units will be offered impose higher
minimum financial standards on prospective investors. In each case, these
standards are only regulatory minimums. Even if an investor meets the
suitability standards described above, an investment in the units may not be
suitable for him or her. Only the investor can make that determination. AN
INVESTOR MAY NOT INVEST MORE THAN 10% OF HIS OR HER NET WORTH, EXCLUSIVE OF
HOME, FURNISHINGS AND AUTOMOBILES, IN THE FUND.
THESE STANDARDS AND THE ADDITIONAL STANDARDS APPLICABLE TO RESIDENTS OF
PARTICULAR STATES, AS SET FORTH IN AN EXHIBIT TO THIS PROSPECTUS, ARE REGULATORY
MINIMUMS ONLY. QUALIFICATION UNDER THESE STANDARDS DOES NOT NECESSARILY IMPLY
THAT AN INVESTMENT IN THE FUND IS SUITABLE FOR A PARTICULAR INVESTOR. INVESTORS
SHOULD CONSIDER THE STATE LAW REQUIREMENTS AND CONSIDER THE HIGHLY SPECULATIVE
AND ILLIQUID NATURE OF AN INVESTMENT IN THE FUND, AS WELL AS THE HIGH RISK AND
HIGHLY LEVERAGED NATURE OF THE FINANCIAL INSTRUMENT MARKETS, IN DETERMINING
WHETHER AN INVESTMENT IN THE FUND IS CONSISTENT WITH THEIR OVERALL PORTFOLIO
OBJECTIVES.
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THE SELLING AGENTS
Berthel Fisher & Co. Financial Services Inc., a registered
broker-dealer, and other broker-dealers who offer the units as selling agents
will offer the units on a "best efforts" basis without any firm underwriting
commitment. Selling agents will be bound by their selling agreements with the
fund. In the selling agreements, SAM will indemnify the selling agents against
liabilities that the selling agents may incur in connection with the offering
and sale of the units, including liabilities under the Securities Act of 1933.
Each selling agent will receive from the fund, as part of the brokerage
fee, a selling commission of 75% of the brokerage fee, or 3% of the subscription
amount, for each subscription for units obtained by the selling agent during the
first 12 full calendar months after the initial closing of this offering. If a
unit is purchased after the initial closing of this offering but during the
first 12 full calendar months after the initial closing, the amount of the
brokerage fee payable with respect to the unit will be prorated based on the
number of months remaining in the initial period. Commencing in the thirteenth
full calendar month after the initial closing of this offering and in return for
ongoing services to investors, the fund will pay a monthly fee to selling agents
or their assignees who are registered at the time with the NFA as "futures
commission merchants" or "introducing brokers." This fee will be 1/12 of 3% of
the month-end net asset value of the units that relate to subscriptions obtained
by the selling agent. Selling agents may pay all or a portion of the ongoing
payments to account executives who are also registered with the CFTC and have
passed applicable proficiency requirements.
Some offering expenses paid by SAM or the fund, including the expenses
of producing a selling brochure, organizing seminars and related travel
expenses, may be deemed to constitute costs properly allocated to the accounts
of the selling agents. SAM estimates these costs at approximately $10,000 for
the nine months after the date of this prospectus.
LEGAL MATTERS
McDermott, Will & Emery, New York, New York and Washington, DC will
advise SAM on all legal matters in connection with the units. In the future,
McDermott, Will & Emery may advise SAM and its affiliates with respect to
responsibilities as general partner and commodity trading advisor of the fund
and with respect to other matters relating to the fund. McDermott, Will & Emery
has reviewed the statements under "Federal Income Tax Considerations."
McDermott, Will & Emery has not represented, nor will it represent, either the
fund or the investors in matters relating to the fund.
EXPERTS
The statement of financial condition of the fund as of August 31, 2000
included in this prospectus has been audited by Anchin, Block & Anchin, LLP,
independent auditors, as stated in the report of the firm appearing in this
prospectus. The audited statement of financial condition has been included in
this prospectus in reliance upon the authority of the firm as experts in
auditing and accounting.
The financial statements of SAM as of December 31, 1998 and 1999 and
for the year ended December 31, 1999 and the period from inception (March 16,
1998) to December 31, 1998 included in this prospectus have been audited by
Anchin, Block & Anchin, LLP, independent auditors, as stated in the report of
the firm appearing in this prospectus. The audited financial statements have
been included in this prospectus in reliance upon the authority of the firm as
experts in auditing and accounting.
40
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Shaffer Diversified Fund, LP
Independent Auditors' Report........................................................ F-2
Financial Statements:
Statement of Financial Condition as of August 31, 2000...................... F-3
Notes to the Statement of Financial Condition............................... F-4
Shaffer Asset Management, Inc.
Independent Auditors' Report......................................................... F-6
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998............................. F-7
Statements of Operations and Retained Earnings (Deficit) for the
Year Ended December 31, 1999 and for the Period from Inception
Inception
(March 16, 1998) to December 31, 1998................................ F-8
Statements of Cash Flows for the Year Ended December 31, 1999 and for
the Period from Inception (March 16, 1998) to December 31, 1998...... F-9
Notes to the Financial Statements........................................... F-10
</TABLE>
F-1
<PAGE> 45
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 August 31, 2000. The financial statement is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of Shaffer
Diversified Fund, LP at August 31, 2000, in conformity with generally accepted
accounting principles.
/s/ Anchin, Block & Anchin, LLP
New York, New York
September 7, 2000
F-2
<PAGE> 46
SHAFFER DIVERSIFIED FUND, LP
STATEMENT OF FINANCIAL CONDITION
AUGUST 31, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Cash......................................................... $1,000
PARTNERS' CAPITAL.................................................... $1,000
</TABLE>
See the accompanying Notes to the Statement of Financial Condition.
F-3
<PAGE> 47
SHAFFER DIVERSIFIED FUND, LP
NOTES TO THE STATEMENT OF FINANCIAL CONDITION
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. As of August
31, 2000 the Partnership has not commenced operations.
The Partnership intends to register with the Securities and Exchange
Commission, and will be subject to regulatory requirements under the Securities
Act of 1933 and the Securities Exchange Act of 1934. As a commodity investment
pool, the Partnership will be subject to the regulations of the Commodity
Futures Trading Commission, an agency of the United States ("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 (brokers) through which the Partnership will
trade.
NOTE 2. RELATED PARTY TRANSACTIONS
The General Partner of the Partnership is Shaffer Asset Management,
Inc. ("SAM"), 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 annual brokerage fees of 4% of monthly net
assets: 3% of the fees will be paid to selling agents; 0.5% will be paid to SAM
for being the general partner; and 0.5% will be paid to SAM for acting as the
commodity trading advisor.
SAM also receives a special allocation of profit by the Partnership
equivalent to 20% per year of any increase in the cumulative appreciation of
the net asset value without regard to interest income.
SAM will be entitled to reimbursements of 0.3% of the year end net
assets to cover administrative expenses incurred on behalf of the Partnership.
Operating expenses in excess of 0.5% of net assets at year-end will be the
responsibility of SAM.
Offering expenses will be advanced by SAM and reimbursed by the
Partnership, without interest, over a 30-month period commencing after the
initial closing of the offering.
NOTE 3. REDEMPTIONS
A limited partner may request and receive redemption of its units
owned, subject to restrictions in the Agreement of Limited Partnership.
Redemption fees charged to the limited partner apply through the first twelve
month-ends following purchase ranging from 1% to 4% based on length of
investment. After twelve month-ends following purchase of a unit, no redemption
fees will apply.
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
F-4
<PAGE> 48
SHAFFER DIVERSIFIED FUND, LP
NOTES TO THE STATEMENT OF FINANCIAL CONDITION
(CONTINUED)
from changes in the market value of the contracts, and credit risk, the risk of
failure by another party to perform according to the terms of a contract.
Purchase and sale of futures contracts requires margin deposits with
the broker. The Commodity Exchange Act requires a broker to segregate all
customer transactions and assets from such broker's proprietary activities. A
customer's cash and other property (for example, US Treasury bills) deposited
with a broker are considered commingled with all other customer funds subject to
the broker's segregation requirements. In the event of a broker's insolvency,
recovery may be limited to a pro rata share of segregated funds available. It is
possible that the recovered amount could be less than the total cash and other
property deposited.
The amount of required margin and good faith deposits with the broker
usually ranges from 10% to 40% of net asset value.
NOTE 5. INCOME TAXES
The Partnership is not subject to income taxes. The partners report
their allocable share of income, expense and trading gains or losses on their
own tax returns.
NOTE 6. SUBSEQUENT EVENT
In September 2000, the sole stockholder of the general partner
contributed $1,000 as the Partnership's initial limited partner.
F-5
<PAGE> 49
SHAFFER ASSET MANAGEMENT, INC.
INDEPENDENT AUDITORS' REPORT
To the Stockholder and Directors of
Shaffer Asset Management, Inc.:
We have audited the accompanying balance sheets of Shaffer Asset
Management, Inc. as of December 31, 1999 and 1998 and the related statements of
operations and retained earnings (deficit) and cash flows for the year ended
December 31, 1999 and the period from March 16, 1998 (inception) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Shaffer Asset
Management, Inc. at December 31, 1999 and 1998 and the results of its operations
and its cash flows for the year and period, respectively, then ended, in
conformity with generally accepted accounting principles.
/s/ Anchin, Block & Anchin LLP
New York, New York
September 5, 2000
F-6
<PAGE> 50
SHAFFER ASSET MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1999 1998
---- ----
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 4,516 $ 54
Fee receivable
8,073 --
------- -------
Total Current Assets 12,589 54
======= =======
Fixed Assets:
Office equipment 3,392 --
Computer software 6,000 --
------- -------
9,392 --
Less: accumulated depreciation 339 --
======= =======
Total Fixed Assets 9,053 --
------- -------
Total Assets $21,642 $ 54
------- -------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $11,399 $ --
Loan payable-stockholder -- 5,710
======= -------
Total Current Liabilities 11,399 5,710
======= -------
Stockholder's Equity (Deficit)
Capital stock:
Class A voting, no par, $2 stated value; 200 shares authorized;
50 shares issued and outstanding 100 100
Retained earnings (deficit) 10,143 (5,756)
------- -------
Total Stockholder's Equity (Deficit) 10,243 (5,656)
------- -------
Total Liabilities and Stockholder's Equity (Deficit) $21,642 $ 54
======= =======
</TABLE>
See the accompanying Notes to the Financial Statements.
F-7
<PAGE> 51
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 16,
1998
(INCEPTION)
YEAR ENDED TO
DECEMBER 31, DECEMBER
1999 31, 1998
---- --------
<S> <C> <C>
INCOME FROM FEES $ 51,446 $ --
-------- --------
EXPENSES:
Automobile expense 12,901 --
Dues and subscriptions 4,278 --
Offices supplies and expense 2,261 521
Printing and reproduction 5,583 319
Professional development 3,432 --
Professional fees -- 2,653
Travel and entertainment 2,265 222
Other expenses 4,827 2,041
-------- --------
Total Expenses 35,547 5,756
-------- --------
NET INCOME (LOSS) 15,899 (5,756)
RETAINED EARNINGS (DEFICIT)
Balance, beginning of period (5,756) --
-------- --------
Balance, end of period $ 10,143 $ (5,756)
-------- --------
</TABLE>
See the accompanying Notes to the Financial Statements.
F-8
<PAGE> 52
SHAFFER ASSET MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 16,
YEAR ENDED 1998) TO
DECEMBER DECEMBER
31, 1999 31, 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: $ 15,899 $ (5,756)
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 339 --
Increase in:
Fees receivable (8,073) --
Increase in:
Accounts payable and accrued expenses 6,899
-------- --------
Total adjustments (835)
-------- --------
Net Cash Provided by (Used in) Operating Activities 15,064 (5,756)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (4,892) --
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of stockholder loan (5,710) --
Loan from stockholder -- 5,710
Proceeds from issuance of common stock -- 100
-------- --------
Net Cash Provided by (Used in) Financing Activities: (5,710) 5,810
-------- --------
NET INCREASE IN CASH: 4,462 54
Beginning of period 54 --
-------- --------
End of period $ 4,516 $ 54
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 625 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Incurred liability for acquisition of computer software $ 4,500 $ --
</TABLE>
See the accompanying Notes to the Financial Statements.
F-9
<PAGE> 53
SHAFFER ASSET MANAGEMENT, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Shaffer Asset Management, Inc. (the "Company")
earns fees on managed accounts as a Commodity Trading Advisor registered with
and subject to the regulations of the Commodity Futures Trading Commission, an
agency of the United States government, which regulates most aspect of the
commodity futures industry. It is also subject to the rules of the National
Futures Association, an industry self-regulatory organization.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition: Performance fees may be earned by achieving
defined performance objectives. Performances fees are accrued when the
conditions of the performance fee agreement are satisfied.
Fixed Assets: Fixed assets are stated at cost. Depreciation and
amortization are computed by the straight-line method over the estimated useful
lives of the assets.
Income Taxes: The Company is taxed as an S corporation for federal and
New York State tax purposes, whereby the Company's income is reported by the
stockholder. Accordingly, no provision has been made for federal income taxes.
The Company remains liable for New York State income taxes on S corporations.
NOTE 2. RELATED PARTY TRANSACTIONS
The loan from the stockholder was non-interest bearing.
NOTE 3. SUBSEQUENT EVENT
The Company will be the trading advisor for a newly formed commodity
pool, Shaffer Diversified Fund, LP ("LP"). The Company became the general
partner of LP and made a capital contribution of $1,000 during August 2000. The
Company will receive a management fee of 0.5%, and an advisory fee of 0.5%,
based on monthly net assets of LP. The Company will also receive 20% per year of
any increase in the cumulative appreciation of the net assets of LP without
regard to interest income. Additionally, the Company will be entitled to
reimbursements of administrative expenses up to 0.3% of net assets per year and
will be responsible for expenses in excess of 0.5% of the net assets at year end
of LP. The Company will be reimbursed for advances of offering expenses in 30
monthly installments commencing after the initial closing of LP.
F-10
<PAGE> 54
EXHIBIT A
AGREEMENT OF LIMITED PARTNERSHIP
ARTICLE 1
FORMATION; NAME
The parties to this Agreement of Limited Partnership (the "Agreement")
dated as of August 29, 2000 have formed Shaffer Diversified Fund, LP (the
"Partnership") under the Delaware Revised Uniform Limited Partnership Act in
effect on the date thereof (the "Act") and do hereby continue the Partnership
pursuant to the terms herein. Each person or entity who becomes a limited
partner in the Partnership (a "Limited Partner") hereby undertakes to furnish to
Shaffer Asset Management, Inc., a Delaware corporation (the "General Partner"
and with each Limited Partner, a "Partner") a power of attorney which may be
filed with this Agreement and any amendment 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.
ARTICLE 2
PRINCIPAL OFFICE; TAX MATTERS PARTNER
The principal office of the Partnership shall be 70 West Red Oak Lane,
White Plains, New York 10604, or such other place as the General Partner may
designate from time to time. The tax matters partner for the Partnership shall
be the General Partner.
ARTICLE 3
BUSINESS AND PURPOSE
The business and purpose of the Partnership is to trade, buy, sell or
otherwise acquire, hold or dispose of commodity futures contracts and other
related investment interests and any activities incidental or related thereto.
The objective of the Partnership business is appreciation of its assets through
speculative trading.
ARTICLE 4
TERM; DISSOLUTION; FISCAL YEAR
4.1 TERM. The term of the Partnership commenced upon the execution and
filing of the certificate of limited partnership on August 29, 2000 and shall
end upon the first to occur of (a) December 31, 2025, (b) an election to
dissolve the Partnership in accordance with the provisions of Section 4.2 by
Limited Partners owning more than 50% of the Units (as defined in Section 5.1)
then outstanding, (c) the withdrawal of the General Partner, as defined in and
subject to the limitations of Article 12, (d) a determination by the General
Partner that the purpose of the Partnership cannot be fulfilled and (e) 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.
4.2 DISSOLUTION. Upon the occurrence of an event causing the
dissolution of the Partnership, the Partnership shall be wound up and
terminated. Payment of creditors and distributions of Partnership assets shall
be effected as soon as practicable in accordance with the Act, and each Partner
and any assignee of Units shall share in the assets of the Partnership in
accordance with Article 6, less any amount owing by such Partner or assignee of
Units to the Partnership.
4.3 FISCAL YEAR. The fiscal year of the Partnership shall end on
December 31, unless the General Partner elects a different fiscal year with the
approval of the Internal Revenue Service and the Commodity Futures Trading
Commission (the "CFTC") or another fiscal year is required by law.
A-1
<PAGE> 55
ARTICLE 5
CAPITAL CONTRIBUTIONS; UNITS
5.1 LIMITED PARTNER CONTRIBUTIONS. Each interest in the Partnership
other than a general partner interest shall be evidenced by a unit (a "Unit").
In order to form the Partnership, the initial Limited Partner shall contribute
$1,000.
5.2 CAPITAL CONTRIBUTIONS BY GENERAL PARTNER . The General Partner has
contributed $1,000 in cash to the capital of the Partnership. The contribution
of the General Partner shall be evidenced by a general partner interest. The
General Partner may withdraw part of its contributed capital.
5.3 AVAILABILITY OF CONTRIBUTIONS. The aggregate of all capital
contributions shall be available to the Partnership to carry on its business and
purpose, and no interest shall be paid to any Partner on any such contributions.
ARTICLE 6
ALLOCATION OF PROFITS AND LOSSES
6.1 DEFINITIONS. The following terms shall have the meanings indicated.
(a) "Brokerage Fee" shall mean a fee charged to each Unit for
brokerage and management services equal to:
(i) 4% of the amount of the aggregate subscriptions
for Units accepted during such month, if such subscriptions are
accepted on or after the date on which an additional Limited Partner is
first admitted pursuant to Article 10 but before the first business day
of the thirteenth full calendar month thereafter; provided that the
amount of the Brokerage Fee payable under this Section 6.1(a)(i) with
respect to a Unit purchased other than on the date on which an
additional Limited Partner is first admitted pursuant to Article 10
shall prorated based on the number of months remaining until the first
business day of the thirteen full calendar month thereafter; or
(ii) Commencing on the first business day of the
thirteenth full calendar month after the date on which an additional
Limited Partner is first admitted pursuant to Article 10, 1/12 of 4% of
the Net Asset Value of the Units as of the close of business on the
last business day of such month.
Of the Brokerage Fee, 75% shall be paid to selling agents with respect
to the Units for which each such selling agent obtained a subscription pursuant
to the terms of selling agreements entered into from time to time between the
Partnership and each such selling agent, 12.5% shall be paid to the General
Partner as an expense of the Partnership in order to compensate the General
Partner for serving as general partner of the Partnership, and 12.5% shall be
paid to the commodity trading advisor of the Partnership pursuant to the terms
of an advisory agreement entered into from time to time between the Partnership
and such advisor. The General Partner may increase the amount of the Brokerage
Fee payable by the Partnership at any time and from time to time upon 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 Brokerage Fee, the Limited Partners shall have an
opportunity to redeem their Units on the last business day of the month in which
such notice is sent without the imposition of any redemption fee.
(b) "Capital Gain" or "Capital Loss" shall mean gain or loss
characterized as gain or loss from the sale or exchange of a capital asset by
the Code, including without limitation gain or loss
A-2
<PAGE> 56
required to be taken into account pursuant to section 1256 of the Internal
Revenue Code of 1986 (the "Code").
(c) "Net Assets" shall mean the total 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 all liabilities of the Partnership and
any amounts accrued with respect to the Special Allocation. Net Assets shall be
determined in accordance with this Section 6.1(c) 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 a 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 a date as of which Net Assets are determined, 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.
(d) "Net Asset Value" shall mean, with respect to the
Partnership, the aggregate amount of the capital accounts of all Partners and,
with respect to a Unit, the aggregate amount of the capital accounts of all
Limited Partners divided by the number of Units then outstanding.
(e) "Special Allocation" shall mean a monthly special
allocation to the General Partner of profit of the Partnership equal to 20% per
year of the aggregate cumulative appreciation, if any, in the Net Asset Value of
the Units, calculated as the amount by which the Net Asset Value of Units on the
last business day of month exceeds the Net Asset Value of a Units on the last
business day of the preceding month, as adjusted (i) for the redemption of Units
pursuant to Section 6.9 and the issuance of additional Units pursuant to Article
10 during such month and (ii) to exclude the effect of interest income. In the
event that the Partnership makes any distribution to the General Partner on
account of the Special Allocation and thereafter the Net Asset Value of the
Units declines, the General Partner shall be under no obligation to return the
amount previously distributed.
6.2 CAPITAL ACCOUNTS. A capital account shall be established for each
Partner. The initial balance of the capital account of a Partner shall be the
amount of the initial capital contribution to the Partnership of such Partner.
6.3 RECURRING DETERMINATIONS, PAYMENTS, ALLOCATIONS AND DISTRIBUTIONS.
As of the close of business on the last business day of each month, the General
Partner shall make the following determinations, payments and allocations in the
following order:
(a) the Brokerage Fee earned during such month shall be
calculated and paid to the selling agents, the General Partner and the
commodity trading advisor as provided in Section 6.1(a);
(b) expenses of and reimbursements by the Partnership shall be
paid in accordance with Sections 6.5 and 6.6;
(c) any costs of indemnification to the extent permitted under
Article 14 shall be paid;
A-3
<PAGE> 57
(d) the Special Allocation shall be accrued, and a
distribution in the positive amount of the net accrued but unpaid
Special Allocation shall be paid to the General Partner;
(e) Net Assets shall be calculated;
(f) any increase or decrease in Net Assets as of such date,
after making the payments and allocations described above, shall be
credited or charged to the capital accounts of each Partner in the
ratio that the balance of the capital account of such Partner bears to
the balance of all capital accounts;
(g) the amount of any distribution to a Partner other than on
account of the Special Allocation, any amount paid to a Limited Partner
upon redemption of Units and any amount paid to the General Partner
upon withdrawal of a part of its capital contribution shall be charged
to the capital account of the relevant Partner; and
(h) the Net Asset Value of the Partnership and the Net Asset
Value of a Unit shall be calculated;
(i) Unit redemption requests shall be honored in the
discretion of the General Partner in accordance with Article 9; and
(j) subscriptions for Units shall be accepted in the
discretion of the General Partner in accordance with Article 10.
6.4 ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. At
the end of each taxable year, each item of Partnership taxable income, gain,
loss, deduction or credit shall be allocated among the Partners in accordance
with the following provisions:
(a) Capital Gain shall be allocated first to each Partner who
has redeemed Units or withdrawn 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 remaining after the allocation in Section
6.4(a) shall be allocated among the Partners in the ratio that the capital
account of each Partner bears to the capital accounts of all Partners.
(c) Capital Loss shall be allocated first to each Partner who
has redeemed Units during the year to the extent that the amount the Partner
paid for the redeemed Units exceeded the amount the Partner received on
redemption.
(d) Capital Loss remaining after the allocation in Section
6.4(c) shall be allocated among the Partners in the ratio that capital account
of each Partner bears to capital accounts of all Partners.
(e) For purposes of the allocations of Capital Gain and
Capital Loss in Section 6.4(a) and (c), the amount that each Partner paid for
each Unit 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 6.4(b)
or ordinary income allocated pursuant to Section 6.4(g), to have been decreased
by the amount of any Capital Loss allocated to such Partner with respect to such
Unit pursuant to Section 6.4(d) or ordinary
A-4
<PAGE> 58
expense allocated pursuant to Section 6.4(d) and to have decreased by the amount
of any distributions to such Partner with respect to such Unit pursuant to
Section 6.9.
(f) The allocations made pursuant to this Section 6.4 shall
not exceed the allocations permitted under Subchapter K of the Code, as
determined by the General Partner in its sole and absolute discretion. Such
determination shall be binding and conclusive upon the Partners.
(g) Items of ordinary income and expense shall be allocated
among the Partners based upon their relative ownership interests in the
Partnership as of the end of each month in which the items of ordinary income or
expense accrue.
(h) Notwithstanding Sections 6.4(d) and 6.4(g), if an
allocation of Capital Loss would cause the capital account of a Limited Partner
to have a deficit balance, then such loss shall be allocated to the capital
account of the General Partner to the extent of such deficit balance.
(i) 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 Code.
6.5 ORGANIZATION AND OFFERING EXPENSES. The General Partner shall pay
the organization and offering expenses of the offering of the Units, and no such
expenses shall be deducted from the proceeds of the offering. Subject to the
limitation described below, the General Partner shall be reimbursed by the
Partnership for such payments in 30 monthly installments commencing after the
initial closing of the offering of the Units. Organization and offering expenses
incurred after the initial closing of the offering shall be reimbursed ratably
over the remainder of the 30-month period. In no event shall the General Partner
be entitled to receive reimbursement in an amount greater than 2.5% of the
aggregate proceeds of the sale of Units. If the Partnership terminates prior to
completion of the reimbursement, the General Partner shall not be entitled to
receive reimbursement after the date of termination, and the Partnership shall
have no obligation to make further reimbursement payments to the General
Partner. For purposes of this Agreement, organization and offering expenses
shall include all costs paid or incurred by the General Partner or the
Partnership in organizing the Partnership and offering the Units, 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 and prospectus related to the offering.
6.6 PARTNERSHIP EXPENSES. The Partnership shall be obligated to pay all
liabilities incurred by it, including without limitation Brokerage Fees,
transaction expenses payable to commodity brokers, operating expenses (including
legal and accounting fees), taxes and other extraordinary expenses incurred by
the Partnership. The Partnership shall pay 1/12 of 0.3% of the Net Asset Value
of the Partnership to the General Partner directly each month to cover
administrative expenses incurred on behalf of the Partnership. Notwithstanding
the foregoing, the General Partner shall reimburse the Partnership for operating
expenses to the extent that they exceed, in a fiscal year, 0.5% of the Net Asset
Value of the Partnership on the last business day of such year. Indirect
expenses of the General Partner, such as salaries, rent and other overhead
expenses, shall not be liabilities of the Partnership.
6.7 LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit shall be fully
paid and non-assessable. 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
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contribution was held by the Partnership. A Limited Partner shall also be liable
to the Partnership for return of any part of a returned contribution for a
period of six years thereafter, if such return was in violation of this
Agreement or the Act.
6.8 RETURN OF LIMITED PARTNER CAPITAL CONTRIBUTION. Except to the
extent that a Limited Partner shall have the right to redeem Units, no Limited
Partner shall have any right to demand the return of the capital contributed by
such Limited Partner or any profits with respect thereto, except upon
dissolution and termination of the Partnership. In no event shall a Limited
Partner be entitled to demand or receive property other than cash in return for
capital contributed.
6.9 DISTRIBUTIONS. The General Partner shall have sole discretion in
determining whether to make distributions to Partners or assignees of Units,
other than in connection with the Special Allocation, the redemption of Units
and the dissolution of the Partnership. Other than distributions on account of
the Special Allocation, any distributions shall be made pro rata in accordance
with the respective capital accounts of the Partners.
ARTICLE 7
MANAGEMENT
7.1 GENERAL PARTNER. (a) The General Partner, to the exclusion of the
Limited Partners, shall conduct and manage the business of the Partnership,
including without limitation all functions necessary for administration of the
Partnership. The General Partner shall have the responsibility for the
safekeeping and use of all assets of the Partnership, whether or not in the
immediate possession or control of the General Partner. The General Partner
shall not employ or permit another to employ such assets in any manner except
for the exclusive benefit of the Partnership. The General Partner shall make all
investment decisions regarding the Partnership and shall have complete trading
discretion. The General Partner shall seek commercially reasonable prices and
services in its futures brokerage transactions. All brokerage transactions for
the Partnership shall be effected at competitive rates.
(b) The General Partner may take such other actions as it
deems necessary or desirable to manage the business of the Partnership,
including without limitation entering into commercially reasonable contracts,
opening bank accounts, paying or authorizing the payment of distributions to the
Partners and expenses of the Partnership, including fees to the General Partner,
commodity trading advisor and commodity broker, taxes and other fees of
governmental agencies.
(c) The General Partner shall keep and retain for at least six
years, at the principal office of the Partnership, such books and records
relating to the business of the Partnership as it deems necessary 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 or which are
required by the Commodity Exchange Act and the rules and regulations thereunder.
Such books and records shall be available to any Limited Partner or his
authorized attorney or agent for inspection and copying during normal business
hours of the Partnership.
(d) The General Partner may engage in other business
activities, including without limitation serving as a general partner of other
partnership and a commodity trading advisor to other customers. The General
Partner shall not be required to refrain from any other activity or to disgorge
profits from any other activity. Subject to the terms and conditions set forth
in this Agreement, the General Partner may engage and compensate, on behalf of
the Partnership with Partnership funds, such persons, firms or entities as the
General Partner in its sole discretion shall deem advisable for the conduct and
operation of the business of the Partnership. The General Partner may develop
and implement a cash management facility for the Partnership and incur
commercially reasonable fees in connection therewith.
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(e) No person dealing with the General Partner shall be
required to determine its authority to make any undertaking on behalf of the
Partnership or to determine any fact or circumstance bearing upon the existence
of such authority.
(f) The maximum term of any contract between the Partnership
and the General Partner or an affiliate thereof shall be one year; provided that
certain provisions in any such contract may expressly survive the termination of
the contract if survival would be customary.
7.2 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, (d) pay per-trade compensation to the General
Partner, 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.
ARTICLE 8
REPORTS TO LIMITED PARTNERS
8.1 BOOKS AND RECORDS. The books and records of the Partnership shall
be audited annually by an independent certified public accountant. Net Assets
and Net Asset Value per Unit shall be determined daily and supplied in writing
to any Limited Partner who requests such information.
8.2 REPORTS. The General Partner shall cause each Partner to receive
within 90 days following the close of each fiscal year (a) an annual report,
including without limitation an audited balance sheet and income statement as of
and for the fiscal year then ended, and (b) such tax information as is necessary
for Limited Partners to complete their United States federal income tax returns.
In addition, within 30 days after the end of each month, the General Partner
shall report to the Limited Partners all information required by the CFTC from
time to time to be reported.
8.3 NOTICE OF SUBSTANTIAL DECLINE. If the Net Asset Value per Unit as
of the end of any business day declines by more than 50% from the Net Asset
Value per Unit as of the last business day of either the previous month or the
previous year, the General Partner shall notify the Limited Partners within
seven business days thereafter of such decline, their redemption and voting
rights and the expected effect of the decline on the Net Assets of the
Partnership. For 15 days after the date of such notice, the General Partner
shall declare a special redemption period. The General Partner shall temporarily
suspend trading by the Partnership during any such special redemption period.
ARTICLE 9
DISPOSITIONS; REDEMPTION OF UNITS
9.1 PERMISSIBLE DISPOSITIONS. A Limited Partner may transfer, assign,
pledge or encumber Units only as provided in this Section 9.1.
(a) No transferee, pledgee, assignee or secured creditor shall
become a substituted Limited Partner unless the General Partner consents in
writing to such substitution. The General Partner may withhold consent in its
sole discretion. Any transfer or assignment of Units permitted hereunder shall
be effective as of the beginning of the month following the month in which such
transfer or assignment is made; provided that the Partnership need not recognize
any transfer, assignment or pledge until it has received at least 30-days prior
written notice thereof from the transferor, assignor or pledgor. Such notice of
assignment shall include (i) the name, signature, address and Social Security or
taxpayer
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identification number of the transferee, assignee or pledgee, (ii) the number of
Units transferred, assigned or pledged and (iii) the signature of the
transferor, assignor or pledgor. The General Partner may, in its discretion,
waive receipt of the notice or waive any defect therein.
(b) No transfer or assignment shall be permitted unless the
General Partner is satisfied that (i) such transfer or assignment would not be
in violation of the Act, (ii) the amount of the transfer is at least the minimum
subscription amount, except in the case of transfers by gift or inheritance or
to affiliates, including family members of the transferor, and (iii)
notwithstanding such transfer or assignment, the Partnership shall continue to
be classified as a partnership rather than as a corporation or an association
under the Code.
(c) No transfer or assignment of Units shall be effective or
recognized by the Partnership if following such transfer or assignment there
would result a termination of the Partnership for federal income tax purposes as
provided in section 708(b) of the Code. Any attempted transfer or assignment in
violation hereof shall be ineffective to transfer or assign any Units.
(d) Any transferee or assignee of Units who has not been
admitted to the Partnership as a substituted Limited Partner shall not have any
of the rights of a limited partner in the Partnership, except that the assignee
of Units shall receive the share of capital and profits and have the right of
redemption to which the assignor would otherwise have been entitled. Any such
assignee shall remain subject to the other terms of this Agreement binding upon
Limited Partners.
(e) The transfer or assignment of Units shall be subject to
all applicable securities laws. The transferor or assignor shall bear all costs,
including attorney fees, related to such transfer or assignment.
9.2 REDEMPTION. In addition to the redemption provided pursuant to
Section 8.3, each Limited Partner or assignee of Units may withdraw all or part
of the capital contribution and undistributed profits, if any, attributable to
one or more Units by requesting that the Partnership redeem such Units. Each
request for redemption shall be in writing and received by the General Partner
not less than 10 days prior to the last business day of the month. Timely
received requests for redemption will be effected as of the close of business on
the last business day of the month. Requests for redemption that are received
less than 10 days prior to the last business day of the month will be effected
as of the close of business on the last business day of the following month.
Upon redemption, a Limited Partner or any assignee of Units shall receive as to
each Unit redeemed an amount equal to the Net Asset Value per Unit as of the
date of redemption, less (a) any amount owing by such Limited Partner or
assignee to the Partnership and (b) any applicable redemption fees due under
Section 9.3. Redemption payments shall be made within 20 days following the date
of redemption; provided that the General Partner may delay payment in its sole
discretion with respect to all or a portion of the redemptions effected as of
the last business day of a month if, for example, the Partnership is unable to
liquidate its commodity positions or payments due the Partnership from commodity
brokers, banks or other persons or entities have been delayed. 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 10 days after the date of redemption if payment will
be delayed. The Partnership shall not be obligated to redeem Units that are
subject to a pledge or otherwise encumbered in any fashion.
9.3 REDEMPTION FEES. Except as provided in Sections 6.1(a) and 9.4 or
as otherwise determined by the General Partner in its discretion, redemption
fees shall be charged by the Partnership against redemption proceeds through the
first 12 month-ends following the purchase of a Unit as follows:
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(a) 4% of Net Asset Value per Unit shall be charged with
respect to a Unit redeemed through the third month-end;
(b) 3% of Net Asset Value per Unit shall be charged with
respect to a Unit redeemed through the sixth month-end;
(c) 2% of Net Asset Value per Unit shall be charged with
respect to a Unit redeemed through the ninth month-end; and
(d) 1% of Net Asset Value per Unit shall be charged with
respect to a Unit redeemed through the twelfth month-end.
For purposes of this Section 9.3, the date of purchase of a Unit shall
constitute the first month-end.
9.4 MANDATORY REDEMPTION. (a) On the date that an additional Limited
Partner is first admitted pursuant to Article 10, the Unit of the initial
Limited Partner shall be automatically redeemed for $1,000 without the
imposition of any redemption fee pursuant to Section 9.3.
(b) 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, the General Partner may redeem all or
part of the Units held by one or more Limited Partners without the consent of
such Limited Partners at the Net Asset Value per Unit but without the imposition
of any redemption fee pursuant to Section 9.3. Such redemption may be effected
from time to time in any manner deemed reasonable in the sole discretion of the
General Partner.
ARTICLE 10
OFFERING OF UNITS; ADMISSION OF ADDITIONAL LIMITED PARTNERS
The General Partner from time to time shall cause the Partnership to
file a registration statement and such amendments as the General Partner deems
advisable with the Securities and Exchange Commission for the registration of
the public offering and sale of the Units, shall seek to qualify the Units for
sale in various jurisdictions as the General Partner deems advisable and shall
take such other actions in connection therewith as the General Partner deems
advisable. The General Partner may admit persons or entities as additional
Limited Partners without the consent of the other Limited Partners at any time.
The General Partner may reject any subscription for Units at any time and for
any reason. 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-end as of which the General
Partner accepted their subscriptions. The number of Units issued to such
additional Limited Partners shall be based on the Net Asset Value per Unit as of
the month-end as of which such subscriptions were accepted.
ARTICLE 11
POWER OF ATTORNEY
By execution of this Agreement, each Limited Partner irrevocably
constitutes and appoints the General Partner with full power of substitution, as
his true and lawful attorney-in-fact in his name, place and stead, to execute,
acknowledge, swear to, file and record in his behalf in the appropriate public
offices and publish (a) this Agreement and any amendments thereto, (b) all
instruments that the General Partner deems necessary or appropriate to reflect
any amendment, change or modification of this Agreement or the certificate of
limited partnership of the Partnership and (c) certificates of fictitious or
assumed name. The power of attorney granted hereby shall be irrevocable, shall
deemed to be a power coupled with an interest and shall survive the incapacity
or death of such Limited Partner. Each Limited Partner hereby
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agrees to be bound by any representation made by the General Partner and any
successor thereto acting in good faith pursuant to such power of attorney.
ARTICLE 12
WITHDRAWAL OF A PARTNER
12.1 WITHDRAWAL OF GENERAL PARTNER. The Partnership shall terminate and
be dissolved upon the withdrawal or insolvency of the General Partner, unless in
the case of the withdrawal of the General Partner, the actions necessary to
continue the Partnership shall be taken pursuant to Article 15. The General
Partner shall cease to be a general partner of the Partnership upon the
occurrence of any of the following events of withdrawal:
(a) the bankruptcy or insolvency of the General Partner;
(b) any event prescribed in the Act that is not encompassed in
this Article 12; or
(c) 120-days prior written notice to the Limited Partners 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 Asset Value of the Partnership
attributable to its general partner 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 12.1, the General Partner may not
sell, assign or otherwise dispose of all or substantially all of its general
partner 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 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 partner interest as collateral for a loan or loans. Any such assignment
of all or any portion of a general partner interest shall not cause an event of
withdrawal with respect to the General Partner pursuant to this Article 12.
12.2 WITHDRAWAL OF LIMITED PARTNER. The death, incompetence,
incapacity, withdrawal, insolvency or dissolution of a Limited Partner shall not
dissolve or terminate the Partnership, and such Limited Partner, or the estate,
custodian or personal representative thereof, shall have no right to withdraw as
a limited partner or have his Units redeemed except as provided in Article 9.
Each Limited Partner and any assignee thereof expressly waives on behalf of
himself and his estate, and directs the legal representative of his estate and
any person interested therein to waive, in the event of the death of such
Limited Partner or assignee, the furnishing of any inventory, accounting or
appraisal of the assets of the Partnership and any right to a special audit of
the books and records of the Partnership.
ARTICLE 13
NO PERSONAL LIABILITY FOR RETURN OF CAPITAL
Subject to Article 14, 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 Units. Any such return 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 14
STANDARD OF LIABILITY; INDEMNIFICATION
14.1 STANDARD OF LIABILITY. 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
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which arises out of any action of the General Partner if the General Partner, in
good faith, determined that the course of conduct that caused the liability or
loss was in the best interests of the Partnership, if the General Partner was
acting on behalf of or performing services for the Partnership, and if such
liability or loss was not the result of negligence or misconduct by the General
Partner.
14.2 INDEMNIFICATION BY PARTNERSHIP. The Partnership shall indemnify,
defend and hold harmless the General Partner (including controlling persons and
a former General Partner that has withdrawn from the Partnership) from and
against any loss, liability, damage, cost or expense (including attorney fees
and expenses incurred in defense of any demands, claims or lawsuits) arising
from actions or omissions concerning the business or activities undertaken by or
on behalf of the Partnership if the party seeking indemnification determined, in
good faith, that the course of conduct that caused the loss or liability was in
the best interests of the Partnership, if the party seeking indemnification was
acting on behalf of or performing services for the Partnership and if such
liability or loss was not the result of negligence or misconduct by the party
seeking indemnification. Such indemnification shall be paid only out of the
assets of the Partnership and not from the other assets of the Limited Partners.
In no event shall any person be indemnified by the Partnership for claims
arising out of alleged violations of federal or state securities laws unless:
(a) there has been a successful adjudication on the merits of
each count involving alleged securities law violations;
(b) such claims have been dismissed with prejudice on the
merits by a court of competent jurisdiction; or
(c) 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 and the securities administrators of
the jurisdictions in which the claimant alleges to have been offered or
sold Units.
14.3 ADVANCE PAYMENT. Expenses incurred in defending a threatened or
pending civil, administrative or criminal action, suit or proceeding against any
person or entity entitled to indemnification under this Article 14 may be paid
by the Partnership in advance of the final disposition of such action, suit or
proceeding, if and to the extent that:
(a) the legal action relates to acts or omissions with respect
to the performance of duties or services on behalf of the Partnership;
(b) the legal action is initiated by a party who is not a
Limited Partner or, if by a Limited Partner, then a court of competent
jurisdiction specifically approves such advancement; and
(c) the party seeking indemnification shall agree to reimburse
the Partnership, together with the applicable legal rate of interest
thereon, in the event indemnification is not permitted under this
Article 14 upon final disposition.
ARTICLE 15
AMENDMENTS; MEETINGS
15.1 AMENDMENTS WITH CONSENT OF LIMITED PARTNERS. If at any time during
the term of the Partnership the General Partner deems it necessary or desirable
to supplement or amend this Agreement, such amendment shall be effective only if
embodied in an instrument signed by the General Partner and
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by the holders of more than 50% of the Units then outstanding. No such
supplement or amendment shall, without the consent of all Limited Partners:
(a) change or alter the terms of this Article 15;
(b) extend the term of the Partnership;
(c) reduce the capital account of any Partner; or
(d) modify the percentage of profits, losses or distributions
to which any Partner is entitled.
Reduction of the capital account of any assignee of Units or modifications of
the percentage of profits, losses or distributions to which an assignee of Units
is entitled hereunder shall not be effected by any amendment or supplement to
this Agreement without the written consent of such assignee. No meeting
procedure or notice period shall be required for the General Partner to effect a
permitted supplement or amendment, and receipt of an adequate number of
unrevoked written consents of Limited Partners shall be sufficient.
15.2 AMENDMENT WITHOUT CONSENT OF LIMITED PARTNERS. The General Partner
may amend this Agreement without the consent of the Limited Partners:
(a) to clarify any clerical inaccuracy or ambiguity or
reconcile any inconsistency (including any inconsistency between this
Agreement and a prospectus included within a registration statement
filed by the Partnership with the Securities and Exchange Commission);
(b) 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;
(c) to attempt to ensure that the Partnership is not taxed as
an association taxable as a corporation for federal income tax
purposes;
(d) to delete or add any provision of or to this Agreement
required to be deleted or added by the staff of the Securities and
Exchange Commission or any other federal agency or any blue-sky or
similar official or in order to opt to be governed by any amendment or
successor statute to the Act;
(e) to change the name of the Partnership;
(f) to reflect the admission of an additional or substitute
general partner;
(g) 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 or the "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974 as a result of their association
with the Partnership; and
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(h) 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 or
structure of the Partnership, or that is required by law.
15.3 LIST OF PARTNERS. The General Partner shall maintain at the
principal office of the Partnership a list of the names and addresses of all
Limited Partners and the number of Units owned by each Limited Partner. Upon
request of any Limited Partner or representative thereof, the General Partner
shall make such list available for review by such Limited Partner or
representative. Upon written request, the General Partner shall furnish a copy
of such list by mail to any Limited Partner or representative thereof.
15.4 MEETINGS. Upon receipt of a written request, signed by Limited
Partners owning at least 10% of the Units then outstanding, that a meeting of
the Partnership be called to vote upon any matter upon which the Limited
Partners may vote pursuant to this Agreement, the General Partner shall notify
each Limited Partner in writing, mailed within 15 days after such receipt of the
request, of the calling of a meeting of the Partnership. Such meeting shall be
held at least 30 days but not more than 60 days after the mailing of such
notice, and such notice shall specify the date, place, time and purpose of such
meeting.
15.5 ACTIONS WITHOUT CONSENT OF GENERAL PARTNER. At any meeting called
pursuant to Section 15.4, upon the affirmative vote in person or by proxy of
Limited Partners owning more than 50% of the Units then outstanding, other than
Units held by the General Partner or its affiliates, the following actions may
be taken if permitted under the Act:
(a) 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;
(b) the Partnership may be dissolved;
(c) the General Partner may be removed and replaced;
(d) a new general partner may be elected if the General
Partner withdraws from the Partnership;
(e) any contract between the Partnership and the General
Partner or an affiliate thereof may be terminated on 60-days prior
written notice; and
(f) the sale of all of the assets of the Partnership may be
approved.
If an action described in clause (c) or (d) is taken, the general partner
interest of the General Partner shall be redeemed and paid to the General
Partner on the basis of the Net Assets allocable thereto on the date of such
event.
ARTICLE 16
MISCELLANEOUS
16.1 PRIORITY AMONG LIMITED PARTNERS. No Limited Partner shall be
entitled to any priority or preference over any other Limited Partner in regard
to the affairs of the Partnership.
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16.2 NOTICES. All notices under this Agreement, other than requests for
the redemption of Units, notices of assignment, transfer or pledge of Units and
reports by the General Partner to the Limited Partners shall be in writing and
shall be effective upon personal delivery, or if sent by first class mail,
postage prepaid, addressed to the last known address of the party to whom such
notice is to be given, upon the deposit of such notice in the United States
mail. Reports by the General Partner to the Limited Partners shall be in writing
and shall be sent by first class mail to the last known address of each Limited
Partner. Requests for redemption and notices of assignment, transfer or pledge
of Units shall be effective upon receipt by the Partnership.
16.3 BINDING EFFECT. This Agreement shall inure to and be binding upon
all of the parties, their successors, permitted assigns, custodians, estates,
heirs and personal representatives. For purposes of determining the rights of
any Partner or assignee of Units hereunder, the Partnership and the General
Partner may rely upon Partnership records as to the identity of Partners and
assignees of Units.
16.4 CAPTIONS. Captions in no way define, limit, extend or describe the
scope of this Agreement or the effect of any of its provisions.
16.5 GOVERNING LAW. All the terms and provisions of this Agreement
shall be construed under the Act as in effect from time to time during the term
of the Partnership.
16.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first appearing above.
SHAFFER ASSET MANAGEMENT, INC.
By: /s/ Daniel S. Shaffer
Daniel S. Shaffer
President
/s/ Daniel S. Shaffer
Daniel S. Shaffer, as initial Limited Partner
/s/ Daniel S. Shaffer
Daniel S. Shaffer, as attorney-in-fact for the
Limited Partners
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EXHIBIT B
REQUEST FOR REDEMPTION
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: _______________
Social Security or taxpayer identification number: _______________
Dear Sir or Madam:
I hereby request redemption, as defined in and subject to the
provisions of the agreement of limited partnership of Shaffer Diversified Fund,
LP of (insert number) of units of limited partnership in the fund (if no number
is entered, the general partner will assume that the investor wishes to redeem
all units) at the net asset value per unit described in the prospectus of the
fund dated , 2000. Redemption is requested as of the close of business on the
last business day of the month ending immediately following receipt by the
general partner of this request for redemption; provided that, if this request
for redemption is not received at least 10 days prior to the month-end,
redemption shall be deemed to be requested as of the following month-end.
Redemption fees apply as described in the prospectus.
I represent and warrant that I am the true, lawful and beneficial owner
of the units to which this request for redemption relates with full power and
authority to request redemption of the units. The 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:
------------------------------------------
------------------------------------------
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(Signatures must be identical to name(s) in which units are registered.
Duly authorized persons should sign on behalf of entities.)
Signature: Date:
--------------------------------- ----------------------
Signature of joint investor: Date:
--------------------------------- ----------------------
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EXHIBIT C
SUBSCRIPTION REQUIREMENTS
GENERAL REPRESENTATIONS AND WARRANTIES
By executing the subscription agreement and power of attorney for
Shaffer Diversified Fund, LP, an investor in units of limited partner interest
in the fund represents and warrants to the fund, its general partner, the
commodity broker and the selling agent that solicited the subscription that:
- the investor is of legal age to execute the subscription
agreement and power of attorney and is legally competent to do
so;
- all information furnished by the investor or set forth in the
subscription agreement and power of attorney submitted by the
investor is correct and complete as of the date next to the
signature of the investor, and the investor will revise or
correct the information if any change in the information
occurs prior to acceptance of the subscription;
- unless clause (d) or (e) is applicable, the subscription is
made for the account of the investor and not as trustee,
custodian or nominee for another;
- the subscription, if made as custodian for a minor, is a gift
that the investor 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;
- if the investor is subscribing in a representative capacity,
the investor has full power and authority to purchase the
units and enter into and be bound by the subscription
agreement and 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 and enter into and
be bound by the subscription agreement and power of attorney
and become a limited partner pursuant to the agreement of
limited partnership;
- the investor either is not required to be registered with the
Commodity Futures Trading Commission or to be a member of the
National Futures Association or, if required to be so
registered, is duly registered with the CFTC and a member in
good standing of the NFA; and
- the investor 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 investor in the fund
will not constitute more than 10% of the net worth, exclusive
of home, furnishings and automobiles, of the investor.
ADDITIONAL STATE LAW SUITABILITY REQUIREMENTS
Some jurisdictions impose additional requirements on investors, 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 this prospectus. Investors who are residents of the following states
represent and warrant that they meet the following additional requirements
imposed by the states, in each case excluding from net worth the value of home,
furnishings and automobiles):
Alabama: The investment may not exceed 20% of net worth.
C-1
<PAGE> 71
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 $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.
Missouri: Net worth of at least $75,000 or net worth of at least
$30,000 and an annual taxable income of $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.
C-2
<PAGE> 72
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 $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
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: Net worth whereby the investment does not exceed 10% of such
net worth.
ERISA REQUIREMENTS
If the investor is acting on behalf of an "employee benefit plan" as
defined in and subject to the Employee Retirement Income Security Act of 1974 or
a "plan" as defined in section 4975 of the Internal
C-3
<PAGE> 73
Revenue Code of 1986, the individual signing this subscription agreement and
power of attorney as plan fiduciary further represents and warrants on behalf of
the investor that:
- the plan fiduciary has considered an investment in the fund
for such plan in light of the risks relating thereto;
- the plan fiduciary has determined that, in view of these
considerations, the investment in the fund is consistent with
the responsibilities of the plan fiduciary under ERISA;
- 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;
- an investment in the fund has been duly authorized and
approved by all necessary parties;
- none of the general partner, the commodity trading advisor,
the commodity broker or any selling agent, or any of their
respective affiliates, agents or employees:
- has investment discretion with respect to the plan
assets;
- 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 the advice will serve as a primary
basis for investment decisions with respect to the
plan assets and that the advice will be based on the
particular investment needs of the plan; or
- is an employer maintaining or contributing to the
plan;
- the plan fiduciary 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; and
- the plan fiduciary 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."
C-4
<PAGE> 74
EXHIBIT D
SUBSCRIPTION INSTRUCTIONS
Any person considering subscribing for units of limited partner
interest in Shaffer Diversified Fund, LP should carefully read and review a
current prospectus. The prospectus 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 SHOULD BE NO EARLIER THAN NINE MONTHS AGO. IF THE DATE IS
MORE THAN NINE MONTHS AGO, NEW MATERIALS ARE AVAILABLE AND SHOULD BE UTILIZED.
Enter the total dollar amount being invested on LINE 1. Initial minimum
$5,000 for trustees, IRAs and other tax-exempt accounts and NASD registered
broker-dealers. Initial minimum $10,000 for other investors. Minimum $1,000 for
additional investments.
Enter the brokerage account number of the investor on LINE 2, and check
the box if the account is to be debited for investment.
Enter the Social Security or taxpayer identification number on LINE 3,
and check the appropriate box to indicate ownership type. For individual
retirement accounts, enter the taxpayer identification number of the custodian
and the Social Security number of the investor.
Check the box in LINE 4 if this investment is an addition to an
existing account, and complete the account number.
Enter the name of the investor 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 entity name on LINE 5 and the name of the officer or contact person on
LINE 6. Investors 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 corporate resolution or bylaws.
Enter the legal address, which is the residence or domicile address
used for tax purposes, of the investor on LINE 7. Do not enter post office
boxes.
If the mailing address is different from the legal address, complete
LINE 8.
If an individual retirement account, enter the name and address of the
custodian on LINE 9.
The investor must sign and date LINE 10. If a joint account, both
investors must sign. In an individual retirement account, both the custodian and
the investor must sign.
The financial advisor must sign in LINE 11. Some broker-dealers also
require the signature of an office manager.
Enter the name of the selling firm and the name, number, address and
telephone number of the financial advisor in LINE 12.
D-1
<PAGE> 75
The financial advisor should send subscription agreements, payment and
any other required documents to:
- the administration or fund administration office of the
selling firm, if firm procedures require;
- the custodial firm, if one is required; or
- the fund at 70 West Red Oak Lane, White Plains, New York
10604, Attention: Fund Administration.
Send documents early in the month to reach the fund before month-end.
If payment is being made by wire transfer, the financial advisor should
contact either his or her fund administration department or the fund
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.
Subscriptions close on the last business day of each month. The fund
administration department of a selling firm may have an earlier deadline for
subscriptions.
A financial advisor having specific questions about the subscription
process should call the fund administration department of the fund at (800)
352-5265 or his or her fund administration department.
D-2
<PAGE> 76
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
DATED , 2000
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. I hereby irrevocably subscribe for the number
of units of limited partner interest in Shaffer Diversified Fund, LP set forth
herein at the net asset value per unit as set forth in the prospectus of the
fund dated , 2000. My check payable to the fund in the full amount of my
subscription accompanies this letter, or I have authorized the selling agent to
debit my customer securities account in the amount set forth on the reverse side
hereof.
REPRESENTATIONS AND WARRANTIES. I have received a copy of the
prospectus and the statement of additional information, in each case as amended
or supplemented. By signing this letter, I make the representations and
warranties set forth in Exhibit C to the prospectus entitled "Subscription
Requirements." In particular, I represent that I meet all financial standards
described in the prospectus, including the net worth and annual income
requirements.
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
attached as Exhibit A to the prospectus of the fund dated , 2000. In addition, I
agree to reimburse the fund and its general partner 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 Shaffer Asset Management, Inc. and to the payment of compensation
to Shaffer Asset Management, Inc. as described in the prospectus. 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.
POWER OF ATTORNEY. In connection with my purchase of units, I do hereby
irrevocably constitute and appoint Daniel S. Shaffer and his successors and
assigns as my true and lawful attorney-in-fact, with full power of 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, record and file any
documents or instruments considered necessary or desirable by the general
partner to carry out fully the provisions of the agreement of limited
partnership of the fund, including without limitation the execution of the
agreement of limited partnership and all amendments permitted by the terms
thereof to be entered into by the general partner. 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 the subscription has been submitted. The laws of the
State of Delaware shall govern this subscription agreement and power of
attorney.
D-3
<PAGE> 77
1. Amount of subscription: ______________________
2. If debit is to be made to customer securities account, account
number: ____________________.
3. Social Security or taxpayer identification number: _______ -
______ - ______.
<TABLE>
<CAPTION>
Taxable investors (check one): Non-taxable investors (check one):
<S> <C>
[ ] 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 (specify): _____________
[ ] Partnership
[ ] Grantor or other revocable trust
[ ] Trust other than grantor or revocable trust
</TABLE>
4. [ ] Existing account: ____________________.
5. Name: _________________________________________________________.
6. Additional information (see instructions): ________________________.
7. Address: __________________________________________
__________________________________________
__________________________________________
8. Mailing address (if different):
__________________________________________
__________________________________________
__________________________________________
9. Custodian name and mailing address:
__________________________________________
__________________________________________
__________________________________________
10. Signature: Date:
___________________________ ______________________
Signature of joint investor: Date:
___________________________ ______________________
D-4
<PAGE> 78
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 above 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 above 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.
FINANCIAL ADVISORS
I hereby certify that I have informed the investor 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 dated , 2000. I have also informed the
investor 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 investor concerning his or her investment objectives, other
investments, financial situation and needs and any other information known by
me, that investment in the fund is suitable for the investor in light of his or
her financial position, net worth and other suitability characteristics.
The financial advisor must sign below to substantiate compliance with
NASD Rule 2810.
Financial advisor signature: Date:
___________________________ ______________________
Office manager signature (if required Date:
by selling agent procedures):
___________________________ ______________________
Financial advisor name: __________________________________________
Address: __________________________________________
__________________________________________
__________________________________________
Telephone: __________________________________________
Facsimile: __________________________________________
email: __________________________________________
D-5
<PAGE> 79
SHAFFER DIVERSIFIED FUND, LP
15,000 UNITS OF LIMITED PARTNER INTEREST
-------------------------
PROSPECTUS
-------------------------
SHAFFER ASSET MANAGEMENT, INC.
GENERAL PARTNER
, 2000
UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The general partner of the registrant will pay offering expenses as
described in the prospectus included in this registration statement. The
registrant will reimburse the general partner for these expenses in 30 monthly
installments, up to the lesser of the actual amount or 2.5% of the aggregate
subscriptions accepted. The following is an estimate of the expenses for the
nine-month period following the date on which this registration statement is
filed.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.......................................... $ 3,960
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................................................................. 4,040
Total................................................................................... $200,000
</TABLE>
ITEM 14 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 14 of the agreement of limited partnership of the registrant,
which is included as Exhibit A to 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. This 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 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 fund
for claims arising out of alleged violations of federal or state securities laws
unless:
- there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the
particular indemnitee;
- the claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular
indemnitee; or
- 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.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits and financial statement schedules are filed
herewith and made a part of this registration statement.
II-1
<PAGE> 81
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 Form of Selling Agreement among the registrant, Shaffer Asset Management, Inc., ADM Investor
Services, Inc. and a selling agent.
3.1 Certificate of Limited Partnership of the registrant.
3.2 Agreement of Limited Partnership of the registrant dated as of August 29, 2000 (included as
Exhibit A to the prospectus included in this registration statement).
5.1 Opinion of McDermott, Will & Emery regarding legality of the units.
8.1 Opinion of McDermott, Will & Emery regarding federal income tax matters.
10.1 Advisory Agreement between the registrant and Shaffer Asset Management, Inc.
10.2 Commodity Trading Authorization between the registrant and Shaffer Asset Management, Inc.
10.3 Subscription Agreement and Power of Attorney (included as Exhibit D to the prospectus included
in this registration statement).
23.1 Consent of McDermott, Will & Emery (included in exhibits 5.1 and 8.1 to this registration
statement).
23.2 Consent of accountants.
99.1 Statement of additional information prepared in compliance with rules of the National Futures
Association.
</TABLE>
ITEM 17. UNDERTAKINGS.
Subject to the limitations set forth in Item 512 of Regulation S-K
under the Securities Act of 1933, 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;
(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, 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;
II-2
<PAGE> 82
(iv) that, for purposes of determining any liability under the
Securities Act of 1933, 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 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, 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 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 512(h) or otherwise, the
registrant had been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 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 and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of White
Plains, State of New York on September 25, 2000.
SHAFFER DIVERSIFIED FUND, LP
By: Shaffer Asset Management, Inc.
General Partner
By: /s/ Daniel S. Shaffer
Daniel S. Shaffer
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following person in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE NAME TITLE DATE
--------- ---- ----- ----
<S> <C> <C> <C>
/s/ Daniel S. Shaffer Daniel S. Shaffer President of General Partner September 25, 2000
(chief executive officer)
/s/ Daniel S. Shaffer Daniel S. Shaffer President of General Partner September 25, 2000
(chief accounting officer)
</TABLE>
II-3
<PAGE> 83
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C>
1.1 Form of Selling Agreement among the registrant, Shaffer Asset Management, Inc., ADM Investor
Services, Inc. and a selling agent.
3.1 Certificate of Limited Partnership of the registrant.
3.2 Agreement of Limited Partnership of the registrant dated as of August 29, 2000 (included as
Exhibit A to the prospectus included in this registration statement).
5.1 Opinion of McDermott, Will & Emery regarding legality of the units.
8.1 Opinion of McDermott, Will & Emery regarding federal income tax matters.
10.1 Advisory Agreement between the registrant and Shaffer Asset Management, Inc.
10.2 Commodity Trading Authorization between the registrant and Shaffer Asset Management, Inc.
10.3 Subscription Agreement and Power of Attorney (included as Exhibit D to the prospectus included
in this registration statement).
23.1 Consent of McDermott, Will & Emery (included in exhibits 5.1 and 8.1 to this registration
statement).
23.2 Consent of accountants.
99.1 Statement of Additional Information.
</TABLE>
