10-Q 1 c64278e10-q.txt QUARTERLY REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _________________ To _________________ COMMISSION FILE NUMBER: 0-23950 THE FULCRUM FUND LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CONNECTICUT 06-1456461 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (203) 861-1000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ 2 THE FULCRUM FUND LIMITED PARTNERSHIP QUARTER ENDED JUNE 30, 2001 INDEX PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Financial Condition as of June 30, 2001 (unaudited) and December 31, 2000 (audited) 3 Statements of Operations for the Three and Six Months Ended June 30, 2001 and 2000 (unaudited) 4 Statements of Changes in Partners' Capital (Net Asset Value) for the Six Months Ended June 30, 2001 and 2000 (unaudited) 5 Notes to Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 16 Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 2 3 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF FINANCIAL CONDITION June 30, 2001 (Unaudited) and December 31, 2000 (Audited) ----------

See accompanying notes. 3 4 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Three Months Ended June 30, 2001 and 2000 and For the Six Months Ended June 30, 2001 and 2000 (Unaudited) ----------

See accompanying notes. 4 5 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Six Months Ended June 30, 2001 and 2000 (Unaudited)

See accompanying notes. 5 6 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) ---------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. General Description of the Partnership The Fulcrum Fund Limited Partnership (the Partnership) is a Connecticut limited partnership which operates as a commodity pool. The Partnership engages in the speculative trading of futures contracts and options on futures contracts. It is subject to the regulations of the Commodity Futures Trading Commission, an agency of the United States (U.S.) government which regulates most aspects of the commodity futures industry; rules of the National Futures Association, an industry self-regulatory organization; and the requirements of commodity exchanges and Futures Commission Merchants (brokers) through which the Partnership trades. During 1999, the Partnership became subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, the Partnership is subject to the regulations of the Securities and Exchange Commission. Investments made prior to April 30, 1997 are referred to as "A Units" and investments made on or after April 30, 1997 are referred to as "B Units." The initial net asset value per B Unit was the net asset value per A Unit at April 30, 1997. The only difference between A Units and B Units are the advisor management and incentive fee rates in effect prior to November 1, 2000, as further described in Note 3. Effective January 1, 2001, A Units and B Units were converted into a single Unit utilizing the Net Asset Value per B Unit on December 31, 2000 of $1,145.25. The amounts reflected in the financial statements assume this conversion into a single Unit occurred on December 31, 2000. Accordingly, after the conversion of Units, the total number of outstanding Units at December 31, 2000 was 19,348.2327. On October 10, 2000, the name of the Partnership was changed from The Dennis Fund Limited Partnership to The Fulcrum Fund Limited Partnership. B. Method of Reporting The Partnership's financial statements are presented in accordance with accounting principles generally accepted in the United States of America, which require the use of certain estimates made by the Partnership's management. 6 7 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ---------- Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Commodities Gains or losses are realized when contracts are liquidated. Net unrealized gains or losses on open contracts (the difference between contract purchase price and quoted market price) are reflected in the statement of financial condition. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Brokerage commissions include other trading fees and are charged to expense when contracts are opened. D. Cash and Cash Equivalents Cash and cash equivalents includes cash and all highly liquid investments, including money market mutual funds and other investments with a maturity of three months or less from the date of purchase. E. Fixed Income Securities Fixed income securities are reported at market value plus accrued interest. Fixed income securities transactions are accounted for on the trade date. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Interest income is recorded on the accrual basis. F. Income Taxes The Partnership prepares calendar year U.S. and state information tax returns and reports to the partners their allocable shares of the Partnership's income, expenses and trading gains or losses. G. Foreign Currency Transactions The Partnership's functional currency is the U.S. dollar; however, it transacts business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the statement of financial condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently. 7 8 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ---------- Note 2. GENERAL PARTNER The General Partner of the Partnership is Kenmar Advisory Corp., which conducts and manages the business of the Partnership. The Limited Partnership Agreement requires the General Partner to maintain a capital account of no less than the lesser of 1% of the aggregate capital accounts of all partners or $500,000. For managing the continuing offering of units, the General Partner receives a monthly offering fee equal to 0.25% (3% annually) of that month's beginning Net Asset Value (as defined in the Limited Partnership Agreement) of the Partnership. The General Partner rebates to One Million Dollar Investors (as defined in the Confidential Private Placement Memorandum and Disclosure Document) who invested in the Partnership prior to August 1, 2000, a monthly amount equal to two-thirds of the offering fee applicable to such One Million Dollar Investors. All rebates to One Million Dollar Investors prior to January 1, 2001, were made by issuing additional B Units. Effective January 1, 2001, all rebates to One Million Dollar Investors are made by issuing additional Units. A portion of the brokerage commissions paid by the Partnership to the broker is, in turn, paid by the broker to the General Partner. Note 3. COMMODITY TRADING ADVISORS Effective November 1, 2000, the Partnership has advisory agreements with Beacon Management Corporation (USA) (Beacon) and Stonebrook Structured Products, LLC (Stonebrook) (the "commodity trading advisors"). Pursuant to the advisory agreement with Beacon, the Partnership pays a monthly management fee of 1/12 of 2% (2% annually) of the month-end Net Asset Value of the subaccount (as defined in the advisory agreement) and a quarterly incentive fee equal to 20% of Net New Trading Profits (as defined). Beacon pays up to 22.5% of its management and incentive fees to the General Partner. Pursuant to the advisory agreement with Stonebrook, the Partnership pays a monthly management fee equal to 1/12 of 1% (1% annually) of the month-end Net Asset Value of the subaccount (as defined) and a quarterly incentive fee equal to 10% of Net New Trading Profits (as defined). Stonebrook pays the entire incentive fee to the General Partner. During the period November 1, 2000 to June 30, 2001, the General Partner waived its right to all incentive fees to which it was entitled from Beacon and Stonebrook; accordingly, such incentive fees were not charged to the Partnership and the advisor incentive fees reported in the statement of operations have been reduced by the amount of such incentive fees waived by the General Partner. 8 9 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ---------- Note 3. COMMODITY TRADING ADVISORS (CONTINUED) Prior to November 1, 2000, the Partnership had an advisory agreement with Dennis Trading Group, Inc. (Dennis), a commodity trading advisor, pursuant to which the A Units paid a monthly management fee of 1/6 of 1% (2% annually) of the month-end Net Asset Value of the subaccount (as defined in the advisory agreement) and a quarterly incentive fee equal to 25% of the Net New Trading Profits (as defined). The commodity trading advisor and General Partner each received one-half of the management and incentive fees applicable to A Units. Pursuant to the advisory agreement, the B Units paid a monthly management fee of 1/12 of 1.75% (1.75% annually) of the month-end Net Asset Value of the subaccount (as defined) and a quarterly incentive fee equal to 27.5% of the Net New Trading Profits (as defined). Dennis received 3/7 of the management fee and 7/11 of the incentive fee applicable to B Units and the General Partner received 4/7 of the management fee and 4/11 of the incentive fee applicable to B Units. Note 4. DEPOSITS WITH BROKER The Partnership deposits cash with ED & F Man Inc. to act as broker, subject to Commodity Futures Trading Commission regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash with such broker. The Partnership earns interest income on its cash deposited with the broker. Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner. The subscription price is equal to the Net Asset Value of the units purchased plus a 5% selling commission, unless such selling commission is waived in whole or in part by the General Partner. Additions to partners' capital are shown net of such selling commissions which amounted to $7,388 and $97,923 during the six months ended June 30, 2001 and 2000, respectively. The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. A Limited Partner may request and receive redemption of units owned, subject to restrictions in the Limited Partnership Agreement. Note 6. TRADING ACTIVITIES AND RELATED RISKS The Partnership engages in the speculative trading of U.S. and foreign futures contracts and options on U.S. and foreign futures contracts (collectively, "derivatives"). The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts, and credit risk, the risk of failure by another party to perform according to the terms of a contract. 9 10 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ---------- Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED) Purchase and sale of futures and options on futures contracts requires margin deposits with the broker. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act requires a broker to segregate all customer transactions and assets from such broker's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with a broker are considered commingled with all other customer funds subject to the broker's segregation requirements. In the event of a broker's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than total cash and other property deposited. The Partnership has a substantial portion of its assets on deposit with brokers and dealers in securities and other financial institutions in connection with its cash management activities. In the event of a financial institution's insolvency, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits. For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership to potentially unlimited liability, and purchased options expose the Partnership to a risk of loss limited to the premiums paid. The General Partner has established procedures to actively monitor market risk and minimize credit risk. The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received. Note 7. INTERIM FINANCIAL STATEMENTS The statement of financial condition as of June 30, 2001, the statements of operations for the three months and six months ended June 30, 2001 and 2000, and the statements of changes in partners' capital (net asset value) for the six months ended June 30, 2001 and 2000, are unaudited. In the opinion of management, such financial statements reflect all adjustments, which were of a normal and recurring nature, necessary for a fair presentation of financial position as of June 30, 2001, and the results of operations for the three months and six months ended June 30, 2001 and 2000. 10 11 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) ---------- Note 8. FINANCIAL HIGHLIGHTS The following information contains per unit operating performance data for a unit outstanding during the entire three months and six months ended June 30, 2001, and other supplemental financial data. This information has been derived from information presented in the financial statements.

---------- * Excludes brokerage commissions ** Includes brokerage commissions *** Not annualized + Annualized 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The assets of the Fulcrum Fund Limited Partnership, formerly The Dennis Fund Limited Partnership (the "Partnership") are used to engage, directly or indirectly, in the speculative trading of (1) commodities, futures contracts, forward contracts, foreign exchange commitments, exchange for physicals, swap contracts, spot (cash) commodities and other items, options on the foregoing, and any rights pertaining to the foregoing contracts, instruments or investments ("Commodities") and (2) options, warrants, or other rights and any other investment or transaction (together with the Commodities, "Investments") that the Partnership's general partner, Kenmar Advisory Corp. (the "General Partner") deems, in its sole discretion, to be consistent with the objectives of the Partnership. From time to time, a portion of such proceeds may be used for transactions in the cash markets or for interbank trading. The assets of the Partnership are deposited with E.D. & F. Man International Inc. (the "Broker") in a trading account established by the Partnership for the commodity trading advisor and are used by the Partnership as margin to engage in trading. Such assets are held in either a non-interest bearing bank account or in securities approved by the Commodity Futures Trading Commission for investment of customer funds. In addition, certain of the Partnership's assets may also be placed in a custodial account with a cash manager to maximize the interest earned on assets not committed as margin. The commodity trading advisor for the Partnership is the Meka program of the Beacon Management Corporation ("Beacon" or the "Advisor"). The Partnership has also hired Stonebrook Structured Products, LLC's ("Stonebrook") Volatility Hedge Program, an overlay program designed to hedge the positions of traditional trend-following programs (such as the Advisor) during periods identified by Stonebrook's systems as "high-risk". CAPITAL RESOURCES The Partnership does not have, nor does it expect to have, any capital assets. Redemptions and sales of units of limited partnership interests ("Units") in the future will affect the amount of funds available for trading Investments in subsequent periods. There are only three factors that affect the Partnership's capital resources: (i) the trading profit or loss generated by the Advisor (including interest income); (ii) the money invested or redeemed by the limited partners of the Partnership (the "Limited Partners"); and (iii) capital invested or redeemed by the General Partner. The General Partner has maintained, and shall maintain, at all times a capital account in such an amount, up to a total of $500,000, as is necessary for the General Partner to maintain a one percent (1%) interest in the capital, income and losses of the Partnership. All capital contributions by the General Partner necessary to maintain such capital account balance shall be evidenced by Units of general partnership interest, each of which shall have an initial value equal to the Net Asset Value per Unit (as defined below) at the time of such contribution. The General Partner, in its sole discretion, may withdraw any excess above its required capital contribution without notice to the Limited Partners. The General Partner, in its 12 13 sole discretion, may also contribute any greater amount to the Partnership, for which it shall receive, at its option, additional Units of general partnership interest at their then-current Net Asset Value (as defined below). "Net Asset Value" of the Partnership is defined as total assets of the Partnership, including, but not limited to, all cash and cash equivalents, accrued interest, earned discount, and open Commodities positions, less total liabilities, including, but not limited to, brokerage commissions that would be payable with respect to the closing of open Commodities positions, all as determined in accordance with the principles set forth in the Limited Partnership Agreement of the Partnership, dated June 18, 1996 and as amended on December 15, 1997 (the "Partnership Agreement") or, where no such principles are specified therein, in accordance with United States generally accepted accounting principles applied on a consistent basis ("GAAP"). The term "Net Asset Value per Unit" is defined in the Partnership Agreement to mean the Net Asset Value of the Partnership divided by the number of Units outstanding as of the date of determination. RESULTS OF OPERATIONS The success of the Partnership is dependent upon the ability of the Advisor to generate trading profits through the speculative trading of Investments sufficient to produce capital appreciation after payment of all fees and expenses. Future results will depend in large part upon the Investment markets in general, the performance of the Advisor, the amount of additions and redemptions, and changes in interest rates. Due to the highly leveraged nature of Investment trading, small price movements may result in substantial losses. Because of the nature of these factors and their interaction, it is impossible to predict future operating results. The Partnership incurs substantial charges from the payment of brokerage commissions to the Broker, management and/or incentive fees to the Advisor, management fees, offering fees and/or incentive fees to the General Partner and operating expenses. The Partnership is required to make substantial trading profits to avoid depletion and exhaustion of its assets from the above-mentioned fees and expenses. Due to the nature of the Partnership's business, the Partnership's trading results depend on the Advisor and the ability of its individual trading system to take advantage of price movement or other profit opportunities in the Investment markets. The Advisor trades in various markets at different times and prior activity in a particular market does not mean that such markets will be actively traded by an Advisor or will be profitable in the future. Consequently, the results of operations of the Partnership can only be discussed in the context of the overall trading activities of the Partnership, the Advisor's trading activities on behalf of the Partnership as a whole and how the Partnership has performed in the past. In 1999 and 2000, commodity trading advisors ("CTAs") and the managed futures industry as a whole experienced their worst annualized performance since 1994. Trend-following CTAs, such as Dennis Trading Group ("DTG"), the former trading advisor for the Partnership, had a particularly difficult time owing to a marked lack of trends in all but a few markets. In November 2000, DTG resigned as the Advisor and was replaced by Beacon. That replacement coincided with a shift in the market environment as trends began to emerge throughout the global marketplace. In fact, for many commodities trading advisors, the fourth quarter of 2000 proved 13 14 to be a very favorable period, as these trends were of sufficient magnitude and duration to lift many trading advisors into positive territory for the year. For the industry as a whole it was one of the strongest performance periods in recent memory. In general, CTAs analyze the movement of prices in the commodity and financial futures markets to identify trends and the opportunities for profit which accompany them. Because a CTA can take long or short positions in the futures markets, the direction of a trend is less important than the existence of a trend itself. Beacon or another CTA has the potential to generate profits when prices are identified as trending downward, by going short or selling ahead of a price decline, and when prices appear to be trending upward, by going long or buying ahead of the rise in price. When prices are moving sideways (i.e., with little movement up or down) or are exhibiting significant short-term volatility (such as rapid intra-day or inter-day price swings) trends are few and far between, and CTA profits can be flat or negative. Some CTAs monitor long-term trends, some intermediate term, a few short-term. Beacon's trading strategy concentrates largely on long-term trends. The globally diversified portfolio is usually invested in all markets at all times, in varying degrees depending on current market volatility and price trends. DTG, the Partnership's former trading advisor, followed a strategy similar to Beacon's. The Partnership has hired Stonebrook's Volatility Hedge Program to mitigate risk during periods of market volatility. During 2000, DTG's trading policy was to increase leverage in its positions at the end of a profitable day and to decrease leverage at the end of a losing day. During much of 2000, there were very few consecutive profitable days. This meant that in most instances where leverage was increased at the end of a profitable day it was followed by a losing day thus increasing the loss for the next day. Conversely, since there were very few consecutive profitable days, on most profitable days DTG had committed the lowest leverage thus decreasing the profit for that day. The Company also believes that this had an adverse effect on its 2000 results. Set forth below is a comparison of the results of operations of the Partnership for the three-month and six-month periods ended June 30, 2001 and 2000. As of June 30, 2001, the Net Asset Value of the Partnership was $22,406,158, a decrease of approximately 3.03% from its Net Asset Value of $23,107,073 at March 31, 2001. The Partnership's subscriptions and redemptions for the quarter ended June 30, 2001 totaled $151,412 and $732,410, respectively. For the quarter ended June 30, 2001, the Partnership had revenues comprised of $5,900,616 in realized gains, ($5,636,799) in change in unrealized losses and $161,244 in interest income compared to revenues comprised of ($13,198,473) in realized losses, ($803,254) in change in unrealized losses and $550,813 in interest income for the same period in 2000. The total income for the second quarter of 2001 increased by $13,875,975 from the same period in 2000, while total expenses decreased by $1,537,805 between these periods. The Net Asset Value per Unit decreased .38% from $1,241.52 at March 30, 2001 to $1,236.82 at June 30, 2001. The Net Asset Value of the Partnership increased $247,603, or 1.12%, from December 31, 2000 through June 30, 2001. The Partnership's subscriptions and redemptions for the six months ended June 30, 2001 totaled $595,824 and $2,013,583, respectively. For the six months ended June 30, 2001, the Partnership had revenues comprised of $6,842,835 in realized gains, 14 15 ($3,957,750) in change in unrealized losses and $310,927 in interest income compared to revenue comprised of ($11,848,835) in realized losses, ($477,045) in change in unrealized losses and $1,208,120 in interest income for the same period in 2000. The total income for the six months of 2001 increased by $14,313,772 from the same period in 2000 while expenses decreased by $2,469,904 between these periods. The Net Asset Value per Unit increased 8.00% from $1,145.25 at December 31, 2000 to $1,236.82 at June 30, 2001. For the reasons described in this Management's Discussion and Analysis, past performance is not indicative of future results. As a result, any recent increases in net realized or unrealized trading gains may have no bearing on any results that may be obtained in the future. LIQUIDITY Although there is no public market for the Units, a Limited Partner may redeem its Units in the Partnership as of any month-end upon ten (10) days' written notice to the General Partner in the form of a request for redemption. With respect to the Partnership's trading, in general, the Advisor will trade only Investments that have sufficient liquidity to enable it to enter and close out positions without causing major price movements. Notwithstanding the foregoing, most United States commodity exchanges limit the amount by which certain commodities may move during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits." Pursuant to such regulations, no trades may be executed on any given day at prices beyond daily limits. The price of a futures contract has occasionally moved the daily limit for several consecutive days, with little or no trading, thereby effectively preventing a party from liquidating its position. While the occurrence of such an event may reduce or effectively eliminate the liquidity of a particular market, it will not limit ultimate losses and may in fact substantially increase losses because of this inability to liquidate unfavorable positions. In addition, if there is little or no trading in a particular futures or forward contract that the Partnership is trading, whether such illiquidity is caused by any of the above reasons or otherwise, the Partnership may be unable to execute trades at favorable prices and/or may be unable or unwilling to liquidate its position prior to its expiration date, thereby requiring the Partnership to make or take delivery of the underlying interest of the Investment. The Partnership's trading also may be impacted by the various conflicts of interest between the Partnership and the General Partner, the Advisor, Stonebrook, the Broker, and their affiliates. SAFE HARBOR STATEMENT The discussions above and under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk" contain certain "forward-looking statements" (as such term is defined in Section 21E of the Securities Exchange Act of 1934) that are based on the beliefs of the Partnership, as well as assumptions made by, and information currently available to, the Partnership. Words such as "expects," "anticipates" and similar expressions have been used to identify "forward-looking statements" but are not the exclusive means of identifying such statements. A number of important factors could cause the Partnership's actual results, performance or achievements for 2001 and beyond to differ materially from the results, performance or achievements expressed in, or implied by, such forward-looking statements. 15 16 These factors include, without limitation, risk of failure by third parties to perform according to contract terms and the factors described above and under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk." See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2000 for further discussion. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Derivative instruments involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates or foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments frequently result in changes in the Partnership's unrealized profit (loss) on such derivative instruments as reflected in the Statements of Financial Condition included herein. The Partnership's exposure to market risk is influenced by a number of factors, including the relationships among derivative instruments held by the Partnership, as well as the volatility and liquidity of the markets in which the financial instruments are traded. There has been no material change, during the three and six months ended June 30, 2001, in the sources of the Partnership's exposure to market risk. The General Partner has procedures in place intended to control the Partnership's exposure to market risk, although there can be no assurance that it will, in fact, succeed in doing so. These procedures focus primarily on monitoring the trading of the Advisor selected from time to time for the Partnership, calculating the Net Asset Value of the Advisor's respective Partnership accounts as of the close of business on each day and reviewing outstanding positions for over-concentrations. While the General Partner will not itself intervene in the markets to hedge or diversify the Partnership's market exposure, the General Partner may urge the Advisor to reallocate positions, or itself reallocate Partnership assets among different Advisors (although typically only as of the end of a month) in an attempt to avoid over-concentrations. However, such interventions would be unusual. Except in cases in which it appears that an Advisor has begun to deviate from past practice or trading policies or to be trading erratically, the General Partner's basic risk control procedures consist of the ongoing process of Advisor monitoring and selection, with the market risk controls being applied by the Advisor itself. PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. In June, 1996, the Partnership commenced a private placement of Units in reliance on the exemptions afforded by, among others, Section 4(2) of the 1933 Act and Rule 506 of Regulation D promulgated thereunder. Units are offered monthly at a price per Unit equal to the then-current Net Asset Value per Unit plus a selling commission equal to 5% unless such selling commission is waived in whole or in part. The minimum subscription is $26,250 for new investors other than Employee Benefit Plans or $10,500 for Employee Benefit Plans and existing Limited Partners, which amounts include selling commissions of $1,250 and $500, respectively. During the second quarter of 2001, 128.6274 Units were sold for a total of $151,412. 16 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are filed with this Report or incorporated by reference as set forth below: Exhibit No. Description 3.1* Amended Certificate of Limited Partnership for the Fulcrum Fund Limited Partnership. 3.2* Limited Partnership Agreement of the Fulcrum Fund Limited Partnership, dated June 18, 1996 as amended December 15, 1997 and further amended October 10, 2000. 10.1** Customer Agreement between the Partnership and E.D. & F. Man International, Inc., dated August 27, 1996. 10.2* Cover letter and Model Sub-Advisory Agreement between The Fulcrum Fund Limited Partnership and Beacon Management Corporation dated January 1, 1998. 10.3* Cover letter and Model Sub-Advisory Agreement between The Dennis Fund Limited Partnership and Stonebrook Structured Products, LLC dated January 1, 1998. * Incorporated herein by reference to the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. ** Incorporated herein by reference to the Partnership's Registration Statement on Form 10 dated June 22, 1999. (b) Reports on Form 8-K The Partnership did not file any reports on Form 8-K during the second quarter of 2001. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FULCRUM FUND LIMITED PARTNERSHIP By: Kenmar Advisory Corp., general partner Dated: August 13, 2001 By: /s/ Kenneth A. Shewer ---------------------------------------- Kenneth A. Shewer Chairman (Duly Authorized Officer of the General Partner) Dated: August 13, 2001 By: /s/ Thomas J. DiVuolo ---------------------------------------- Thomas J. DiVuolo Senior Vice President (Principal Financial and Accounting Officer of the Registrant) 18

FULCRUM FUND LIMITED PARTNERSHIP 10-Q