10-K 1 c68512e10-k.txt FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2001 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-26459 THE FULCRUM FUND LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) CONNECTICUT 06-1456461 ----------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) TWO AMERICAN LANE, P.O. BOX 5150, GREENWICH, CONNECTICUT 06831-8150 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (203) 861-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS (Title of Class) 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The registrant has no outstanding voting or non-voting common equity. ================================================================================ ITEM 1. BUSINESS. The discussion below and elsewhere in this Form 10-K contains "certain forward-looking statements" (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act")) that are based on the beliefs of the Partnership (as defined below), as well as assumptions made by, and information currently available to, the Partnership. A number of important factors could cause the Partnership's actual growth, results, performance and business prospects and opportunities in 2002 and beyond to differ materially from those expressed in, or implied by, any such forward-looking statements. These factors include, without limitation, the factors described below and elsewhere in this Annual Report on Form 10-K. OVERVIEW The Fulcrum Fund Limited Partnership (formerly known as the Dennis Fund Limited Partnership and referred to herein as the "Partnership") was formed as a limited partnership on June 18, 1996 under the Connecticut Uniform Limited Partnership Act (the "Partnership Act"). The Partnership maintains its principal office at Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150, with a telephone number of (203) 861-1000. The Partnership is engaged in the business of trading, buying, selling, spreading, swapping or otherwise acquiring, holding or disposing of 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 throughout the world ("Commodities"). The objective of the Partnership's business is appreciation of its assets through the speculative trading of Commodities. Although currently the Partnership's activities are intended to be limited to trading Commodities and investing capital not needed for margin purposes in securities approved by the Commodity Futures Trading Commission (the "CFTC") for investment of customer funds, the Limited Partnership Agreement of the Partnership, dated June 18, 1996 and as amended on December 15, 1997 (the "Partnership Agreement"), also permits the Partnership to trade (i) any security as defined in Section 2(1) of the Securities Act of 1933, as amended (the "1933 Act"), (ii) any option, warrant or other right on or pertaining to any of the foregoing, whether in the United States of America or anywhere else throughout the world, and (iii) any other investment or transaction that the General Partner (as defined herein) deems, in its sole discretion, to be consistent with the objectives of the Partnership (with Commodities, collectively, the "Investments"). In June 1996, the Partnership commenced a private placement of units of limited partnership interest ("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. 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. On 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, the total number of outstanding Units at December 31, 2000 was 19,348.2327. Units are offered at a price per Unit equal to the then-current Net Asset Value per Unit (as defined below) plus a selling commission equal to 5% unless such selling commission is waived in whole or in part by the General Partner. Since the Partnership began the private placement in 1996, through December 2001, 45,015 Units had been sold for a total of $69,465,321. The minimum subscription is $26,250 for new investors other than Employee Benefit Plans (as defined herein) or $10,500 for Employee Benefit Plans and existing limited partners of the Partnership ("Limited Partners"), which 2 amounts include selling commissions of $1,250 and $500 respectively. "Net Asset Value" of the Partnership in general means 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 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"). "Net Asset Value per Unit" means the Net Asset Value of the Partnership divided by the number of Units outstanding as of the date of determination. The value of all Commodities shall be the market value thereof. The market value of a Commodity traded on an exchange shall be based upon the settlement price on the exchange on the date of determination; provided, however, that if a Commodity could not be liquidated on the day with respect to which the assets of the Partnership are being determined, the settlement price on the first subsequent day on which the contract could be liquidated shall be the basis for determining the liquidating value thereof. The market value of a forward contract, a swap contract, or any other off-exchange contract, instrument, or transaction shall mean its market value as determined by the General Partner on a basis consistently applied. Investors receive a Confidential Private Placement Memorandum and Disclosure Document (the "Disclosure Document") which sets forth the material terms of the investment. The Disclosure Document is updated every nine (9) months or upon any material change (whichever is sooner), as required by the regulations promulgated under the Commodity Exchange Act, as amended (the "CE Act"), and filed with the CFTC for compliance therewith. Since October, 1996, the Partnership has engaged in the speculative trading of Investments and will continue to do so until its dissolution and liquidation, which will occur on the earlier of December 31, 2026 or the occurrence of any of the events set forth in Article VIII, Section 8.1 of the Partnership Agreement. The Partnership's general partner, Kenmar Advisory Corp. (the "General Partner"), is a Connecticut corporation formed in September 1983 as a New York corporation and subsequently reorganized as a Connecticut corporation in January 1996. Kenneth A. Shewer is its Chairman, and Marc S. Goodman is its President. Messrs. Shewer and Goodman are the General Partner's sole directors. All of the General Partner's stock is owned directly by Kenmar Holdings Inc., which is ultimately owned, indirectly and equally, by Messrs. Shewer and Goodman. The General Partner has been registered with the CFTC as a commodity pool operator ("CPO") and has been a member in good standing of the National Futures Association (the "NFA") in such capacity since February 1984. The registration of the General Partner with the CFTC and its membership in the NFA must not be taken as an indication that any such agency or self-regulatory body has recommended or approved either the General Partner or the Partnership. Under the Partnership Agreement, responsibility for managing the Partnership is vested solely in the General Partner. The Limited Partners will not participate in the management or operations of the Partnership. Any participation by a Limited Partner in the management of the Partnership may jeopardize the limited liability of such Limited Partner. Responsibilities of the General Partner include, but are not limited to, the following: selecting and monitoring the commodity broker(s); determining whether the Partnership will make distributions; administering redemptions of Units; preparing periodic and annual reports to the Limited Partners; preparing reports, filings, registrations, and other documents required by applicable regulatory bodies, exchanges or boards; depositing the Partnership's assets in the form of cash in an account or accounts at banks or brokers selected by the General Partner; borrowing money (but only in connection with making or taking delivery of a Commodity); directing the investment of the Partnership's assets; executing various documents on behalf of the Partnership and the Limited Partners 3 pursuant to the power of attorney described below; and supervising the liquidation of the Partnership if an event causing termination of the Partnership occurs. To facilitate the execution of various documents by the General Partner on behalf of the Partnership, each of the Limited Partners appoints the General Partner, with full power of substitution, such Limited Partner's attorney-in-fact by executing the Signature Page of the Partnership Agreement and Power of Attorney and by becoming a Limited Partner. The Partnership itself does not have any employees. Rather, the General Partner, in its capacity as a CFTC-regulated CPO, employs 35 persons as of December 31, 2001 and provides the Partnership with the services of certain personnel to conduct its operational activities. Effective November 1, 2000, the commodity trading advisor ("CTA") to the Partnership is the Meka Program of Beacon Management Corporation ("Beacon"), a Delaware corporation and registered CTA and CPO (the "Advisor"). Prior to that time, the Partnership's commodity trading advisor was the Dennis Trading Group. The Advisor is responsible for making the trading decisions for the Partnership. In addition, the Partnership, Effective November 1, 2000, hired the Volatility Hedge Program of Stonebrook Structured Products, LLC ("Stonebrook"), an overlay program designed to hedge the positions of traditional trend-following programs during periods identified by Stonebrook's systems as "high risk." This overlay program was eliminated in October 2001. Investors should note that the Advisor is the sole advisor for the Partnership. The Partnership is not an operating company with "traditional" income or expenses. It is a stand-alone investment vehicle that offers investors the opportunity to participate in the futures markets under the guidance of a professional CTA. The General Partner has complete discretionary authority regarding the admission of additional Limited Partners and may admit additional Limited Partners under terms and conditions comparable to or different from those under which the existing Limited Partners were solicited. FEES AND EXPENSES All owners of Units pay the same Advisor fees as described below. FEES TO THE GENERAL PARTNER OFFERING FEE. For managing the continuing offering of Units, as of the end of each month, the Partnership currently pays to the General Partner a fee (the "Offering Fee") equal to 0.25% (3% annually) of that month's beginning Net Asset Value of the Partnership except that the Offering Fee for Million Dollar Investors will equal 0.0833% (1% annually) of each month's beginning Net Asset Value of the Partnership. A Million Dollar Investor will be charged the reduced Offering Fee by receiving a rebate equal to two-thirds of the Offering Fee. The amount of this reduction will be rebated monthly by the General Partner to the Partnership for the benefit of such Million Dollar Investor in the form of additional Units. A "Million Dollar Investor" is an investor whose aggregate investment in the Partnership (net of redemptions and excluding any appreciation and/or depreciation in Net Asset Value) equals or exceeds $1,000,000. The General Partner, in its sole and absolute discretion, will determine whether an investment or series of investments qualifies for treatment as a Million Dollar Investor. The General Partner, in its sole discretion, is authorized to set its compensation for managing the continuing offering of Units. For additional information on the General Partner's authority, see "Conflicts of Interest -- The General Partner" below. ADVISORY FEES. As compensation for managing the Partnership, the General Partner currently receives 22.5% of the management and incentive fee of the Advisor. 4 Out of all compensation paid to the General Partner, the General Partner may also pay selling agents additional selling compensation and/or compensation for ongoing services up to 3% annually. FEES TO THE ADVISOR MANAGEMENT FEES. Pursuant to the Advisory Agreement (as defined herein), the Partnership currently pays to the Advisor a monthly management fee (the "Management Fee"). The monthly Management Fee is equal to 1/12 of 2% (2% annually) of the month-end Net Asset Value of the Partnership. The Management Fees paid for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 are set forth in a table on page 6 of this Form 10-K. INCENTIVE FEES. Pursuant to the Advisory Agreement, the Partnership currently pays to the Advisor a quarterly incentive fee equal to 20% of the Net New Trading Profits. During the period November 1, 2000 to March 31, 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 ultimately charged to the Partnership, and the gross amount of advisor incentive fees reflected in the statements of operations has been reduced after total expenses by the advisor incentive fees waived which amounted to $123,124, $134,396 and $0 during the years ended December 31, 2001, 2000, and 1999, respectively. Subsequent to this time, the General Partner resumed its collection of incentive fees. For the year ended 2001, the General Partner did not collect any incentive fees from the Partnership. The incentive fees paid for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 are set forth in a table on page 6 of this Form 10-K. "Net New Trading Profits" in general means the net trading profits (realized and change, if any, in unrealized) earned on the Partnership's net assets (excluding interest or interest-equivalent income), decreased by brokerage commissions (paid and change, if any, in accrued) and the Management Fee, with all such items determined from the first day of the calendar quarter that immediately follows the last calendar quarter for which an incentive fee was earned by the Advisor (or, if no incentive fee was earned previously by the Advisor, from the commencement of trading) to the close of business on the last day of the calendar quarter with respect to which such incentive fee calculation was made. Operating expenses of the Partnership do not reduce Net New Trading Profits when calculating the Advisor's incentive fee. Pursuant to arrangements between the Advisor and the General Partner: (i) the Advisor receives 77.5% and the General Partner 22.5% of the management and incentive fees payable to the Advisor, (ii) Stonebrook received all of the management fees payable to Stonebrook, and (iii) Stonebrook received 75% and the General Partner 25% of the incentive fee payable to Stonebrook. OTHER FEES AND EXPENSES BROKERAGE COMMISSIONS. The Partnership's current brokerage commission expense is $10 per roundturn transaction plus administrative "give-up" fees. ADMINISTRATIVE AND ONGOING OPERATING FEES AND EXPENSES. The Partnership will pay all administrative and ongoing operating fees and expenses. Ordinary administrative expenses include, but are not limited to, accounting, auditing, record keeping, administration, computer and clerical expenses (including expenses incurred in preparing reports and tax information to Limited Partners and regulatory authorities, printing and duplication expenses and mailing expenses), legal fees and expenses and other expenses incurred by such persons and by the General Partner and its affiliates in providing services to the Partnership. Legal fees and expenses include outside counsel's fax and copying charges and other disbursements (such as filing fees, whether paid by the General Partner or outside counsel). Such fees were approximately 0.8% (annualized) of the Net Asset Value of the Partnership for 2001. 5 EXTRAORDINARY EXPENSES. The Partnership is responsible for all extraordinary expenses (e.g., litigation expenses) incurred on behalf of the Partnership. As of December 31, 2001, the Partnership has not paid, and does not anticipate paying, any extraordinary expenses. OTHER EXPENSES OF THE LIMITED PARTNERS Although not an expense of the Partnership, investors may be subject to a selling commission, payable to independent selling agents, equal to 5% of the then-current Net Asset Value per Unit unless the payment of all or any portion of such amount is waived. The Partnership furnishes each subscriber with monthly statements and a certified annual report of financial condition covering certain aspects of the Partnership's operations. The following chart reflects the actual fees and expenses for the periods presented.

CONFLICTS OF INTEREST There are substantial and inherent conflicts of interest in the structure of the Partnership which are, on their face, inconsistent with the fiduciary duties of the General Partner. Prospective investors should be aware that the General Partner presently intends to assert that Limited Partners have, by investing in the Partnership, consented to the following conflicts of interest in the event of any proceeding alleging that such conflicts violated any duty owed by the General Partner and its affiliates ("Kenmar") to investors. THE GENERAL PARTNER The General Partner, in its sole discretion, is authorized under the Partnership Agreement to set the compensation it shall receive for its services as general partner of the Partnership. The General Partner may change its compensation to such amount and/or in such forms as the General Partner, in its sole discretion, shall determine without the consent of the Limited Partners; provided that the General Partner has given the Limited Partners ninety (90) days' prior written notice of such change. As such, the General Partner has a conflict of interest between limiting fees paid by the Partnership and generating fees for itself. Kenmar currently manages other commodity pools and managed accounts, each with a different combination of trading advisors, and intends to continue to solicit and manage the trading for these other commodity pools and managed accounts. Thus, Kenmar may be subject to conflicting demands in 6 respect of allocating management time, services and other functions between the activities the General Partner has undertaken with respect to the Partnership and the activities Kenmar has undertaken or will undertake with respect to other investors, commodity pools, managed accounts and/or trading advisors. As another consequence, the greater the amount of assets managed by Kenmar, the more difficult it may be for the General Partner to maintain the quality of these services. The General Partner and the Broker (as defined herein) maintain a business relationship unrelated to their efforts on behalf of the Partnership. Thus, the General Partner has a conflict between its responsibility to negotiate an amount and form of compensation to be paid to the Broker that best serves the Partnership's interests and the General Partner's desire to maintain its business relationship with the Broker. In addition, the General Partner may receive a brokerage commission rebate from the Broker. The General Partner and the Advisor maintain a business relationship unrelated to their efforts on behalf of the Partnership. A substantial amount of the assets under the management of the Advisor are assets of pools and accounts managed by the General Partner or an affiliate. Thus, the General Partner has a conflict between its responsibility to negotiate an amount and form of compensation to be paid to the Advisor that best serves the Partnership's interests and the General Partner's desire to maintain its business relationship with the Advisor. Neither the General Partner nor any of its affiliates, principals, directors, officers or employees (the "Related Persons") trade Commodities for their own accounts, although it is possible that they may do so in the future. The records of such trading and any written policies related thereto would not be available to the Limited Partners. If the General Partner or a Related Person were to trade for their own accounts, they could take positions either similar or opposite to positions taken by the Partnership, and/or the Partnership and such Related Persons could from time to time be competing for similar Commodities. Orders placed by the General Partner or a Related Person to trade Commodities for their proprietary accounts may reach the market either before or after similar orders are placed for the Partnership and this difference in timing may result in the Partnership receiving less favorable (or more favorable) prices than those received by such proprietary accounts. Neither the General Partner nor any Related Person places orders for the Advisor and, therefore, neither the General Partner nor any Related Person has control over such timing. It is also possible that the positions taken by such proprietary accounts may not be held for the same period of time as those positions taken by the Partnership. Thus, it is unlikely that trading results in such proprietary accounts would be the same as the performance in the Partnership's account. The Partnership and the General Partner are affiliated entities and are represented by the same counsel, Katten Muchin Zavis, Chicago, Illinois. No independent experts or professionals have been retained on behalf of the Limited Partners. To the extent that Limited Partners would benefit by further independent representation, that benefit will not be available to Limited Partners and they are advised to seek independent counsel. THE ADVISOR The Advisory Agreement (as defined herein) allows the Advisor and its principals to manage other commodity pools and managed accounts as well as trade for its own proprietary accounts. Since the Advisor trades other accounts, the Advisor is subject to conflicting demands in respect of allocating management time, services and other functions between the Partnership and such other accounts. In particular, the Advisor may have a conflict of interest when rendering advice to the Partnership because its compensation for managing some other account may differ from its compensation for managing the Partnership's account, and therefore may provide an incentive to favor such other account. 7 The Advisor may in the future develop and furnish to, or employ on behalf of, other investors trading methods or strategies for trading similar to or different from those employed and traded on behalf of the Partnership's account and pursuant to which such other investors may take positions similar to or opposite from positions taken by the Partnership. No assurance may be given that the trading results in such other accounts will be the same as or similar to the performance in the Partnership's account. The Advisor and its employees trade Commodities for their own accounts. The records of such trading and any written policies related thereto will not be available for inspection by Limited Partners. Such trading activity could differ from the trading activity of the Partnership. For example, the trading positions taken and the length of time such positions are held by the Partnership could differ from those taken with respect to such proprietary accounts. In addition, such proprietary accounts could be charged brokerage commissions in a significantly different form and amount than those charged the Partnership and, as a result, the Advisor could be more or less likely to modify, liquidate or open a position for that account than for the Partnership's account. Orders for trades for such proprietary accounts could be placed either before or after similar orders are placed for the Advisor's investor accounts, and this difference in timing could result in the investor accounts receiving less favorable (or more favorable) prices than those received by such proprietary accounts. Thus, no assurance may be given that the trading results in such proprietary accounts will be similar to the performance in the Partnership's account. The CFTC and certain United States commodity exchanges have established "speculative position limits" that limit the net long or net short speculative position any person(s) may hold, own or control in a particular Commodity on any given day. An Advisor and its principal(s) may, on any given day, trade up to the position limit established by such regulatory authorities and, therefore, might be unable to trade those Commodities for the Partnership. The effect of speculative position limits may be to preclude the Advisor and, consequently, the Partnership, from taking potentially profitable positions, thereby reducing the profit potential of the Partnership. THE BROKER The Broker effects transactions for other customers (including public and private commodity pools) who may compete with the Partnership's transactions, including with respect to priorities of order entry. In addition, employees of the Broker may trade for their own accounts. Since the identities of the purchaser and seller are not disclosed until after the trade, it is possible that a Broker could effect transactions for the Partnership in which the other parties to the transactions are that Broker's officers, directors, employees, customers or affiliates. Such persons might also compete with the Partnership in making purchases or sales of Commodities without knowing that the Partnership is also bidding on such Commodities. Since orders are filled in the order in which they are received by a particular floor broker, transactions for any of such persons might be executed when similar trades for the Partnership are not executed or are executed at less favorable prices. However, in entering orders for the Partnership and such other customer accounts, the Broker will attempt to achieve an equitable treatment of all accounts, including with respect to priorities of order entry and allocations of executed trades. In addition, CFTC regulations prohibit a futures commission merchant ("FCM") from utilizing its knowledge of one customer's trades for its own or its other customers' benefit. RECOURSE BY LIMITED PARTNERS In evaluating the foregoing potential and actual conflicts of interest, an investor should be aware that the General Partner will have a responsibility to the Limited Partners to exercise good faith and fairness in all dealings affecting the Partnership. The responsibility of a general partner to limited partners is a changing area of the law and Limited Partners who have questions concerning the responsibilities of the General Partner should consult their legal counsel. In the event that a Limited 8 Partner believes that the General Partner has violated its responsibilities, the Limited Partner may seek legal relief for himself and all other similarly situated Limited Partners or on behalf of the Partnership under applicable laws to recover damages from, or to require an accounting by, the General Partner. Furthermore, Limited Partners are afforded certain rights to institute reparation proceedings under the CE Act for violations of the CE Act or of any rule, regulation or order of the CFTC by the General Partner or the Broker. A Limited Partner may also institute legal proceedings in court against the General Partner, the Broker or the Advisor for certain violations of the CE Act or rules, regulations or orders of the CFTC. Excessive trading of the Partnership's account has been held to constitute a violation of the antifraud provisions of the CE Act. Limited Partners should be aware that it may be difficult to establish that excessive trading has occurred due to the broad trading discretion given to the General Partner in the Partnership Agreement and the Advisor in the Advisory Agreement, exculpatory provisions in the Partnership Agreement and in the Advisory Agreement, and the lack of definitive standards in judicial and administrative decisions as to what constitutes excessive trading. Under the exculpatory provisions of the Partnership Agreement, the General Partner shall not be liable to the Partnership or to any of the Partners except by reason of acts or omissions constituting fraud, willful misconduct, gross negligence or bad faith. Limited Partners may have a more limited right of action than they would absent such limitations. The Partnership has agreed to indemnify the General Partner and its Limited Partners, officers, directors, employees, and agents against any loss, liability, damage, cost, or expense resulting from any claim, action, or proceeding relating to the business or activities undertaken by them on behalf of the Partnership or actions taken or omitted to be taken by the General Partner in its capacity as such; provided that the conduct of such person did not constitute willful malfeasance or gross negligence and was done in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Partnership. Notwithstanding the foregoing, in any action brought by a Limited Partner in the right of the Partnership to which the General Partner or any other person indemnified pursuant to the foregoing are party defendants, any such person will be indemnified by the Partnership only to the extent and subject to the conditions specified in the Partnership Act. Also, indemnification of the General Partner or its affiliates by the Partnership will be limited for losses and liabilities resulting from violations of United States Federal, state or foreign securities law in connection with the offer or sale of Units. The CFTC has issued a statement of policy relating to indemnification of officers and directors of an FCM (such as the Broker) and its controlling persons under which the CFTC has taken the position that whether such an indemnification is consistent with the policies expressed in the CE Act will be determined by the CFTC on a case-by-case basis. COMMODITIES TRADING GENERALLY TRADING COMMODITIES IS SPECULATIVE AND VOLATILE The profitability of the Partnership will depend primarily on the Advisor's ability to predict fluctuations in Commodity prices. Such prices are highly volatile and, in general, are influenced by a number of external factors, including, but not limited to, changing supply and demand relationships; agricultural, trade, fiscal, monetary and exchange control programs and policies of governments; national and/or international political and economic events and policies; and changes in interest rates. Certain additional factors may also affect individual Commodities or certain groups of Commodities. For example, currency Commodities are influenced by, among other things, political events (including restrictions on local exchanges or markets, limitations on investments in a country or on investment by residents of a country in other countries, and restrictions on currency flows); changes in balances of payments and trade; rates of inflation; international trade restrictions; currency devaluations and revaluations; and governmental intervention (which is often intended to influence prices directly). Metal 9 Commodities can be affected by, among other things, production and, particularly with respect to gold Commodities, governmental regulation. Agricultural Commodities are influenced by, among other things, unexpected weather, damage by insects or plant diseases and/or unexpected purchases by countries. The above list does not include all of the factors that influence the price of various Commodities or discuss how much influence each of those factors has on such prices. Volatile price movements may result in unprofitable trading by the Advisor, thereby resulting in losses to the Partnership. TRADING COMMODITIES IS HIGHLY LEVERAGED To trade futures contracts a trader is not required to deposit funds equal to the value of the futures contract; rather, the trader need only make a deposit, called an "initial margin deposit", equal to a small percentage (typically between 2% and 15%) of the value of the futures contract. As a result, a relatively small adverse move in the price of a futures contract may result in immediate and substantial losses to a trader. For example, if at the time of purchase 10% of the price of a futures contract is deposited as margin, a 10% decrease in the price of that contract would, if the contract were then closed out, result in a total loss of the initial margin deposit (brokerage commissions and other transaction costs also would be incurred). A decrease of more than 10% would result in a loss of more than the total initial margin deposit. Trading in the currency forward and interbank markets does not require margin but generally does require the extension of credit by a bank to those with whom that bank trades. The General Partner does not anticipate that the banks with which the Broker (or other commodity broker) and the Partnership may trade will require margin with respect to the trading of currencies. However, to ensure payment by the Partnership on currency contracts, the Broker (or other commodity broker) will generally require margin in amounts approximately equivalent to those required for trading foreign currency futures contracts on United States exchanges when the Partnership trades the same currencies for which futures contracts are traded on such exchanges and amounts that may be higher than such exchange margin requirements when the Partnership trades world currencies for which no futures contracts are traded on such exchanges. Thus, as with futures contracts, a relatively small adverse move in the price of a forward contract may result in a loss of an amount equal to or greater than the amount deposited. To some extent, options are even more highly leveraged than either futures or forward contracts. For example, if an in-the-money call (put) option is sold for its intrinsic value plus a premium representing the time value of that option, a 10% rise (drop) in the value of the underlying futures contract or physical commodity (the "Underlying Interest") does not create a loss equal to just 10% of the value of the option; rather it creates a loss approximately equal to 10% of the value of the Underlying Interest, less the time value, which loss may be many times greater than the price for which a trader sold the option. In addition, a trader who sells options is required only to deposit a percentage of the value of the option at the time of sale as margin, thereby leveraging the investment even further. Thus, like other leveraged investments, any purchase or sale of certain Commodities may result in losses in excess of the amount invested. Investors should note, however, that while the Partnership's assets are subject to losses in excess of margin deposits, a Limited Partner cannot lose more than his unredeemed capital contribution, undistributed profits (if any) and, under certain limited circumstances, capital distributed to him or received by him upon redemption, with interest thereon. TRADING COMMODITIES MAY BE ILLIQUID While the Partnership normally will trade only Commodities that have sufficient liquidity to enable the Partnership to enter and close out positions without causing value price movements, there is no assurance that intervening events, such as an exchange or the CFTC suspending trading in a particular 10 futures contract, ordering immediate liquidation or settlement of a particular futures contract or ordering trading in a particular futures contract be conducted for liquidation only, will not render a once-liquid Commodity illiquid. In addition, 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 the 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 his position. Similarly, trading options may become illiquid if trading in the Underlying Interest becomes illiquid. Also, it is possible that major banks may, from time to time, effectively stop making markets in certain currency forward contracts or that governments may intervene to stabilize or fix exchange rates or impose credit controls, thereby restricting or substantially eliminating trading in the affected currencies. While the occurrence of such events may reduce or effectively eliminate the liquidity of a particular market, they do 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. TRADING FORWARD CONTRACTS The Partnership may trade forward contracts in certain items (such as currencies and metals) with United States and foreign banks and dealers. A forward contract is a contractual obligation to purchase or sell a specified quantity of a Commodity at or before a specified date in the future at a specified price and, therefore, is similar to a futures contract. Forward contracts, however, are not traded on exchanges and, as a consequence, investors in forward contracts are not afforded the regulatory protections of such exchanges or the CFTC; rather, banks and dealers act as principals in such markets. Neither the CFTC nor banking authorities regulate trading in forward contracts on currencies, and non-United States banks may not be regulated by any United States governmental agency. The principals who deal in the forward contract markets are not required to continue to make markets in the forward contracts they trade. There have been periods during which certain participants in forward markets have refused to quote prices for contracts or have quoted prices with an unusually wide spread between the price at which they are prepared to buy and that at which they are prepared to sell. The Partnership may trade forward contracts with and through a limited number of entities. As a result, liquidity problems might be greater in the Partnership's forward trading than would be the case if trades were to be placed with and through a larger number of forward market participants. The imposition of exchange and credit controls or the fixing of currency exchange rates by governmental authorities (e.g., Latin American countries) might eliminate or substantially reduce trading in certain currencies and might limit such forward trading to less than the amount that the Advisor would otherwise recommend, to the possible detriment of the Partnership. See "Trading Commodities May be Illiquid" above. The amount of loss that may be claimed for tax purposes in respect of the Partnership's unprofitable forward trades may be limited by the loss limitation rules applicable to straddles. See "Income Tax Aspects". 11 Because performance under forward contracts is not guaranteed by any exchange or clearinghouse, the Partnership will be subject to the risk of the inability, or refusal by, the counterparty to perform with respect to such contracts. Any such failure or refusal, whether due to insolvency, bankruptcy or other causes, could subject the Broker (or other commodity broker) and in turn the Partnership to substantial losses. The Broker (or other commodity broker) and the Partnership will not be excused from the performance of any forward contracts into which they have entered due to the default of third parties in respect of other forward trades in the Advisor's trading strategies that were to have substantially offset such contracts. In addition, the CFTC has been studying the regulatory propriety of "exchange of futures for physicals" or "EFP" transactions, whereby traders are able to exchange positions in the forward markets for ones on regulated exchanges on a 24-hour basis. If the Partnership's ability to engage in such transactions were restricted, trading techniques that may be employed by the Advisor might be impaired to the potential detriment of the Partnership. TRADING OPTIONS Options on futures contracts and physical commodities are traded on United States and foreign exchanges. A call (put) option grants the purchaser thereof the right, but not the obligation, to buy (sell) the Underlying Interest during a certain period of time for a fixed price. An option is purchased for its intrinsic value, if any, plus a premium, representing the time value of that option. Unless the price of the Underlying Interest increases (decreases) by at least the time value of that option, the Partnership may lose the entire amount of such premium. (The more out-of-the-money an option is, the greater the increase (decrease) would have to be before the Partnership would recover the entire amount of such premium.) Conversely, if the Partnership sells an option (whether a call or a put), it will be credited with the sales price but will have to deposit margin due to its contingent liability to make or take delivery of the Underlying Interest in the event the option is exercised. A trader who sells options may be subject to loss in an amount equal to the entire price movement that occurs in the Underlying Interest (less any premium received) from the date he sold the option until the date he liquidates such position. The ability to trade or exercise options may be restricted in the event that trading in the Underlying Interest becomes restricted. Options trading on United States commodity exchanges is subject to regulation by both the CFTC and such exchanges. Options trading on foreign exchanges is not regulated by the CFTC. TRADING ON NON-UNITED STATES EXCHANGES The Partnership may trade Commodities on exchanges located outside of the United States, where CFTC regulations and other protections customary on United States exchanges may not apply. The Advisor has limited experience trading on non-United States exchanges and markets. The collapse of Baring Securities Limited ("Barings") in early 1995, which was caused by a Barings trader making a series of large, unauthorized and unprofitable trades in Japanese stock index futures and options contracts on the Singapore International Monetary Exchange and various Japanese exchanges, illustrated some of the potential risks of trading on foreign contract markets. Although, ultimately, customer funds were recovered, the Barings collapse, and much of the initial uncertainty regarding the disposition of customer funds and positions, may have been avoided had these foreign markets established certain regulatory practices and financial safeguards that exist in the United States, such as omnibus account reporting, strict customer funds segregation, position transfer mechanisms, and risk assessment and audit procedures. In contrast to United States exchanges, some non-United States exchanges are "principals' markets" in which performance with respect to a contract is the responsibility only of the individual member with whom the trader has entered into a contract. In the case of its trading on non-United States exchanges, the Partnership will be subject to the risk of the inability of, or refusal by, the counterparty to 12 perform with respect to such contracts. Any such failure could subject the Partnership to substantial losses or substantial reductions of the profits it might otherwise have realized. The Partnership will determine the Partnership's assets in United States dollars. Unless the Partnership hedges itself against fluctuations in exchange rates between the United States dollar and the currencies in which trading is done on such non-United States exchanges, any profits that the Partnership might realize in such trading could be eliminated as a result of adverse changes in exchange rates, and the Partnership could even incur losses as a result of any such changes. The Partnership, in general, does not intend to hedge itself against such fluctuations. TRADING FACILITIES AND ELECTRONIC TRADING Most open-outcry and electronic trading facilities are supported by computer-based component systems for the order-routing, execution, matching, registration and clearing of trades. As with all facilities and systems, they are vulnerable to disruption or failure. The Partnership's ability to recover losses may be subject to limits on liability imposed by the system provider, the market, the clearing house and/or member firms. Trading on an electronic system may differ not only from trading in an open-outcry market but also from trading on other electronic systems. If the Partnership undertakes transactions on an electronic trading system, the Partnership will be exposed to risks associated with the system including the failure of hardware and software. The result of any system failure may be that the Partnership's order is either not executed according to its instructions or is not executed at all. THE ADVISOR The Advisor is responsible for making the trading decisions for the Partnership. In addition, the Partnership, effective November 1, 2000, hired Stonebrook's Volatility Hedge Program, an overlay program designed to hedge the positions of traditional trend-following programs during periods identified by Stonebrook's systems as "high risk." This overlay program was eliminated in October 2001. Investors should note that the Advisor is the sole advisor for the Partnership. The Advisor has prepared the following description. This description is a summary and is therefore qualified in its entirety by reference to the detailed descriptions contained in the Advisor's disclosure documents, copies of which may be obtained by a prospective investor upon request to the General Partner. Due to the confidential and/or proprietary nature of most of the information, such as trading methods and strategies and the performance tables, the General Partner is relying on the Advisor for the accuracy thereof. THE ADVISOR Beacon Management Corporation has been selected as the Partnership's Advisor for its aggressive trading program (Meka), which offers the potential for high returns, albeit with commensurate risk. The Advisor employs a computerized system to determine trading signals. This system can be considered a "longer-term, technical trend-following" system. The nature of such long-term, trend-following systems, in general, is that they are most vulnerable, or "at risk", as trends mature and prices become overextended. During these periods, when prices move swiftly in a CTA's favor, large unrealized profits accrue while exit (stop) levels remain far from the current market price. Thus, when these trends reverse, trend-following systems often suffer large givebacks of unrealized gains. Thus, performance of technical trend-following systems can be quite cyclical and, with aggressive strategies such as Meka, volatile. 13 In an effort to address the potential for high volatility in the Advisor's Meka Program, an additional advisor was selected. This advisor, Stonebrook Structured Products LLC, will serve as the Partnership's "Overlay Provider" through use of its Volatility Hedge Program ("VHP"). VHP is an overlay program designed to pinpoint high-risk periods in market trends and to "hedge" the high-risk positions of a trend-following program in an effort to mitigate risk and improve the overall risk return profile relative to that of a stand-alone, trend-following program. As of October 22, 2001, the Partnership terminated its relationship with Stonebrook. BEACON MANAGEMENT CORPORATION Beacon Management Corporation is a Delaware corporation located at 47 Hulfish Street, Princeton, New Jersey 08542, with telephone number 609-924-5395. The Advisor offers managed trading programs in futures and options. The Advisor develops and implements computer systems that integrate futures research, trading, money management, and investment accounting. The principals of the Advisor are Grant W. Schaumburg Jr., Mark S. Stratton, Thomas J. Nash and Karen L. Zaramba. The Advisor continues the futures trading advisory business formerly conducted by Beacon Management Corporation N.V., a Netherlands Antilles corporation formed by Commodities Corporation in September 1982, and by Comtrade Associates, a partnership founded in 1977. The Advisor began trading client accounts in July 1980 and currently manages approximately $86 million. The Advisor is registered as a commodity trading advisor and commodity pool operator and is a member of the National Futures Association. Comtrade Associates registered as a commodity trading advisor in June 1978, and the Advisor registered in September 1982. DESCRIPTION OF MEKA PROGRAM The Meka program aggressively invests in a broad array of globally diversified assets using proprietary trading systems and portfolio allocation software. The program's objective is to use diversification and leverage to earn long-run returns from a variety of markets. Meka is executed in the futures markets, which provide excellent liquidity, facilitate asset allocation shifts, and offer flexible leverage. Meka generally maintains investments in the following markets: - global equity indices, such as U.S. large and small cap, Japanese, Australian, and European markets; - global bonds indices, such as U.S. long and intermediate Treasuries, and European bonds; - currency cross rates, such as the U.S. dollar vs. the Japanese Yen, the Euro, the British Pound, the Canadian Dollar, and the Australian dollar; - energy markets, such as crude oil, gasoline, and natural gas; metals, such as gold, silver, and copper; and - world commodity markets, such as grains, meats, coffee, and sugar. The implementation of Meka is quantitative and computer-based. Meka allocates exposure to each market based on the relationships among the different markets and among the trading systems. Exposure in many markets can be short or long, depending on various market conditions: the trading systems are predominantly trend-following in nature. Several different analytical approaches are employed in the portfolio, including (but not limited to) approaches based on moving averages, breakouts, 14 option replication, and volatility. They vary from short-term methods that trade almost every day to long-term methods that sometimes hold positions for over a year. THE ADVISORY AGREEMENT To utilize the commodity trading advice of the Advisor, the Partnership has entered into a management agreement (the "Advisory Agreement") with the Advisor. Set forth below is a brief description of certain points of the Advisory Agreement. INDEMNIFICATION. The Partnership has agreed to indemnify the Advisor from and against any loss, liability, claim, demand, damage, cost or expense (including reasonable attorneys' and accountants' fees) arising out of the Advisor's performance of its services except for certain actions by the Advisor, including but not limited to (i) a material breach of the Advisory Agreement; (ii) an act of, or omission to act due to, breach of fiduciary duty, bad faith, misconduct or negligence by the Advisor or its principals; or (iii) a materially misleading or untrue statement of material fact contained in the Advisor's disclosure document or an omission to state therein a material fact required to be stated therein or necessary to make the statements therein not materially misleading. The Advisor shall be liable to the Partnership for, and shall indemnify, hold harmless, and defend the Partnership from and against, any loss, liability, claim, demand, damage, cost and expense (including reasonable attorneys' and accountants' fees), to which the Partnership may become subject arising out of or based upon an act, omission, conduct or activity of the Advisor arising from (i) a material breach of any term of the Advisory Agreement; (ii) an act of, or omission to act due to, breach of fiduciary duty, bad faith, misconduct or negligence by the Advisor; or (iii) a materially misleading or untrue statement of material fact contained in the Advisor's disclosure document or an omission to state therein a material fact required to be stated therein or necessary to make the statements therein not materially misleading. STATUS. The Advisor is, and for all purposes shall be deemed to be, an independent contractor and, unless otherwise expressly provided in the Advisory Agreement or with the prior written authorization of the Partnership, the Advisor and its respective principals shall have no authority to act for or represent the Partnership in any way and shall not otherwise be deemed to be an agent of the Partnership. The Advisor is neither a sponsor nor a promoter of the Partnership. THE BROKER The General Partner has responsibility for monitoring the Partnership's brokers and for negotiation of their brokerage commission rates. The General Partner has selected Man Financial Inc ("Broker") to be the clearing broker for the Partnership. The Broker is registered under the CE Act, as amended, as an FCM and a CPO, and is a member of the NFA in such capacities. In addition, the Broker is registered with the National Association of Securities Dealers, Inc. as a broker-dealer. The Broker, which is part of the Man Group of companies, is a member of major United States futures and securities exchanges. The Broker's main office is located at 440 S. LaSalle Street, Chicago, Illinois 60605. The Broker's telephone number at such location is (312) 663-7500. At any given time, the Broker is involved in numerous legal actions and administrative proceedings, which in the aggregate, are not, expected to have a material effect upon its condition, financial or otherwise or to the services it will render to the Partnership. There have been no material, administrative, civil or criminal proceedings pending on appeal or concluded against the Broker or its principals within five years preceding the date of this report. The Broker acts only as clearing broker for the Partnership and as such is paid commissions for executing and clearing trades on behalf of the Partnership. The Broker has not passed upon the adequacy 15 or accuracy of this report. The Broker neither will act in any supervisory capacity with respect to the General Partner nor participate in the management of the General Partner or the Partnership. Therefore, prospective investors should not rely on the Broker in deciding whether or not to participate in the Partnership. CUSTOMER AGREEMENT The Partnership and the Broker have entered into a non-exclusive customer agreement (the "Customer Agreement") that provides that the Broker may execute some, and clear all, transactions by or on behalf of the Partnership in accordance with the instructions of the Advisor. The Broker is responsible for holding and maintaining certain Partnership assets; execution of some and clearance of all foreign currency Commodity transactions; preparation and transmittal of daily confirmations of transactions and monthly statements of account; calculation of equity balances and margin requirements, and similar transaction-related administrative functions. The Customer Agreement provides that the Partnership will post margin as required. For a description of the brokerage commissions payable, see "Item 1. Business -- Fees and Expenses--Other Fees and Expenses". ITEM 2. PROPERTIES. The Partnership does not own or lease any physical properties. The Partnership's office is located within the office of the General Partner at Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150. ITEM 3. LEGAL PROCEEDINGS. The General Partner is not aware of any material pending legal proceedings to which the Partnership or the General Partner is a party or to which any of its or the Partnership's assets is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of 2001. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION There is no established public trading market for the Units. HOLDERS There were approximately 330 holders of Units at March 15, 2002. DIVIDENDS Pursuant to the Partnership Agreement, distributions of profits, if any, will be made at the sole discretion of the General Partner. As of March 15, 2002 the General Partner had not made, and the General Partner does not currently intend to make, any distributions. 16 RELATED STOCKHOLDER MATTERS 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. Similar reliance has been placed on available exemptions from securities qualification requirements under applicable state securities laws. 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 benefit plan investors (within the meaning of Department of Labor Regulation ss.ss. 2510.3-101(f)(2) ("Employee Benefit Plans") that meet the minimum investment requirements that otherwise apply to prospective subscribers for Units, or $10,500 for Employee Benefit Plans and existing Limited Partners, which amounts include selling commissions of $1,250 and $500, respectively. A subscriber may subscribe for Units in excess of the foregoing minimum amount in increments of $1000. As of the date hereof, Units are continuing to be offered, and there is no maximum number of Units that may be purchased or sold. During the fourth quarter of 2001, 77.1373 Units were sold for a total of $69,115. 17 ITEM 6. FINANCIAL INFORMATION. SELECTED FINANCIAL DATA The following Selected Financial Data is derived from the audited financial statements of the Partnership for the years ended December 31, 2001, 2000, 1999, 1998 and 1997. The Partnership commenced trading operations on October 9, 1996. See "Index to Financial Statements" at page F-1.

-------- (1) On 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. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion below and elsewhere in this Form 10-K contains "forward looking" information that are based on the beliefs of the Partnership, as well as assumptions made by, and information currently available to, the Partnership. A number of important factors could cause the Partnership's actual growth, results, performance and business prospects and opportunities in 2002 and beyond to differ materially from those expressed in, or implied by, any such forward looking information. The assets of the Partnership are used to engage, directly or indirectly, in the speculative trading of Investments. 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 the Broker in a trading account established by the Partnership for the 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 CFTC for investment of customer funds. In addition, certain of the Partnership's assets may also be placed in a custodian account with a cash manager to maximize the interest earned on assets not committed as margin. CAPITAL RESOURCES The Partnership does not have, nor does it expect to have, any capital assets. Redemptions and sales of additional 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 profits or loss generated by the Advisor (including interest income); (ii) the money invested or redeemed by 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 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 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. 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 has incurred and will continue to incur 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 19 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 following paragraphs present a summary of the Partnership's operations for the years indicated. It is important to note, however, that the Advisor trades in various markets at different times and that 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, Commodity Trading Advisors ("CTAs") and the managed futures industry as a whole experienced their worst annualized performance since 1994. Trend-following CTAs had a particularly difficult time owing to a marked lack of trends in all but a few markets. In November 2000, Dennis Trading Group ("DTG") resigned as the Advisor and was replaced by the Meka Program of the Beacon Management Corporation ("Beacon") and the VHP operated by Stonebrook Structured Products, L.L.C. 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 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. During 2000 and 1999, 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 1999, 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. 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 1999 results compared to 1998. In 2001, results were dominated by a declining interest rate environment and the terrorist attacks of September 11. The Board of Governors of the Federal Reserve Board cut interest rates eleven times during the first ten months and provided one of the few consistent trends for industry CTAs in an otherwise difficult trading environment. The Meka Program provided market diversification as most 20 sectors were marginally profitable or unprofitable, with good gains coming in just the financials area. However, it became apparent that the long bias in stocks was becoming a burden on the Partnership, especially after September 11. When it was determined that the losses in the stock indices offset all gains in the other sectors, trading was halted in this sector at the end of October. In addition, it was felt that the VHP Overlay program was not cost efficient and was removed at the same time. The Partnership, which was down slightly at the end of October suffered its sharpest decline in November as bond prices plummeted in less than one week, undoing a large part of its gains in financials. The Meka Program never recovered from the losses in the stock indices, although no other sector reported more than a nominal loss. Set forth below is a summary of the results of operations of the Partnership for the calendar years 1999 through 2001. On 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. As of December 31, 2001, the Net Asset Value of the Partnership was $13,805,490, a decrease of approximately 37.70% from its Net Asset Value of $22,158,555 at December 31, 2000. The Partnership's 2001 subscriptions and redemptions totaled $726,086 and $4,353,579, respectively. For the year ended December 31, 2001, the Partnership had revenues comprised of $1,185,581 in realized gains, ($3,935,133) in unrealized losses and $475,826 in interest income. For that same year, the Partnership had expenses consisting of $707,365 in brokerage commissions, $598,204 in General Partner's offering fees, $560,105 in management fees, $424,094 in incentive fees and $162,078 in operating expenses. This resulted in the Partnership having net loss of ($4,725,572). The Net Asset Value per Unit at December 31, 2001 decreased 23.35% from $1,145.25 at December 31, 2000 to $877.83 at December 31, 2001. The Fund's trading losses during 2001 resulted primarily from losses in global stock indices, energies, and metals. As of December 31, 2000, the Net Asset Value of the Partnership was $22,158,555, a decrease of approximately 53.58% from its Net Asset Value of $47,732,793 at December 31, 1999. The Partnership's 2000 subscriptions and redemptions totaled $8,099,481 and $19,521,399, respectively. For the year ended December 31, 2000, the Partnership had revenues comprised of ($14,184,423) in realized losses, $5,159,280 in unrealized gains and $1,988,018 in interest income. For that same year, the Partnership had expenses consisting of $4,349,404 in brokerage commissions, $746,501 in management fees, $462,919 in incentive fees, $1,208,141 in General Partner's offering fees and $348,230 in operating expenses. This resulted in the Partnership having a net loss of ($14,152,320). The Net Asset Value per A Unit at December 31, 2000 decreased 25.49% from $1,609.53 at December 31, 1999 to $1,199.29 at December 31, 2000. The Net Asset Value per B Unit at December 31, 2000 decreased 25.35% from $1,534.23 at December 31, 1999 to $1,145.25 at December 31, 2000. Approximately 63% of the Partnership's net losses during the year ended December 31, 2000, were attributable to global interest rates, 21% to metals, 14% to grains and 2% to tropicals. As of December 31, 1999, the Net Asset Value of the Partnership was $47,732,793, an increase of 34.23% from its Net Asset Value of $35,559,179 at December 31, 1998. The Partnership's 1999 subscriptions and redemptions totaled $27,390,118 and $6,809,101, respectively. For the year ended December 31, 1999, the Partnership had revenue comprised of ($1,459,043) in realized losses, ($1,539,030) in unrealized losses and $1,952,431 in interest income. For that same period, the Partnership had expenses comprised of $2,676,283 in brokerage commissions, $877,660 in management fees, $2,103,117 in incentive fees, $1,461,667 in General Partner offering fees and $243,034 in operating expenses. This resulted in the Partnership having a net loss of ($8,407,403) for that period. For the year ended December 31, 1999, the Net Asset Value of Class A Units decreased 12.01% from $1,829.21 at December 31, 1998 to $1,609.53 and the Net Asset Value of Class B Units decreased 12.87% from $1,760.76 to $1,534.23. Approximately 58% of the Partnership's net losses during the year ended 21 December 31, 1999 were attributable to global interest rates, 7% to U.S. stock indices, 11% to metals, 23% to tropicals, and 1% to meats. For the reasons described in this section, 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. To enhance the foregoing comparison of results of operations from year to year, prospective investors can examine the Statements of Financial Condition and the Statements of Operations for the periods described above. LIQUIDITY Although there is no public market for the Units, a Limited Partner may redeem his Units in the Partnership as of any month-end upon ten 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. The Partnership's trading also may be impacted by the various conflicts of interest between the Partnership and the General Partner, the Advisor, the Broker, and their affiliates. RISK FACTORS PAST RESULTS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership's main line of business. Market movements result in frequent changes in the fair market value of the Partnership's open positions and, consequently, in its earnings and cash flow. The Partnership's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership's open positions and the liquidity of the markets in which it trades. The Partnership, under the direction of the Advisor, rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a 22 particular future market scenario will affect performance, and the Partnership's past performance is not necessarily indicative of its future results. PRIMARY TRADING AND NON-TRADING RISK EXPOSURES The Partnership's primary market risk exposures as well as the strategies used and to be used by the General Partner and the Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, general economic conditions and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Partnership. There can be no assurance that the Partnership's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership. MEANS OF MANAGING RISK EXPOSURE The means by which the Partnership and the Advisor attempt to manage the risk of the Partnership's open positions is essentially the same in all market categories traded. The Advisor applies its own risk management policies to its trading. These policies generally limit the total exposure that may be taken per "risk unit" of assets under management. The Advisor also follows diversification guidelines (often formulated in terms of the maximum margin which they will commit to positions in any one contract or group of related contracts), as well as imposing "stop-loss" points at which open positions must be closed out. Occasionally, the Advisor will limit the market exposure of its Partnership account through acquiring put or call options which "collar" the risk of open positions. However, because of the typically high degree of liquidity in the markets traded by the Partnership and the expense of acquiring options, the Advisor mostly relies on stop-loss policies, requiring the liquidation of positions once losses of a certain magnitude have been incurred. The General Partner controls the risk of the Partnership's non-trading instruments (interest-bearing securities held for cash management purposes) - the only Partnership investments, as opposed to Advisor selections, directed by the General Partner-generally limiting the duration of such instruments to no more than 3 years. FORWARD-LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K constitute "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the 1933 Act and Section 21E of the 1934 Act). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact (such as the terms of particular contracts and the number of market risk sensitive instruments held during or at the end of the reporting period) ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Partnership's financial statements, together with the auditor's report thereon, are included on pages F-1 through F-12 hereof. The following summarized quarterly financial information presents the results of operations for the three month periods ended March 31, June 30, September 30 and December 31, 2001 and 2000.

23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The General Partner, Kenmar Advisory Corp., is the sole general partner of the Partnership. The General Partner, is a corporation which was originally organized as a New York corporation in September 1983 and reorganized as a Connecticut corporation on January 1, 1996. The General Partner has been registered with the CFTC as a CPO and a member in good standing of the NFA in such capacity since February 1984. Its address is Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150 and its telephone number is (203) 861-1000. It is owned equally and indirectly by Messrs. Shewer and Goodman. The directors and executive officers of the General Partner currently are as follows: MR. KENNETH A. SHEWER, age 48, has been the Chairman and a director of the General Partner since September 1983. Mr. Shewer was employed by Pasternak, Baum and Co., Inc. ("Pasternak, Baum"), an international cash commodity firm, from June 1976 until September 1983. Mr. Shewer left Pasternak, Baum in September 1983 to form Kenmar Advisory Corp. with Mr. Goodman. Mr. Shewer created and managed Pasternak, Baum's Grain Logistics and Administration Department and created its Domestic Corn and Soybean Trading Department. In 1982, Mr. Shewer became co-manager of Pasternak, Baum's F.O.B. Corn Department. In 1983, Mr. Shewer was made Vice President and Director of Pasternak, Baum. Mr. Shewer graduated from Syracuse University with a B.S. degree in 1975. MR. MARC S. GOODMAN, age 53, has been the President and a director of the General Partner since September 1983. Mr. Goodman joined Pasternak, Baum in September 1974 and was a Vice President and Director from July 1981 until September 1983. Mr. Goodman left Pasternak, Baum in September 1983 to form Kenmar Advisory Corp. with Mr. Shewer. While at Pasternak, Baum, Mr. Goodman was largely responsible for business development outside of the United States, for investment of its corporate retirement funds and for selecting trading personnel. Mr. Goodman has conducted extensive business in South America, Europe and the Far East. Mr. Goodman was awarded an Economics and Finance Department Fellowship from September 1969 through June 1971. Mr. Goodman graduated from the Bernard M. Baruch School of Business of the City University of New York with a B.B.A. in 1969 and an M.B.A. in 1971 in Finance and Investments. MS. ESTHER ECKERLING GOODMAN, age 49, has been the Senior Executive Vice President of the General Partner since March 1991 and has also served as Chief Operating Officer of the General Partner since October 1995. Ms. Goodman joined Kenmar in July 1986 and has been involved in the futures industry since 1974. From 1974 through 1976, she was employed by Conti-Commodity Services, Inc. and ACLI Commodity Services, Inc., in the areas of hedging, speculative trading and tax arbitrage. In 1976, Ms. Goodman joined Loeb Rhoades and Company, Inc., where she was responsible for the development and management of a managed futures program which, in 1979, became the trading system for an independent CTA of which Ms. Goodman was a founder and principal. From 1983 through mid-1986, Ms. Goodman was employed as a marketing executive at Commodities Corp. (USA) of Princeton, New Jersey. Ms. Goodman was a Director of the Managed Futures Association and its predecessor, the Managed Futures Trade Association, from 1987 through 1995. In addition, she has written several articles and has spoken before various professional groups and organizations on the subject of managed futures. Ms. Goodman attended Vassar College from 1970-1972 and graduated from Stanford University in 1974 with a B.A. degree. Ms. Goodman is married to Mr. Marc S. Goodman. 24 Each director of the General Partner serves until the next annual meeting of stockholders or until a successor is elected. Executive officers of the General Partner are appointed annually and serve at the discretion of its Board of Directors. Messrs. Shewer and Goodman hold directorships in various affiliates of the General Partner. SIGNIFICANT EMPLOYEES OF THE GENERAL PARTNER MR. THOMAS J. DIVUOLO, age 42, Senior Vice President responsible for account administration, oversight and risk management, joined the General Partner in March 1989. From 1982 through 1984, Mr. DiVuolo was employed by Balfour Maclaine International Ltd. working in the commodity accounting and compliance areas. From 1984 through 1986 he was employed at E.F. Hutton and Company, Inc. as a manager of commodity regulatory reporting. From 1986 until he joined the General Partner in 1989, Mr. DiVuolo worked for Lloyds International Trading, a commodity trading division of Lloyds Bank. Mr. DiVuolo is a 1982 graduate of Pace University with a B.B.A. degree in Public Accounting. He received his M.B.A. in Finance from Wagner College in 1990. MR. GARY J. YANNAZZO, age 49, Senior Vice President and Chief Financial Officer, joined the General Partner in August 1997. From March 1992 to July 1995, he was Senior Vice President and Controller of Mettallgesellschaft Corp., a diversified commodity marketing and trading company, with 30 worldwide subsidiaries and $5 billion in annual revenues. From January 1990 through February 1992, Mr. Yannazzo was President, Chief Executive Officer and part owner of Holland Mortgage Corporation. From December 1982 through November 1989, Mr. Yannazzo was First Vice President of Security Capital Corporation, a publicly traded financial services company and affiliate of Smith Barney, Inc. From June 1975 through November 1982, Mr. Yannazzo was with Arthur Andersen & Co., serving as an Audit Manager from June 1980. From August 1995 until he joined the General Partner, Mr. Yannazzo was a private consultant, engaged primarily in projects and ventures in the commodity and derivative areas. Mr. Yannazzo received his B.S. in business administration from Seton Hall University in 1975 and his certified public accountant certification in 1977. MS. JOANNE D. ROSENTHAL, age 36, Senior Vice President and Director of Research, joined the General Partner in October 1999. Prior to joining the General Partner, Ms. Rosenthal spent 9 years at The Chase Manhattan Bank, in various positions of increasing responsibility. From July 1991 through April 1994, she managed the Trade Execution Desk and from May 1994 through September 1999, she was a Vice President and Senior Portfolio Manager of Chase Alternative Asset Management, Inc. Ms. Rosenthal received a Masters of Business Administration in Finance from Cornell University and a Bachelor of Arts in Economics from Concordia University in Montreal, Canada. MR. MARK M. ROSSOW, age 49, Senior Vice President and General Counsel, joined the General Partner in August 2000. From October 1998 until July 2000, Mr. Rossow was a partner in the law firm of Snow Becker Krauss P.C. From May 1994 until September 1998, Mr. Rossow was a partner in the law firm of Amon & Sabatini. Prior to that, Mr. Rossow was in-house counsel to the international accounting firm BDO Seidman. Mr. Rossow has served on the staff of the United States Securities and Exchange Commission. Mr. Rossow earned a B.A. degree from Syracuse University in 1975 and a J.D. degree from the University of Michigan in 1978. He was admitted to practice law in 1979. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the 1934 Act, as amended, requires the General Partner and the directors of the General Partner to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons also are required to furnish the Partnership with copies of all Section 16(a) forms they file. Based solely on its review of copies of such forms received by it, the believes that all 25 other Section 16(a) filing requirements applicable to the reporting persons were complied with by such persons during 2001. ITEM 11. EXECUTIVE COMPENSATION. The Partnership has no directors or officers. As a limited partnership, the business of the Partnership is managed by its General Partner which is responsible for the administration of the business affairs of the Partnership and receives the compensation described in "Item 1. Business". ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Partnership has no directors or officers. The Partnership delegates all management of the Partnership's affairs to the General Partner. As of March 15, 2002, the General Partner owned 184.7556 Units of general partnership interest, representing a 1.31% investment in the Partnership. The General Partner is indirectly and equally owned by Messrs. Kenneth A. Shewer and Marc S. Goodman. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The General Partner is the sole general partner of the Partnership and manages and conducts the business of the Partnership. The Partnership Agreement provides that the General Partner may be compensated in such form(s) and in such amount as the General Partner, in its sole discretion, shall determine, after giving due weight to industry standards. As more fully described in Item 1 hereto, to compensate the General Partner for its management and operations of the Partnership, its management and monitoring of the portfolio of the Advisor, the General Partner currently receives 22.5% of the Advisor's management and incentive fee, all of Stonebrook's incentive fee, and an offering fee. For the year ended December 31, 2001, the General Partner received $89,520 in management fees, $0 in incentive fees and $598,204 in offering fees. See "Item 1. Business - Fees and Expenses - Fees to the Advisor." In addition, because the General Partner negotiated a brokerage commission rate for the Partnership which is generally lower than the rate available to the public, the General Partner may receive from the Broker a portion of the brokerage commissions paid by the Partnership to the Broker. See "Item 1. Business--Fees and Expenses--Fees to the General Partner". ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K (a) The following financial statements of the Partnership, with the independent auditor's report, are filed as part of this Form 10-K: (1) The following documents are filed as part of this Form 10-K; -Independent Auditor's Report -Statements of Financial Condition as of December 31, 2001 and 2000 -Condensed Schedule of Investments as of December 31, 2001 -Statements of Operations for the Years Ended December 31, 2001, 2000, and 1999 -Statements of Changes in Partners' Capital (Net Asset Value) For the Years Ended December 31, 2001, 2000, and 1999 -Notes to Financial Statements 26 (2) All Financial Schedules are omitted because such schedules are not required or the information required has been presented in the aforementioned financial statements: (3) The following exhibits are filed with this report and 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 incorporated herein by reference to the Registrant's Registration Statement on Form 10 dated June 22, 1999. 10.2 Cover Letter and Model Sub-Advisory Agreement between The Fulcrum Fund Limited Partnership and Beacon Management Corporation dated January 1, 1998. 27 THE FULCRUM FUND LIMITED PARTNERSHIP TABLE OF CONTENTS PAGES ----- Independent Auditor's Report F-2 Financial Statements Statements of Financial Condition December 31, 2001 and 2000 F-3 Condensed Schedule of Investments December 31, 2001 F-4 Statements of Operations For the Years Ended December 31, 2001, 2000 and 1999 F-5 Statements of Changes in Partners' Capital (Net Asset Value) For the Years Ended December 31, 2001, 2000 and 1999 F-6 Notes to Financial Statements F7 - F12 F-1 [ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT To the Partners The Fulcrum Fund Limited Partnership We have audited the accompanying statements of financial condition of The Fulcrum Fund Limited Partnership as of December 31, 2001 and 2000, including the December 31, 2001 condensed schedule of investments, and the related statements of operations and changes in partners' capital (net asset value) for the years ended December 31, 2001, 2000 and 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Fulcrum Fund Limited Partnership as of December 31, 2001 and 2000, and the results of its operations and the changes in its net asset values for the years ended December 31, 2001, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America. /s/ Arthur F. Bell, Jr. & Associates, L.L.C. Hunt Valley, Maryland February 5, 2002 F-2 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF FINANCIAL CONDITION December 31, 2001 and 2000

See accompanying notes. F-3 THE FULCRUM FUND LIMITED PARTNERSHIP CONDENSED SCHEDULE OF INVESTMENTS December 31, 2001 LONG FUTURES CONTRACTS No. of % of Net Contracts Description Value Asset Value --------- ----------- ---------- ----------- 299 Agricultural $ 120,665 0.87% 38 Currency 4,295 0.03% 210 Interest rate 96,803 0.70% 40 Metals 17,448 0.13% ---------- ---- TOTAL LONG FUTURES CONTRACTS $ 239,211 1.73% ---------- ---- SHORT FUTURES CONTRACTS No. of % of Net Contracts Description Value Asset Value --------- ----------- ---------- ----------- 1,766 Agricultural $ 330,158 2.39% 232 Currency 573,697 4.16% 177 Energy 97,285 0.70% 190 Interest rate 39,906 0.29% 216 Metals (214,320) (1.55)% ---------- ---- TOTAL SHORT FUTURES CONTRACTS $ 826,726 5.99% ---------- ----- TOTAL FUTURES CONTRACTS $1,065,937 7.72% ========== ==== See accompanying notes. F-4 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS For the Years Ended December 31, 2001, 2000 and 1999

See accompanying notes. F-5 THE FULCRUM FUND LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Years Ended December 31, 2001, 2000 and 1999

See accompanying notes. F-6 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS 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. On 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. C. Commodities Gains or losses are realized when contracts are liquidated. Net unrealized gains or losses on open contracts (the difference between contract trade 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. F-7 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. Cash and Cash Equivalents Cash and cash equivalents includes cash, short-term time deposits and investments in money market mutual funds. Interest income includes interest-equivalent dividends on money market mutual funds. 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 applicable 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. H. Reclassification Certain amounts in the 2000 and 1999 financial statements were reclassified to conform with the 2001 presentation. 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. F-8 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 2. GENERAL PARTNER (CONTINUED) 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 an advisory agreement with Beacon Management Corporation (USA) (Beacon), a commodity trading advisory, pursuant to which 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. During the period November 1, 2000 to October 18, 2001, the Partnership had an advisory agreement with Stonebrook Structured Products, LLC (Stonebrook), also a commodity trading advisor, pursuant to which the Partnership paid 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 paid its entire incentive fee to the General Partner. During the period November 1, 2000 to March 31, 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 ultimately charged to the Partnership, and the gross amount of advisor incentive fees reflected in the statements of operations has been reduced after total expenses by the advisor incentive fees waived which amounted to $123,124, $134,396 and $0 during the years ended December 31, 2001, 2000 and 1999, respectively. F-9 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 Man Financial 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, $100,493 and $280,563 in 2001, 2000 and 1999, 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. F-10 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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, although there can be no assurance that it will, in fact, succeed in doing so. 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. F-11 THE FULCRUM FUND LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note 7. FINANCIAL HIGHLIGHTS The following information presents per unit operating performance data and other supplemental financial data for the year ended December 31, 2001. This information has been derived from information presented in the financial statements.

Total return is calculated based on the change in value of a unit during the year. An individual partner's total return and ratios may vary from the above total return and ratios based on the timing of additions and redemptions. ---------- (1) Excludes brokerage commissions and other trading fees. (2) Includes brokerage commissions and other trading fees. (3) The net investment (loss) per unit is calculated by dividing the net investment (loss) by the average number of units outstanding during the year. The net realized and change in unrealized (loss) from trading is a balancing amount necessary to reconcile the change in net asset value per unit with the other per unit information. (4) Excludes brokerage commissions, other trading fees and advisor incentive fees. (5) Net of 0.62% effect of advisor incentive fees waived. F-12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on the 26th day of March, 2002. THE FULCRUM FUND LIMITED PARTNERSHIP By: Kenmar Advisory Corp., general partner By: /s/ Kenneth A. Shewer ------------------------------- Kenneth A. Shewer Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 26th day of March, 2002. THE FULCRUM FUND LIMITED PARTNERSHIP By: Kenmar Advisory Corp., general partner By: /s/ Kenneth A. Shewer ------------------------------- Kenneth A. Shewer Chairman and Director (Principal Executive Officer) By: /s/ Marc S. Goodman ------------------------------- MARC S. GOODMAN President and Director By: /s/ Thomas J. Divuolo ------------------------------- THOMAS J. DIVUOLO Senior Vice President (Principal Financial and Accounting Officer for the Partnership)

FULCRUM FUND LIMITED PARTNERSHIP 10-K