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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________________ To _________________
COMMISSION FILE NUMBER: 000-26459
THE FULCRUM FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-1456461
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two American Lane, P.O. Box 5150, Greenwich, Connecticut 06831-8150
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (203) 861-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
THE FULCRUM FUND LIMITED PARTNERSHIP
QUARTER ENDED JUNE 30, 2002
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition as of June 30, 2002 (unaudited) and December 3
31, 2001 (audited)
Condensed Schedule Of Investments as of June 30, 2002 (unaudited) 4
Statements of Operations for the Three and Six Months Ended June 30, 2002 and 5
2001 (unaudited)
Statements of Changes in Partners' Capital (Net Asset Value) for the Six Months 6
Ended June 30, 2002 and 2001 (unaudited)
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 12
Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
THE FULCRUM FUND LIMITED PARTNERSHIP
STATEMENTS OF FINANCIAL CONDITION
June 30, 2002 (Unaudited) and December 31, 2001 (Audited)
June 30, December 31,
2002 2001
---- ----
ASSETS
Equity in broker trading accounts
Cash $10,465,956 $12,355,738
Unrealized gain on open contracts 1,603,331 1,065,937
----------- -----------
Deposits with broker 12,069,287 13,421,675
Cash and cash equivalents 47,384 1,748,566
Subscriptions receivable 7,619 0
----------- -----------
Total assets $12,124,290 $15,170,241
=========== ===========
LIABILITIES
Accounts payable $ 8,685 $ 20,104
Commissions and other trading fees
on open contracts 10,603 14,980
General Partner offering fee 28,438 37,806
Advisor management fee 20,065 25,084
Redemptions payable 230,948 1,266,777
----------- -----------
Total liabilities 298,739 1,364,751
----------- -----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 184.7556 units outstanding at
June 30, 2002 and December 31, 2001 161,236 162,183
Limited Partners - 13,365.7655 and 15,542.1339
units outstanding at June 30, 2002 and
December 31, 2001 11,664,315 13,643,307
----------- -----------
Total partners' capital
(Net Asset Value) 11,825,551 13,805,490
----------- -----------
$12,124,290 $15,170,241
=========== ===========
See accompanying notes.
-3-
THE FULCRUM FUND LIMITED PARTNERSHIP
CONDENSED SCHEDULE OF INVESTMENTS
June 30, 2002
(Unaudited)
LONG FUTURES CONTRACTS
No. of % of Net
Contracts Description Value Asset Value
--------- ----------- ----- -----------
557 Agricultural $ 250,921 2.12%
487 Currency 1,196,963 10.12%
17 Energy 4,726 0.04%
375 Interest rate 442,674 3.74%
147 Metals (167,370) (1.41)%
----------- ----------
TOTAL LONG FUTURES CONTRACTS $1,727,914 14.61%
----------- ----------
SHORT FUTURES CONTRACTS
No. of % of Net
Contracts Description Value Asset Value
--------- ----------- ----- -----------
338 Agricultural $ (134,883) (1.14)%
6 Energy 10,300 0.09%
----------- ----------
TOTAL SHORT FUTURES CONTRACTS $ (124,583) (1.05)%
----------- ----------
TOTAL FUTURES CONTRACTS $ 1,603,331 13.56%
=========== =========
See accompanying notes.
-4-
THE FULCRUM FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2002 and 2001 and
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
INCOME
Commodity trading gains (losses)
Realized $ 1,987,342 $ 5,855,516 $ (242,592) $ 6,698,678
Change in unrealized 618,300 (5,591,949) 537,394 (3,878,533)
----------- ----------- ----------- -----------
Gain from commodity trading 2,605,642 263,567 294,802 2,820,145
----------- ----------- ----------- -----------
Fixed income securities gains (losses)
Realized 0 45,100 0 144,157
Change in unrealized 0 (44,850) 0 (79,217)
----------- ----------- ----------- -----------
Gain from fixed income
securities 0 250 0 64,940
----------- ----------- ----------- -----------
Interest income 34,843 161,244 71,816 310,927
----------- ----------- ----------- -----------
Total income 2,640,485 425,061 366,618 3,196,012
----------- ----------- ----------- -----------
EXPENSES
Brokerage commissions 100,945 195,677 190,091 402,147
General Partner offering fee 80,026 161,244 172,915 321,873
Advisor management fees 57,475 161,235 115,109 328,697
Advisor incentive fees 0 0 0 547,218
Operating expenses 29,424 26,822 76,897 53,839
----------- ----------- ----------- -----------
Total expenses 267,870 544,978 555,012 1,653,774
Advisor incentive fees waived 0 0 0 (123,124)
----------- ----------- ----------- -----------
Net expenses 267,870 544,978 555,012 1,530,650
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 2,372,615 $ (119,917) $ (188,394) $ 1,665,362
=========== =========== =========== ===========
NET INCOME (LOSS) PER UNIT
(based on weighted average number of
Units outstanding during the period) $ 167.46 $ (6.50) $ (12.97) $ 88.63
=========== =========== =========== ===========
INCREASE (DECREASE) IN NET
ASSET VALUE PER UNIT $ 168.17 $ (4.70) $ (5.13) $ 91.57
=========== =========== =========== ===========
See accompanying notes.
-5-
THE FULCRUM FUND LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
Partners' Capital
------------------------------------------------------------------------------------------
General Limited Total
-------------------------- -------------------------- ------------------------------
Units Amount Units Amount Units Amount
----- ------ ----- ------ ----- ------
Six Months Ended June 30, 2002
Balances at December 31, 2001 184.7556 $ 162,183 15,542.1339 $ 13,643,307 15,726.8895 $ 13,805,490
Net (loss) for the six months
ended June 30, 2002 (947) (187,447) (188,394)
Additions 0.0000 0 1,082.9755 767,204 1,082.9755 767,204
Redemptions 0.0000 0 (3,259.3439) (2,558,749) (3,259.3439) (2,558,749)
----------- ------------ ----------- ------------ -------------- ------------
Balances at June 30, 2002 184.7556 $ 161,236 13,365.7655 $ 11,664,315 13,550.5211 $ 11,825,551
=========== ============ =========== ============ ============== ============
Six Months Ended June 30, 2001
Balances at December 31, 2000 204.7556 $ 234,496 19,143.4771 $ 21,924,059 19,348.2327 $ 22,158,555
Net income for the six months
ended June 30, 2001 18,750 1,646,612 1,665,362
Additions 0.0000 0 502.5508 595,824 502.5508 595,824
Redemptions 0.0000 0 (1,734.8584) (2,013,583) (1,734.8584) (2,013,583)
----------- ------------ ----------- ------------ -------------- ------------
Balances at June 30, 2001 204.7556 $ 253,246 17,911.1695 $ 22,152,912 18,115.9251 $ 22,406,158
=========== ============ =========== ============ ============== ============
Net Asset Value Per Unit
---------------------------------------------------------------
June 30, December 31, June 30, December 31,
2002 2001 2001 2000
---- ---- ---- ----
$872.70 $877.83 $1,236.82 $1,145.25
======= ======= ========= =========
See accompanying notes.
-6-
THE FULCRUM FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
The Fulcrum Fund Limited Partnership (the Partnership) is a
Connecticut limited partnership which operates as a commodity
pool. The Partnership engages in the speculative trading of
futures contracts and options on futures contracts. It is
subject to the regulations of the Commodity Futures Trading
Commission, an agency of the United States (U.S.) government
which regulates most aspects of the commodity futures
industry; rules of the National Futures Association, an
industry self-regulatory organization; and the requirements of
commodity exchanges and Futures Commission Merchants (brokers)
through which the Partnership trades.
The Partnership is a registrant with the Securities and
Exchange Commission (SEC) pursuant to the Securities Exchange
Act of 1934 (the Act). As a registrant, the Partnership is
subject to the regulations of the SEC and the informational
requirements of the Act.
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.
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 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.
-7-
THE FULCRUM FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 statement of operations for the six
months ended June 30, 2001 were reclassified to conform with
the presentation for the six months ended June 30, 2002.
Note 2. GENERAL PARTNER
The General Partner of the Partnership is Kenmar Advisory Corp.,
which conducts and manages the business of the Partnership. The
Limited Partnership Agreement requires the General Partner to
maintain a capital account of no less than the lesser of 1% of the
aggregate capital accounts of all partners or $500,000.
For managing the continuing offering of units, the General Partner
receives a monthly offering fee equal to 0.25% (3% annually) of that
month's beginning Net Asset Value (as defined in the Limited
Partnership Agreement) of the Partnership. The General Partner
rebates to One Million Dollar Investors (as defined in the
Confidential Private Placement Memorandum and Disclosure Document)
who invested in the Partnership prior to August 1, 2000, a monthly
amount equal to two-thirds of the offering fee applicable to such One
Million Dollar Investors. Effective April 1, 2002, the General
Partner also rebates to an affiliated investment fund the entire
offering fee applicable to such fund. All rebates to One Million
Dollar Investors and the affiliated investment fund 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.
-8-
THE FULCRUM FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 3. COMMODITY TRADING ADVISORS
The Partnership has an advisory agreement with Beacon Management
Corporation (USA) (Beacon), a commodity trading advisor, 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 $0 and
$123,124 during the six months ended June 30, 2002 and 2001,
respectively.
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 $0 and $7,388
during the six months ended June 30, 2002 and 2001, 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.
-9-
THE FULCRUM FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
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.
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 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 notional contract 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.
Note 7. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of June 30, 2002, including
the June 30, 2002 condensed schedule of investments, the statements
of operations for the three months and six months ended June 30, 2002
and 2001, and the statements of changes in partners' capital (net
asset value) for the six months ended June 30, 2002 and 2001, are
unaudited. In the opinion of management, such financial statements
reflect all adjustments, which were of a normal and recurring nature,
necessary for a fair presentation of financial position as of June
30, 2002, and the results of operations for the three months and six
months ended June 30, 2002 and 2001.
-10-
THE FULCRUM FUND LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 8. FINANCIAL HIGHLIGHTS
The following information presents per unit operating performance
data and other supplemental financial data for the entire three
months and six months ended June 30, 2002 and 2001. This information
has been derived from information presented in the financial
statements.
Three months ended Six months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------- --------- ---------- ---------
PER UNIT PERFORMANCE
(for a unit outstanding throughout the entire period)
Net asset value per unit at beginning of period $ 704.53 $1,241.52 $ 877.83 $1,145.25
---------- --------- ---------- ---------
Income (loss) from operations:
Net investment (loss) (1), (3) (9.32) (10.19) (20.17) (43.51)
Net realized and change in unrealized gain
from trading (2), (3) 177.49 5.49 15.04 135.08
---------- --------- ---------- ---------
Total income (loss) from operations 168.17 (4.70) (5.13) 91.57
---------- --------- ---------- ---------
Net asset value per unit at end of period $ 872.70 $1,236.82 $ 872.70 $1,236.82
========== ========= ========== =========
TOTAL RETURN (6) 23.87% (0.38)% (0.58)% 8.00%
========== ========= ========== =========
SUPPLEMENTAL DATA
Ratios to average net asset value:
Expenses prior to advisor incentive fees (4), (7) (6.26)% (6.43)% (6.33)% (6.52)%
Advisor incentive fees (7) 0.00% 0.00% 0.00% (3.93)%(5)
---------- --------- ---------- ---------
Total expenses (1), (7) (6.26)% (6.43)% (6.33)% (10.45)%(5)
========== ========= ========== =========
Net investment (loss) (1), (7) (4.95)% (3.46)% (5.09)% (7.57)%
========== ========= ========== =========
Total returns are calculated based on the change in value of a unit
during the period. An individual partner's total returns and ratios
may vary from the above total returns and ratios based on different
fee arrangements and 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 period. The net realized and change in
unrealized gain 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 1.14% annualized effect of advisor incentive fees waived.
(6) Not annualized.
(7) Annualized.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The assets of the Fulcrum Fund Limited Partnership, formerly The Dennis Fund
Limited Partnership (the "Partnership") are used to engage, directly or
indirectly, in the speculative trading of (1) commodities, futures contracts,
forward contracts, foreign exchange commitments, exchange for physicals, swap
contracts, spot (cash) commodities and other items, options on the foregoing,
and any rights pertaining to the foregoing contracts, instruments or investments
("Commodities") and (2) options, warrants, or other rights and any other
investment or transaction (together with the Commodities, "Investments") that
the Partnership's general partner, Kenmar Advisory Corp. (the "General Partner")
deems, in its sole discretion, to be consistent with the objectives of the
Partnership. From time to time, a portion of such assets may be used for
transactions in the cash markets or for interbank trading.
The assets of the Partnership are deposited with Man Financial Inc. (the
"Broker") in a trading account established by the Partnership for the commodity
trading advisor and are used by the Partnership as margin to engage in trading.
Such assets are held in either a non-interest bearing bank account or in
securities approved by the Commodity Futures Trading Commission for investment
of customer funds. In addition, certain of the Partnership's assets may also be
placed in a custodial account with a cash manager to maximize the interest
earned on assets not committed as margin.
The commodity trading advisor for the Partnership is the Meka program of the
Beacon Management Corporation ("Beacon" or the "Advisor"). The Advisor is the
sole advisor for the Partnership.
CAPITAL RESOURCES
The Partnership does not have, nor does it expect to have, any capital assets.
Redemptions and sales of units of limited partnership interests ("Units") in the
future will affect the amount of funds available for trading Investments in
subsequent periods.
There are only three factors that affect the Partnership's capital resources:
(1) the trading profit or loss generated by the Advisor (including interest
income); (2) the money invested or redeemed by the limited partners of the
Partnership (the "Limited Partners"); and (3) capital invested or redeemed by
the General Partner. The General Partner has maintained, and shall maintain, at
all times a capital account in such an amount, up to a total of $500,000, as is
necessary for the General Partner to maintain a one percent (1%) interest in the
capital, income and losses of the Partnership. All capital contributions by the
General Partner necessary to maintain such capital account balance shall be
evidenced by Units of general partnership interest, each of which shall have an
initial value equal to the Net Asset Value per Unit (as defined below) at the
time of such contribution. The General Partner, in its sole discretion, may
withdraw any excess above its required capital contribution without notice to
the Limited Partners. The General Partner, in its 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.
-12-
"Net Asset Value" of the Partnership is defined as total assets of the
Partnership, including, but not limited to, all cash and cash equivalents,
accrued interest, earned discount, and open Commodities positions, less total
liabilities, including, but not limited to, brokerage commissions that would be
payable with respect to the closing of open Commodities positions, all as
determined in accordance with the principles set forth in the Limited
Partnership Agreement of the Partnership, dated June 18, 1996 and as amended on
December 15, 1997 and further amended on October 10, 2000 (the "Partnership
Agreement") or, where no such principles are specified therein, in accordance
with United States generally accepted accounting principles applied on a
consistent basis ("GAAP"). The term "Net Asset Value per Unit" is defined in the
Partnership Agreement to mean the Net Asset Value of the Partnership divided by
the number of Units outstanding as of the date of determination.
RESULTS OF OPERATIONS
The success of the Partnership is dependent upon the ability of the Advisor to
generate trading profits through the speculative trading of Investments
sufficient to produce capital appreciation after payment of all fees and
expenses. Future results will depend in large part upon the Investment markets
in general, the performance of the Advisor, the amount of additions and
redemptions, and changes in interest rates. Due to the highly leveraged nature
of Investment trading, small price movements may result in substantial losses.
Because of the nature of these factors and their interaction, it is impossible
to predict future operating results.
The Partnership incurs substantial charges from the payment of brokerage
commissions to the Broker, management and/or incentive fees to the Advisor,
management fees, offering fees and/or incentive fees to the General Partner and
operating expenses. The Partnership is required to make substantial trading
profits to avoid depletion and exhaustion of its assets from the above-mentioned
fees and expenses.
Due to the nature of the Partnership's business, the Partnership's trading
results depend on the Advisor and the ability of its individual trading system
to take advantage of price movements or other profit opportunities in the
Investment markets. The Advisor trades in various markets at different times and
prior activity in a particular market does not mean that such markets will be
actively traded by the 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 general, Commodity Trading Advisors or 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. The Advisor 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.
-13-
Set forth below is a comparison of the results of operations of the Partnership
for the three-month and six-month periods ended June 30, 2002 and 2001.
As of June 30, 2002, the Net Asset Value of the Partnership was $11,825,551 an
increase of approximately 15.13% from its Net Asset Value of $10,271,180 at
March 31, 2002. The Partnership's subscriptions and redemptions for the quarter
ended June 30, 2002 totaled $23,966 and $842,210, respectively. For the quarter
ended June 30, 2002, the Partnership had revenues comprised of $1,987,342 in
realized gains, $618,300 in change in unrealized gains and $34,843 in interest
income compared to revenues comprised of $5,900,616 in realized gains,
($5,636,799) in change in unrealized losses and $161,244 in interest income for
the same period in 2001. The total income for the second quarter of 2002
increased by $2,215,424 from the same period in 2001, while total expenses
decreased by $277,108 between these periods. The Net Asset Value per Unit
increased 23.87% from $704.53 at March 30, 2002 to $872.70 at June 30, 2002. The
Partnership's positive performance for the quarter ended June 30, 2002 resulted
primarily from currencies, U.S. interests rates, meats and gold.
The Net Asset Value of the Partnership decreased $1,979,939, or 14.34%, from
December 31, 2001 through June 30, 2002. The Partnership's subscriptions and
redemptions for the six months ended June 30, 2002 totaled $767,204 and
$2,558,749, respectively. For the six months ended June 30, 2002, the
Partnership had revenues comprised of ($242,592) in realized losses, $537,394 in
change in unrealized gains and $71,816 in interest income compared to revenues
comprised of $6,842,835 in realized gains, ($3,957,750) in change in unrealized
losses and $310,927 in interest income for the same period in 2001. The total
income for the first six months of 2002 decreased by $2,829,394 from the same
period in 2001 while expenses decreased by $975,638 between these periods. The
Net Asset Value per Unit decreased 0.58% from $877.83 at December 31, 2001 to
$872.70 at June 30, 2002.
For the reasons described in this Management's Discussion and Analysis, past
performance is not indicative of future results. As a result, any recent
increases in net realized or unrealized trading gains may have no bearing on any
results that may be obtained in the future.
LIQUIDITY
Although there is no public market for the Units, a Limited Partner may redeem
its Units in the Partnership as of any month-end upon ten (10) days' written
notice to the General Partner in the form of a request for redemption.
With respect to the Partnership's trading, in general, the Advisor will trade
only Investments that have sufficient liquidity to enable it to enter and close
out positions without causing major price movements. Notwithstanding the
foregoing, most United States commodity exchanges limit the amount by which
certain commodities may move during a single day by regulations referred to as
"daily price fluctuation limits" or "daily limits." Pursuant to such
regulations, no trades may be executed on any given day at prices beyond daily
limits. The price of a futures contract has occasionally moved the daily limit
for several consecutive days, with little or no trading, thereby effectively
preventing a party from liquidating its position. While the occurrence of such
an event may reduce or effectively eliminate the liquidity of a particular
market, it will not limit ultimate losses and may in fact substantially increase
losses because of this inability to liquidate
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unfavorable positions. In addition, if there is little or no trading in a
particular futures or forward contract that the Partnership is trading, whether
such illiquidity is caused by any of the above reasons or otherwise, the
Partnership may be unable to execute trades at favorable prices and/or may be
unable or unwilling to liquidate its position prior to its expiration date,
thereby requiring the Partnership to make or take delivery of the underlying
interest of the Investment.
The Partnership's trading also may be impacted by the various conflicts of
interest between the Partnership and the General Partner, the Advisor, the
Broker, and their affiliates.
SAFE HARBOR STATEMENT
The discussions above and under the heading "Item 3. Quantitative and
Qualitative Disclosures About Market Risk" contain certain "forward-looking
statements" (as such term is defined in Section 21E of the Securities Exchange
Act of 1934) that are based on the beliefs of the Partnership, as well as
assumptions made by, and information currently available to, the Partnership.
Words such as "expects," "anticipates" and similar expressions have been used to
identify "forward-looking statements" but are not the exclusive means of
identifying such statements. A number of important factors could cause the
Partnership's actual results, performance or achievements for 2002 and beyond to
differ materially from the results, performance or achievements expressed in, or
implied by, such forward-looking statements. These factors include, without
limitation, risk of failure by third parties to perform according to contract
terms and the factors described above and under the heading "Item 3.
Quantitative and Qualitative Disclosures About Market Risk." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2001
for further discussion.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Derivative instruments involve varying degrees of off-balance sheet market risk.
Changes in the level or volatility of interest rates or foreign currency
exchange rates or the market values of the financial instruments or commodities
underlying such derivative instruments frequently result in changes in the
Partnership's unrealized profit (loss) on such derivative instruments as
reflected in the Statements of Financial Condition included herein. The
Partnership's exposure to market risk is influenced by a number of factors,
including the relationships among derivative instruments held by the
Partnership, as well as the volatility and liquidity of the markets in which the
financial instruments are traded. There has been no material change, during the
three and six months ended June 30, 2002, in the sources of the Partnership's
exposure to market risk.
The General Partner has procedures in place which are intended to control the
Partnership's exposure to market risk, although there can be no assurance that
these procedures will, in fact, succeed in doing so. These procedures focus
primarily on monitoring the trading of the Advisor selected from time to time
for the Partnership, calculating the Net Asset Value of the Advisor's respective
Partnership accounts as of the close of business on each day and reviewing
outstanding positions for over-concentrations. While the General Partner will
not itself intervene in the markets to hedge or diversify the Partnership's
market exposure, the General Partner may urge the Advisor to reallocate
positions, or itself reallocate Partnership assets among different
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advisors (although typically only as of the end of a month) in an attempt to
avoid over-concentrations. However, such interventions would be unusual. Except
in cases in which it appears that the Advisor has begun to deviate from past
practice or trading policies or to be trading erratically, the General Partner's
basic risk control procedures consist of the ongoing process of Advisor
monitoring and selection, with the market risk controls being applied by the
Advisor itself.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In June, 1996, the Partnership commenced a private placement of Units in
reliance on the exemptions afforded by, among others, Section 4(2) of the 1933
Act and Rule 506 of Regulation D promulgated thereunder. Units are offered
monthly at a price per Unit equal to the then-current Net Asset Value per Unit
plus a selling commission equal to 5% unless such selling commission is waived
in whole or in part. The minimum subscription is $26,250 for new investors other
than Employee Benefit Plans or $10,500 for Employee Benefit Plans and existing
Limited Partners, which amounts include selling commissions of $1,250 and $500,
respectively.
During the second quarter of 2002, 30.0237 Units were sold for a total of
$23,965.51.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this Report or incorporated
by reference as set forth below:
Exhibit No. Description
3.1* Amended Certificate of Limited Partnership for the Fulcrum Fund
Limited Partnership.
3.2* Limited Partnership Agreement of the Fulcrum Fund Limited
Partnership, dated June 18, 1996 as amended December 15, 1997 and
further amended October 10, 2000.
10.1** Customer Agreement between the Partnership and E.D. & F. Man
International, Inc., dated August 27, 1996.
10.2* Cover letter and Model Sub-Advisory Agreement between The Fulcrum
Fund Limited Partnership and Beacon Management Corporation dated
January 1, 1998.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated herein by reference to the Partnership's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
** Incorporated herein by reference to the Partnership's
Registration Statement on Form 10 dated June 22, 1999.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the second quarter
of 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FULCRUM FUND LIMITED PARTNERSHIP
By: Kenmar Advisory Corp., general partner
Dated: August 8, 2002 By: / s / Kenneth A. Shewer
---------------------------------------
Kenneth A. Shewer
Chairman (Duly Authorized Officer of
the General Partner)
Dated: August 8, 2002 By: / s / Rosita Levy
---------------------------------------
Rosita Levy
Vice President (Principal Financial and
Accounting Officer of the Registrant)
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