-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KdRb7FyesC/KbaKbeumS8g0g5R/UhVtGFCVO5e8iro9vU1XbEBVgXIo05xVfWOAb bjk994p5tW1ZNBhPasj2RQ== 0000950130-96-002047.txt : 19960603 0000950130-96-002047.hdr.sgml : 19960603 ACCESSION NUMBER: 0000950130-96-002047 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19960531 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TUDOR FUND FOR EMPLOYEES LP CENTRAL INDEX KEY: 0000861895 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 133543779 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-33982 FILM NUMBER: 96574962 BUSINESS ADDRESS: STREET 1: ONE LIBERTY PLZ 51ST FLR CITY: NEW YORK STATE: NY ZIP: 10006 BUSINESS PHONE: 2126026700 MAIL ADDRESS: STREET 1: ONE LIBERTY PLAZA STREET 2: 51ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10066 POS AM 1 POST EFFECTIVE AMENDMENT NO 6 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996 REGISTRATION NO. 33-33982 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- POST-EFFECTIVE AMENDMENT NO. 6 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------------------- TUDOR FUND FOR EMPLOYEES L.P. (Exact name of registrant as specified in Limited Partnership Agreement) DELAWARE 6793 13-3543779 (State of Organization) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification Number) ---------------------------- One Liberty Plaza, 51st Floor New York, New York 10006 (212) 602-6700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Andrew S. Paul, Esq. Vice President and General Counsel Tudor Investment Corporation One Liberty Plaza, 51st Floor New York, New York 10006 (212) 602-6700 (Name, address, including zip code, and telephone number, including area code, of agent for service) ----------------------------- COPIES OF COMMUNICATIONS TO: M. Holland West, Esq. Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 (212) 504-6000 ----------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities [ x ] Act of 1933 check the following box. ================================================================================ TUDOR FUND FOR EMPLOYEES L.P. CROSS REFERENCE SHEET Item No. Registration Item Location in Prospectus - ----- ----------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus....... Facing Page; Front Cover Page. 2. Inside Front and Outside Back Cover Pages of Prospectus................................... Inside Front Cover Page; Table of Contents. 3. Summary Information, Risk Factors, and Ratio of Earnings to Fixed Charges................. Summary of Prospectus; Principal Risk Factors; Purchases by Employee Benefit Plans--ERISA Considerations; Con- flicts of Interest; The Partnership; Descript- ion of Charges to the Partnership; Investment Program and Use of Proceeds; The General Partner; The Trading Advisor; Brokerage Arrangements; Guarantees and Contribution Agree- ments; The Commodities Markets. 4. Use of Proceeds.............................. The Partnership; Invest- ment Program and Use of Proceeds. 5. Determination of Offering Price.............. The Partnership; Plan of Distribution. 6. Dilution..................................... Not Applicable. 7. Selling Security Holders..................... Not Applicable. 8. Plan of Distribution......................... The Partnership; Plan of Distribution; Purchases by Employee Benefit Plans--ERISA Consider- ations. 9. Description of Securities to be Registered... The Limited Partnership Agreement. 10. Interests of Named Experts and Counsel....... Not Applicable. 11. Information with Respect to the Registrant -i- Item No. Registration Item Location in Prospectus - ----- ----------------- ---------------------- (a) Description of Business.............. Summary of Prospectus; Principal Risk Factors; The Partnership; The General Partner; The Trading Advisor; The Commodities Markets; The Limited Partnership Agreement. (b) Description of Property.............. Not Applicable. (c) Legal Proceedings.................... The General Partner; The Trading Advisor; Brokerage Arrangements. (d) Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters.......... Principal Risk Factors. (e) Financial Statements................. Reports of Independent Public Accountants. (f) Selected Financial Data.............. Selected Financial Data. (g) Supplementary Financial Information.......................... Selected Financial Data. (h) Management's Discussion and Management's Discussion Analysis of Financial Condition and Analysis of Financial Results of Operations................ Condition and Results of Operations. (i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. Not Applicable (j) Directors and Executive Officers..... The General Partner. (k) Executive Compensation............... Summary of Prospectus; Principal Risk Factors; Conflicts of Interest; Description of Charges to the Partnership; The General Partner; The Trading Advisor; Brokerage Arrangements. (l) Security Ownership of Certain Beneficial Owners and Management........................... Security Ownership of Certain Beneficial Owners and Management; The Partnership; Cap- italization; The General Partner; The Trading Advisor; Reports of Independent Public Accountants. -ii- Item No. Registration Item Location in Prospectus ____ _________________ ______________________ (m) Certain Relationships and Summary of Prospectus; Related Transactions............. Principal Risk Factors; Conflicts of Interest; Fiduciary Responsibil- ity; Description of Charges to the Partnership; The General Partner; The Trading Advisor; Brokerage Arrangements; Guarantees and Contribution Agreements; The Commodities Markets; Purchases by Employee Benefit Plans--ERISA Considerations. 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................. Not Applicable. -iii- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 31, 1996 TUDOR FUND FOR EMPLOYEES L.P. 10,000 UNITS OF LIMITED PARTNERSHIP INTEREST MINIMUM INVESTMENT--$1,000 Tudor Fund For Employees L.P. (the "Partnership") is a limited partnership commodity pool formed under the Delaware Revised Uniform Limited Partnership Act, and is engaged in speculative trading of futures contracts, options on futures contracts and on physical commodities, spot and forward contracts, the cash items underlying such contracts, and other commodity interests ("commodity interest contracts"). Second Management LLC is the Partnership's general partner (the "General Partner"). Tudor Investment Corporation, an affiliate of the General Partner, is the Partnership's trading advisor and makes all commodity interest contract trading decisions for the Partnership ("TIC" or the "Trading Advisor"). The Partnership is soliciting subscriptions for Units of Limited Partnership Interest in the Partnership ("Units") on a continuing basis (the "Continuing Offering") at quarterly closings held as of January 1, April 1, July 1, and October 1 of each year (the "Quarterly Closings"). There is no minimum offering amount. UNITS MAY ONLY BE SOLD TO AND HELD BY (i) EMPLOYEES OF THE GENERAL PARTNER, THE TRADING ADVISOR, ANY OF THEIR PRESENT OR FUTURE AFFILIATED ENTITIES, OR THEIR SUCCESSORS OR ASSIGNS, (ii) THE GENERAL PARTNER, THE TRADING ADVISOR, ANY OF THEIR PRESENT AND FUTURE AFFILIATED ENTITIES, AND THEIR SUCCESSORS AND ASSIGNS, AND (iii) THE TUDOR INVESTMENT CORPORATION 401(k) SAVINGS AND PROFIT-SHARING PLAN. Units are offered for sale at a purchase price equal to 100% of the "Net Asset Value" of a Unit (as defined herein) as of the opening of business on the date of the applicable Quarterly Closing. The minimum subscription per subscriber is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. Any subscriber may subscribe for amounts of Units in excess of the foregoing minimum in increments of $1,000. Units are offered through Cargill Investor Services, Inc. (in such capacity, the "Selling Agent") on a best efforts basis and without any agreement by the Selling Agent to purchase Units from the Partnership. No market exists for the Units, and none is likely to develop. The Partnership is not a mutual fund or any other type of investment company within the meaning of the Investment Company Act of 1940 as amended, and is not subject to regulation thereunder. THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK. THESE SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "INVESTMENT REQUIREMENTS" (PAGE 1) AND "PRINCIPAL RISK FACTORS" (PAGE 9). THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ---------- CARGILL INVESTOR SERVICES, INC. ---------- The date of this Prospectus is June , 1996 An investment in the Partnership involves significant risks and expenses, including the following: . Speculative and volatile nature of commodity interest contract trading . Volatility of Net Asset Value of Units . High degree of leverage employed in commodity interest contract trading . Illiquid nature of various commodity interest contracts . Illiquid nature of the Units . Default risk with respect to the Partnership's counterparties, brokers, and exchanges . Substantial charges to the Partnership . Conflicts of interest in the Partnership structure and operation . Reliance on the General Partner and the Trading Advisor For a detailed description of the foregoing risks and other risk factors applicable to an investment in the Partnership, see "PRINCIPAL RISK FACTORS." TRANSFERABILITY OF THE UNITS IS RESTRICTED AND THERE IS, AND WILL BE, NO PUBLIC MARKET THEREFOR. UNITS ARE REDEEMABLE AT THE NET ASSET VALUE THEREOF AS OF THE LAST DAY OF EACH CALENDAR QUARTER--MARCH 31, JUNE 30, SEPTEMBER 30, AND DECEMBER 31--ON AT LEAST 5 BUSINESS DAYS' PRIOR WRITTEN NOTICE TO THE GENERAL PARTNER; AND A LIMITED PARTNER MAY REDEEM UNITS ONLY IN INCREMENTS OF $1,000 UNLESS SUCH PARTNER IS REDEEMING HIS ENTIRE INTEREST IN THE PARTNERSHIP. SEE "TRANSFERS AND REDEMPTIONS." THE PARTNERSHIP IS SUBJECT TO ACTUAL AND POTENTIAL CONFLICTS OF INTEREST. SEE "CONFLICTS OF INTEREST." Neither Tudor Fund For Employees L.P. nor Tudor Investment Corporation is affiliated with Tudor Fund, a U.S. mutual fund registered under the Investment Company Act of 1940, or with Tudor Management Co., Inc., a wholly-owned subsidiary of Weiss, Peck & Greer.
PRICE ORGANIZATIONAL PROCEEDS TO TO PUBLIC SELLING AND OFFERING PARTNERSHIP NOTES (1), (2), COMMISSIONS COSTS NOTES (1), (2), AND (3) NOTE (2) NOTE (3) AND (3) --------------- ----------- -------------- --------------- Per Unit (Minimum Notes (1), (2), None Note (3) Notes (1), (2), $1,000) and (3) and (3) Total Maximum (10,000 Notes (1), (2), None Note (3) Notes (1), (2), Units) and (3) and (3)
- -------- (Cover continued. Notes to above table on page iii) ii The General Partner, the Trading Advisor, Bellwether Partners LLC ("BPL"), an affiliate of the General Partner and the Trading Advisor, their present and future affiliated entities, and their successors and assigns may subscribe for Units, and there is no limitation on the number of Units that may be subscribed for by such persons. Units purchased by the General Partner, the Trading Advisor, BPL, their present or future affiliated entities, or their successors or assigns will be for investment purposes only and not with the view to resell. Notes to Table (1) At Quarterly Closings, Units are sold at a price equal to 100% of the Net Asset Value of a Unit as of the opening of business on the date of the Quarterly Closing at which such Units are sold. The minimum subscription per subscriber is $1,000, and any subscriber may subscribe for amounts of Units in excess of such minimum in increments of $1,000. All subscriptions are irrevocable. The General Partner may in its sole discretion reject any subscription in whole or in part at any time prior to acceptance. A subscription received and not immediately rejected by the General Partner is held in the Partnership's non-interest-bearing escrow account maintained with United States Trust Company of New York located in New York, New York, as escrow agent, until the General Partner either rejects such subscription prior to the applicable Quarterly Closing or accepts such subscription at such Quarterly Closing. Subscriptions must be received, at least (i) 2 full business days in the case of checks drawn on New York City banks, (ii) 5 full business days in the case of checks drawn on banks located outside of New York City, or (iii) 1 full business day in the case of wire transfers, prior to the applicable Quarterly Closing in order to be accepted at such Quarterly Closing. If the General Partner does not receive a subscription within the prescribed time period prior to a Quarterly Closing, the subscription will be accepted or rejected at the next following Quarterly Closing. The General Partner may reject a subscription, in whole or in part, at any time prior to the next following Quarterly Closing. (2) Neither the Partnership nor any investor will pay any selling commissions to the Selling Agent in connection with subscriptions for Units. However, the General Partner (out of its own funds) will reimburse the Selling Agent for certain of its out-of-pocket administrative expenses and may otherwise compensate the Selling Agent for its selling efforts, to the extent permitted by applicable law. (3) The General Partner initially paid all of the costs incurred in connection with the organization of the Partnership and the initial offering of Units during the initial offering period (the "Initial Offering Period"). The Partnership previously reimbursed the General Partner for such costs. During the Continuing Offering, the General Partner also pays the costs of preparing registration statements and prospectuses and the costs of printing and mailing registration statements, prospectuses, and reports for solicitation purposes. The Partnership pays escrow agent costs relating to the Continuing Offering. The Partnership receives 100% of the Net Asset Value of each Unit sold. Therefore, there is no dilution in the Net Asset Value of a Unit when additional Units are sold. ---------------- NO PERSON IS AUTHORIZED BY THE PARTNERSHIP TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS DESCRIBED HEREIN, AND IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE. iii THE PARTNERSHIP FURNISHES ALL LIMITED PARTNERS WITH ANNUAL AND MONTHLY REPORTS COMPLYING WITH THE REQUIREMENTS OF THE COMMODITY FUTURES TRADING COMMISSION. THE ANNUAL REPORTS CONTAIN AUDITED, AND THE MONTHLY REPORTS CONTAIN UNAUDITED, FINANCIAL INFORMATION. THE AUDITED FINANCIAL STATEMENTS ARE EXAMINED, REPORTED UPON, AND CERTIFIED BY INDEPENDENT PUBLIC ACCOUNTANTS. ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. THE PARTNERSHIP HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") IN WASHINGTON, D.C. A REGISTRATION STATEMENT ON FORM S-1 UNDER THE SECURITIES ACT OF 1933 AS AMENDED WITH RESPECT TO THE UNITS OFFERED HEREBY. THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION INCLUDED IN THE REGISTRATION STATEMENT, CERTAIN ITEMS OF WHICH ARE OMITTED IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE SEC. FOR FURTHER INFORMATION ABOUT THE PARTNERSHIP AND THE UNITS OFFERED HEREBY, REFERENCE IS MADE TO THE REGISTRATION STATEMENT AND THE EXHIBITS THERETO. THE PARTNERSHIP IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED, AND IN ACCORDANCE THEREWITH FILES REPORTS, PROXY STATEMENTS, AND OTHER INFORMATION WITH THE SEC. THESE REPORTS, PROXY STATEMENTS, AND OTHER INFORMATION CAN BE INSPECTED AND COPIED AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC AT THE SEC'S OFFICE AT 450 FIFTH STREET, N.W., ROOM 1024, WASHINGTON, D.C. 20549, AND AT ITS REGIONAL OFFICES LOCATED AT 7 WORLD TRADE CENTER, SUITE 1300, NEW YORK, NEW YORK 10048 AND 500 WEST MADISON STREET, SUITE 1400, CHICAGO, ILLINOIS 60661. COPIES OF SUCH MATERIAL CAN BE OBTAINED FROM THE PUBLIC REFERENCE SECTION OF THE SEC AT 450 FIFTH STREET, N.W., ROOM 1024, WASHINGTON, D.C. 20549 AND AT THE REGIONAL OFFICES DESCRIBED ABOVE, AT PRESCRIBED RATES. THE PARTNERSHIP FIRST INTENDS TO USE THIS PROSPECTUS ON JUNE , 1996. iv RISK DISCLOSURE STATEMENT YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN DOING SO, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL. FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, ADVISORY, AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL BEGINNING AT PAGE 27 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 29. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT BEGINNING AT PAGE 9. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OR REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED. v TABLE OF CONTENTS
PAGE ---- Investment Requirements................................................... 1 Summary of Prospectus..................................................... 1 Principal Risk Factors.................................................... 9 Conflicts of Interest..................................................... 21 Fiduciary Responsibility.................................................. 24 The Partnership........................................................... 26 Description of Charges to the Partnership................................. 27 Investment Program and Use of Proceeds.................................... 29 Capitalization............................................................ 38 Selected Financial Data................................................... 39 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 39 The General Partner....................................................... 41 Performance Record of the Partnership..................................... 42 Reporting to Pool Participants............................................ 44 The Trading Advisor....................................................... 44 The Management Agreement.................................................. 47 Brokerage Arrangements.................................................... 48 The Commodities Markets................................................... 59 Distributions............................................................. 66 The Limited Partnership Agreement......................................... 67 Plan of Distribution...................................................... 71 Subscription Procedure.................................................... 72 Purchases by Employee Benefit Plans--ERISA Considerations................. 72 Transfers and Redemptions................................................. 74 Security Ownership of Certain Beneficial Owners and Management............ 77 Federal Income Tax Aspects................................................ 77 State and Local Income Tax Aspects........................................ 85 Potential Advantages of an Investment in the Partnership.................. 86 Auditors.................................................................. 87 Legal Matters............................................................. 87 Additional Information.................................................... 88 Glossary.................................................................. 88 Report of Independent Public Accountants and Statements of Financial Condition of Tudor Fund For Employees L.P................................ F-1 Report of Independent Public Accountants and Statements of Financial Condition of Second Management Company, Inc.............................. F-21 Exhibit A--First Amended and Restated Limited Partnership Agreement....... A-1 Annex A--Form of Request for Redemption................................... A-36 Exhibit B--Subscription Agreement and Power of Attorney for Individuals... B-1 Exhibit C--Subscription Agreement and Power of Attorney for the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan............ C-1 Exhibit D--Representations and Agreements by Plan Participants............ D-1
vi INVESTMENT REQUIREMENTS The minimum investment per subscriber is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. Any subscriber may subscribe for amounts of Units in excess of the foregoing minimum in increments of $1,000. UNITS MAY ONLY BE SOLD TO AND HELD BY (i) EMPLOYEES OF SECOND MANAGEMENT LLC (THE "GENERAL PARTNER"), TUDOR INVESTMENT CORPORATION (THE "TRADING ADVISOR"), ANY OF THEIR PRESENT OR FUTURE AFFILIATED ENTITIES, OR THEIR SUCCESSORS OR ASSIGNS, (ii) THE GENERAL PARTNER, THE TRADING ADVISOR, ANY OF THEIR PRESENT AND FUTURE AFFILIATED ENTITIES, AND THEIR SUCCESSORS AND ASSIGNS, AND (iii) THE TUDOR INVESTMENT CORPORATION 401(k) SAVINGS AND PROFIT-SHARING PLAN (THE "TIC 401(k) PLAN"). The suitability of employees desiring to purchase Units is determined in the sole discretion of the General Partner. No employee may invest in Units in an amount which exceeds 25% of the net worth of the employee or, if married, the joint net worth of the employee and spouse (in each case, exclusive of home, furnishings, and automobiles). The purchase of Units might or might not be a suitable investment for an employee benefit plan. Before proceeding with such a purchase, the person with investment discretion on behalf of an employee benefit plan must determine whether the purchase of Units is (a) permitted under the governing instruments of the plan, and (b) appropriate for the plan in view of its overall investment policy, the composition and diversification of its portfolio, and the considerations discussed under "PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS." In the case of participant directed, individual account plans (such as the TIC 401(k) Plan), the participant considering an investment in Units must make these determinations with regard to such participant's account. Each subscriber must represent and warrant in a Subscription Agreement, among other things, that the subscriber has received this Prospectus, including the Second Amended and Restated Limited Partnership Agreement of the Partnership annexed hereto as EXHIBIT A (the "Limited Partnership Agreement"). This warranty is required by regulations of the Commodity Futures Trading Commission (the "CFTC"). In addition, each subscriber must represent that his investment in the Partnership does not exceed 25% of his individual or joint net worth, as the case may be. Forms of Subscription Agreement and Power of Attorney to be used by subscribers are annexed hereto as EXHIBIT B and EXHIBIT C. A form of Representations and Agreements to be made by TIC 401(k) Plan participants is annexed hereto as EXHIBIT D. See "SUBSCRIPTION PROCEDURE." All subscriptions for Units are irrevocable, and the General Partner may in its sole discretion reject any subscription in whole or in part. There are significant restrictions on the ability of a Limited Partner to redeem Units. Although the Limited Partnership Agreement permits the transfer of Units subject to certain conditions, there is no public market for the Units and none is likely to develop. Therefore, a purchaser of Units must be able to bear the economic risks of an investment in the Partnership for a significant period of time. See "TRANSFERS AND REDEMPTIONS." SUMMARY OF PROSPECTUS The following is a summary of this Prospectus. This Prospectus contains more detailed information under the captions referred to herein, and this summary is qualified in its entirety by the information appearing elsewhere herein and in the Partnership's Limited Partnership Agreement and forms of Subscription Agreement and related documents. INVESTMENT PROGRAM AND USE OF PROCEEDS The business and objective of Tudor Fund For Employees L.P. (the "Partnership") is to generate substantial appreciation of its assets over time through speculative trading in commodity interest contracts (as defined below). The net proceeds from the sale of Units are deposited and maintained in bank accounts and trading accounts and used to meet the Partnership's margin and collateral requirements and expenses and charges. A 1 portion of the net proceeds is deposited and maintained with the Clearing Brokers and BPL in cash, and the balance is held either in United States Treasury bills, in interest-bearing accounts at banks, or in other short-term investments. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." The Partnership's business is primarily to trade, buy, sell (including to sell short), spread, swap, acquire, hold, dispose of, and deal in, commodities, currencies, futures contracts, forward contracts, foreign exchange commitments, currency exchanges, money market instruments, debt obligations and other instruments issued or guaranteed by sovereigns, governments, and supranationals and their bodies, agencies, instrumentalities, authorities, and similar issuers, bonds, debentures, notes, bills, commercial paper, repurchase and reverse repurchase agreements, standby purchase and sale agreements, financial instruments, investment contracts, investment agreements, certificates of interest, securities interests, securities of and interests in other corporations, companies, partnerships, trusts, and other entities and vehicles, swaps, swaptions, caps, floors, straddles, and collars, derivative and hybrid transactions and instruments (however designated), options on and in respect of any of the foregoing, and rights and interests in respect of, pertaining to, and in connection with, any of the foregoing, on or off exchanges and markets, in publicly offered and private placement transactions, on spot, current, future, forward, and when-issued start, delivery, settlement, and optional commitment bases, on secured and unsecured bases, and on margin, collateral, and partial and full payment bases (collectively "commodity interest contracts"). See "PRINCIPAL RISK FACTORS," "INVESTMENT PROGRAM AND USE OF PROCEEDS," "THE GENERAL PARTNER," and "THE COMMODITIES MARKETS." BREAK-EVEN ANALYSIS The Partnership will need to achieve profits in an amount equal to approximately 5% of the sale price of a Unit (i.e., Net Asset Value per Unit) in order for the Net Asset Value of a Unit, one year following such sale, to equal such sale price. Based on the minimum investment of $1,000, this would amount to $50. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--BREAK-EVEN ANALYSIS." THE PARTNERSHIP The Partnership, a limited partnership organized on November 22, 1989 under the Delaware Revised Uniform Limited Partnership Act (the "Partnership Act"), was capitalized on that date with contributions of $1,000 by the General Partner and $1,000 by a principal of the General Partner (as initial Limited Partner). The Partnership commenced trading operations on July 2, 1990. A Limited Partner will not be liable for the Partnership's debts, losses, or other obligations in excess of his unredeemed capital contribution and undistributed profits, if any, except as provided otherwise in the Limited Partnership Agreement. See "THE LIMITED PARTNERSHIP AGREEMENT--NATURE OF THE PARTNERSHIP." The General Partner and Limited Partners may be referred to herein individually as a "Partner" and collectively as the "Partners." The Partnership's office is located at One Liberty Plaza, 51st Floor, New York, New York 10006; Telephone No. 212-602-6700; and Facsimile No. 212-571- 7042. The Partnership's fiscal year is the calendar year, beginning January 1st of each year and ending on the following December 31st. The Partnership will terminate on the first to occur of: (1) December 31, 2010; (2) an election to dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the outstanding Units; (3) the withdrawal, insolvency, termination, dissolution, or liquidation of the General Partner or of any successor entity thereof (unless the business of the Partnership is continued by any new, remaining, or successor general partner(s) in accordance with the Limited Partnership Agreement); (4) the termination of the Partnership by the Partners in accordance with the Limited Partnership Agreement; (5) a decline in the Net Asset Value of a Unit as of the end of any calendar month to less than $500; (6) a decline in the Partnership's aggregate Net Assets as of the end of any calendar month to less than $125,000; (7) a determination by the General Partner in its sole discretion either that the Partnership's assets in relation to its operating expenses make it 2 unreasonable or imprudent to continue the business of the Partnership, or that the General Partner no longer desires to make available the Partnership to, or operate the Partnership for, the persons permitted to become Limited Partners pursuant to the Limited Partnership Agreement; (8) the enactment of any law or the adoption of any rule, regulation, policy, or guideline by any regulatory authority having jurisdiction over the Partnership which makes it unlawful, unreasonable, or imprudent in the sole discretion of the General Partner for the principal business of the Partnership to be continued; or (9) the occurrence of any event requiring termination of the Partnership. See "THE LIMITED PARTNERSHIP AGREEMENT--TERMINATION OF THE PARTNERSHIP." THE GENERAL PARTNER The Partnership's general partner is Second Management LLC (the "General Partner"), a Delaware limited liability company and an affiliate of the Trading Advisor and BPL, whose office and telephone number are the same as that of the Partnership. The General Partner, to the exclusion of the Limited Partners, conducts and manages the business of the Partnership. The General Partner currently serves as commodity pool operator only for the Partnership. See "CONFLICTS OF INTEREST," "FIDUCIARY RESPONSIBILITY," "THE GENERAL PARTNER," "PERFORMANCE RECORD OF THE PARTNERSHIP," and "THE LIMITED PARTNERSHIP AGREEMENT--MANAGEMENT OF PARTNERSHIP AFFAIRS." THE TRADING ADVISOR The Partnership trades commodity interest contracts pursuant to trading instructions provided by Tudor Investment Corporation ("TIC" or the "Trading Advisor"), a Delaware corporation and an affiliate of the General Partner and BPL. The Trading Advisor and its affiliates currently manage and advise other customer accounts as well as their proprietary accounts. See "CONFLICTS OF INTEREST," "THE TRADING ADVISOR," and "PERFORMANCE RECORD OF THE PARTNERSHIP." CHARGES TO THE PARTNERSHIP
RECIPIENT NATURE OF CHARGE AMOUNT OF CHARGE --------- ---------------- ---------------- Trading Advisor......... Management fee 1/12 of 2% per calendar month (a 2% annual rate) of the Partnership's adjusted Net Assets (as defined in the "GLOSSARY"). Incentive fee 12% of Trading Profits (as defined in the "GLOSSARY") earned by the Partnership as of the end of each calendar quarter. Clearing Brokers........ Brokerage fees Brokerage commissions at rates of between $9 and $21 plus National Futures Association ("NFA") transaction fees of $0.14, per roundturn for futures and options trades on United States exchanges (such rates include all transaction costs in connection with trading activities, including floor brokerage, exchange, clearing, and clearinghouse fees). For trades effected on exchanges and markets located outside of the United States, rates per transaction which are generally higher than the rates for transactions on United States exchanges. Others.................. Ordinary operating Actual expenses incurred. expenses (including escrow agent costs) and extraordinary expenses.
3 MANAGEMENT FEE. The Partnership pays the Trading Advisor a monthly management fee equal to 1/12 of 2% of the Partnership's adjusted Net Assets (as defined in the "GLOSSARY"). As described under "FEES FOR PLAN INVESTOR PARTNERS" below, the Trading Advisor does not receive management fees attributable to Units held by Plan Investor Partners. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP -- MANAGEMENT FEE." INCENTIVE FEE. The Partnership pays the Trading Advisor a quarterly incentive fee equal to 12% of the "Trading Profits" (as defined in the "GLOSSARY") earned on the Partnership's assets as of the end of each calendar quarter. As described under "FEES FOR PLAN INVESTOR PARTNERS" below, the Trading Advisor does not receive incentive fees attributable to Units held by Plan Investor Partners. The term "Trading Profits" generally means the net commodity interest contract trading profits (realized and unrealized) earned on the Partnership's assets. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--INCENTIVE FEE." BROKERAGE COMMISSIONS. The Partnership pays BZW Futures ("BZW Futures"), Cargill Investor Services, Inc. (in such capacity, "CIS"), Daiwa Securities America Inc. ("Daiwa"), E.D. & F. Man International Inc. ("EDF"), Goldman, Sachs & Co. ("Goldman"), J.P. Morgan Futures Inc. ("Morgan Futures"), Merrill Lynch Futures Inc. ("Merrill Lynch"), Morgan Stanley & Co., Incorporated ("Morgan Stanley"), Morgan Stanley & Co. International Limited ("MSIL"), Prudential Securities Incorporated ("Prudential"), and Salomon Brothers Inc ("Salomon Brothers"), as the Partnership's clearing brokers (individually a "Clearing Broker", and collectively the "Clearing Brokers"), brokerage commissions for trades on United States exchanges at rates of between $9 and $21 per roundturn for futures and options trades (such rates include floor brokerage, exchange, clearing, clearinghouse, and National Futures Association ("NFA") fees). For trades effected on exchanges and markets located outside of the United States, the Partnership pays the Clearing Brokers brokerage commissions at rates per transaction which are generally higher than the rates for transactions on United States exchanges, and commissions for trades on foreign exchanges and markets are subject to fluctuations in exchange rates and additional regulatory fees and charges. The foregoing commissions and fees are subject to change from time to time as mutually agreed between the General Partner and the applicable broker or dealer. The General Partner has negotiated competitive brokerage commission rates. The Partnership anticipates that it will pay annually up to approximately 5% of its average annual Net Assets in brokerage commissions and other transaction fees and charges (although historically such annual costs have been less than 5%). See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP-- BROKERAGE COMMISSIONS," "BROKERAGE ARRANGEMENTS," and "GUARANTEES AND CONTRIBUTION AGREEMENTS." OTHER EXPENSES. The Partnership pays its ordinary operating expenses. Such expenses include legal, accounting, escrow, auditing, record keeping, administration, computer, and clerical expenses, expenses incurred in preparing, printing, and mailing reports and tax information to Limited Partners and regulatory authorities, expenses of printing and mailing registration statements, prospectuses, and reports to Limited Partners (but not for solicitation purposes and not the expenses of preparing such registration statements and prospectuses, all of which are paid by the General Partner), expenses for specialized administrative services, other printing and duplication expenses, other mailing costs, and filing fees. Such fees and expenses have historically amounted, per annum, to approximately 0.5% to 2% of the Partnership's average annual Net Assets. The Partnership will also pay any extraordinary expenses it may incur. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--OTHER EXPENSES" and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." 4 FEES FOR PLAN INVESTOR PARTNERS. Because of constraints under the Employee Retirement Income Security Act of 1974 as amended ("ERISA") and the Internal Revenue Code of 1986 as amended (the "Code"), TIC has irrevocably waived, disclaimed, and renounced its right to receive management fees and incentive fees attributable to Units held by the TIC 401(k) Plan or any pension, retirement, or other employee benefit plan established for employees of TIC or its present or future affiliates, successors, or assigns ("Plan Investor Partners"). As a consequence of such waiver, disclaimer, and renunciation, and pursuant to the terms of the Limited Partnership Agreement, the capital accounts of Plan Investor Partners will not be charged for management fees or incentive fees payable to TIC, and the number of Units held by each Plan Investor Partner will be restated as necessary to equate the per Unit value of such Plan Investor Partner's capital account with the per Unit value of a non- Plan Investor Partner's capital account. RISKS An investment in the Partnership is speculative and involves substantial risks, including the risk of loss of a Limited Partner's entire investment. Other risks and considerations of an investment in the Partnership include: the speculative and volatile nature of trading in commodity interest contracts; the volatility of the Net Asset Value of Units as compared to investments in certain other types of trading vehicles; the high degree of leverage employed in commodity interest contract trading with its concomitantly high level of loss (or gain) from a relatively small change in the price of the underlying commodity; the illiquid nature of various commodity interest contracts; the illiquid nature of the Units due to restrictions on assignment, transfer, pledge, encumbrance, and redemption; the potential default of or delay by any of the parties with which the Partnership trades, its brokers, or the exchanges on which they trade; the substantial charges to the Partnership regardless of whether any profits are earned; the presence of actual and potential conflicts of interest in the Partnership structure and operation; and the Partnership's reliance on the Trading Advisor. For a discussion of certain risks, see "RISK DISCLOSURE STATEMENT," "PRINCIPAL RISK FACTORS," "DESCRIPTION OF CHARGES TO THE PARTNERSHIP," and "THE COMMODITIES MARKETS." DISTRIBUTIONS The Limited Partnership Agreement, which does not provide for regular or periodic cash distributions, grants the General Partner sole discretion in determining the amount and frequency of distributions (other than on voluntary redemptions of Units), if any, the Partnership will make to its Partners. Any distributions made by the Partnership will be pro rata in accordance with the interests owned by all Partners. As of the date hereof, the Partnership has never made any distribution to Limited Partners other than in connection with a Limited Partner's redemption. See "DISTRIBUTIONS," "PRINCIPAL RISK FACTORS-- PARTNER'S TAX LIABILITY MAY EXCEED DISTRIBUTIONS," and "TRANSFERS AND REDEMPTIONS." TRANSFERS AND REDEMPTIONS A Limited Partner may only transfer, assign, pledge, or encumber his Units for the benefit of (i) another person who is an employee of the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns, (ii) the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns, or (iii) such other person or entity as the General Partner in its sole discretion may determine. A Limited Partner's transferee, assignee, pledgee, or secured creditor may become a substituted Limited Partner, provided that there is compliance with the transfer provisions of the Limited Partnership Agreement. Certain attempted transfers, assignments, pledges, and encumbrances will not be effective and will not be recognized by the General Partner. A Limited Partner 5 will bear all costs (including attorneys' and accountants' fees and expenses) related to any transfer, assignment, pledge, or encumbrance of his Units. A Limited Partner may require the Partnership to redeem all or a portion of such Partner's Units as of the last day of each calendar quarter--March 31, June 30, September 30, and December 31. A Limited Partner may redeem Units only in $1,000 increments, unless such Limited Partner is redeeming his entire interest in the Partnership. The amount received by a Limited Partner upon redemption will equal 100% of the Net Asset Value of a Unit as of the redemption date, less any amount owed by such Partner to the Partnership or the General Partner as provided in the Limited Partnership Agreement or any amount owed by such Partner to the Partnership for expenses incurred by the Partnership in respect of such Partner's obligations or liabilities unrelated to the Partnership pursuant to the indemnification provisions of the Limited Partnership Agreement. Limited Partners are not charged any redemption fee. The right to obtain payment on redemption is contingent upon the Partnership having assets sufficient to discharge its liabilities on the redemption date, the timely receipt by the General Partner of a Request for Redemption (a form of which is attached as ANNEX A to the Limited Partnership Agreement), and the satisfaction of the other conditions set forth in the Limited Partnership Agreement. The General Partner endeavors to pay redemptions within 20 business days after the applicable redemption date, subject to certain exceptions set forth in the Limited Partnership Agreement. The Limited Partnership Agreement also contains a mandatory redemption provision. The General Partner may in its discretion require a Limited Partner to withdraw entirely from the Partnership or to redeem a portion of such Limited Partner's Units, upon 5 business days' notice to the affected Limited Partner. The General Partner intends generally to require the withdrawal of a Limited Partner who ceases to be an employee or affiliate of the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns. Also, affiliates of the General Partner have in the past required mandatory redemptions of funds managed by them in order to reduce the assets under their management or to distribute trading profits, and they (and the General Partner) may do so again in the future. See "DISTRIBUTIONS" and "TRANSFERS AND REDEMPTIONS." CONFLICTS OF INTEREST Significant actual and potential conflicts of interest exist in the structure and operation of the business of the Partnership. See "PRINCIPAL RISK FACTORS," "CONFLICTS OF INTEREST," and "FIDUCIARY RESPONSIBILITY." SECURITIES OFFERED Up to 3,448 unsold Units of Limited Partnership Interest as of the date of this Prospectus. A total of 10,000 Units were initially registered and offered for sale. See "THE LIMITED PARTNERSHIP AGREEMENT--ADDITIONAL PARTNERS." MINIMUM SUBSCRIPTION The minimum investment per subscriber is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. Any subscriber may subscribe for amounts of Units in excess of the foregoing minimum in increments of $1,000. At each Quarterly Closing at which subscriptions are accepted by the General Partner, the Partnership issues to each subscriber whose subscription is accepted the appropriate number of whole Units and/or fractions of Units as may be determined in accordance with the price of 100% of the Net Asset Value of the Units sold. See "SUMMARY OF PROSPECTUS--INVESTMENT REQUIREMENTS," "PLAN OF DISTRIBUTION," and "SUBSCRIPTION PROCEDURE." 6 PLAN OF DISTRIBUTION The Units are offered and sold by the Partnership through Cargill Investor Services, Inc. (in such capacity, the "Selling Agent"), a Delaware corporation, an SEC-registered broker-dealer, and a member of the National Association of Securities Dealers, Inc. (the "NASD"), on a best efforts basis without any firm underwriting commitment. The Selling Agent is not affiliated with the General Partner, the Trading Advisor, BPI, or any of their affiliates. The Selling Agent also acts as a Clearing Broker for the Partnership, and acts as a selling agent and clearing broker for certain other investment funds sponsored and/or traded by the Trading Advisor and its affiliates. Neither the Partnership nor any investor will pay any selling commissions to the Selling Agent in connection with subscriptions for Units. However, the General Partner (out of its own funds) will reimburse the Selling Agent for certain of its out-of- pocket administrative expenses and may otherwise compensate the Selling Agent for its selling efforts, to the extent permitted by applicable law. See "PLAN OF DISTRIBUTION." Units and fractions of Units (to the fourth decimal place) are offered for sale on a continuing basis (the "Continuing Offering") at quarterly closings held as of January 1, April 1, July 1, and October 1 of each year or at such other times as the General Partner may in its sole discretion determine (the "Quarterly Closings"). There is no minimum offering amount. Units are sold at a price per Unit equal to 100% of the Net Asset Value of a Unit as of the opening of business on the date of the Quarterly Closing at which such Units are sold. Because the Partnership receives 100% of the Net Asset Value of each Unit sold, there will be no dilution in the Net Asset Value of a Unit purchased during the Continuing Offering. The Continuing Offering will continue for as long as there are registered Units (or fractions thereof) which have not been subscribed for, unless the General Partner in its sole discretion at any time or from time to time withdraws or discontinues the Continuing Offering. During the Continuing Offering, the Net Asset Value of a Unit may increase or decrease substantially between the date of a subscription and the date of the Quarterly Closing at which such subscription is accepted by the General Partner. Consequently, a subscriber may receive at a Quarterly Closing more or fewer Units than would be received if the Quarterly Closing were held on the date of receipt of the subscription by the General Partner. See "SUBSCRIPTION PROCEDURE." SUBSCRIPTION PROCEDURE All subscriptions for Units are irrevocable. The General Partner, in its sole discretion, may reject any subscription in whole or in part at any time prior to acceptance. In order to subscribe for Units, a subscriber must: (1) complete, date, sign, and deliver to the Selling Agent a Subscription Agreement and other subscription documentation annexed hereto as EXHIBIT B, EXHIBIT C, and/or EXHIBIT D as applicable; and (2) either (a) deliver a check for the full amount of the subscription payable to "UNITED STATES TRUST COMPANY OF NEW YORK, AS ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", maintained with the United States Trust Company of New York located in New York, New York (the "Escrow Agent"), or (b) wire transfer Federal Funds for the full amount of the subscription payable to the Partnership's escrow account designated as "CHASE MANHATTAN BANK, NEW YORK, NEW YORK, ABA NO. 021000021, FOR CREDIT TO ACCOUNT NO. 9201073195, UNITED STATES TRUST COMPANY OF NEW YORK, FOR FURTHER CREDIT TO SUBSCRIPTION ACCOUNT NO. 098791, TUDOR FUND FOR EMPLOYEES L.P., REFERENCE: [SUBSCRIBER'S NAME]". Subscriptions must be received at least (i) 2 full business days in the case of checks drawn on New York City banks, (ii) 5 full business days in the case of checks drawn on banks located outside of New York City, or (iii) 1 full business day in the case of wire transfers, prior to the applicable Quarterly Closing in order to be accepted at such Quarterly Closing. If the General Partner does not receive a subscription within the prescribed time period prior to a Quarterly Closing, the subscription will be accepted or rejected at the next following Quarterly Closing. A subscription received and not immediately rejected by the General Partner is 7 held in the Partnership's non-interest-bearing escrow account maintained with the Escrow Agent until the General Partner either rejects such subscription prior to the applicable Quarterly Closing or accepts such subscription at such Quarterly Closing. See "SUMMARY OF PROSPECTUS--INVESTMENT REQUIREMENTS," "PLAN OF DISTRIBUTION," and "SUBSCRIPTION PROCEDURE." TAXATION In the opinion of the General Partner's legal counsel, the Partnership will be classified as a partnership for United States federal income tax purposes, and not as an association taxable as a corporation. Accordingly, the Partnership will not be subject to United States federal income tax. Each Limited Partner in computing his federal income tax liability for a taxable year will be required to take into account his distributive share of all items of Partnership income, gain, loss, deduction, or credit for the taxable year of the Partnership ending within or with the taxable year of the Limited Partner, regardless of whether such Limited Partner has received any distributions from the Partnership. Such items of Partnership gain or loss retain their character (e.g., capital or ordinary) when allocated to the Limited Partners. Moreover, all such allocations will increase or decrease each Limited Partner's tax basis in his Units. The allocation provisions are designed to reconcile tax allocations to economic allocations; however, no assurance can be given that the Internal Revenue Service will not challenge such allocation, especially in light of recently issued final regulations. See "FEDERAL INCOME TAX ASPECTS." Taxes payable by partners with respect to Partnership profits may exceed the amount of Partnership distributions, if any, for a taxable year. Based upon the current and contemplated activities of the Partnership, the General Partner has been advised by its legal counsel that, in such counsel's opinion, expenses incurred by the Partnership should not be subject to the limitations on the deductibility of certain miscellaneous itemized expenses, except to the extent the Internal Revenue Service promulgates regulations that so provide. Cash distributions by the Partnership and amounts received or deemed received upon the partial or complete redemption of a Limited Partner's Units that do not exceed the Limited Partner's aggregate tax basis in his Units are not taxable. However, to the extent cash distributions and amounts received or deemed received upon the partial redemption of a Limited Partner's Units exceed the Limited Partner's aggregate tax basis in his Units, the excess will be taxable to the Limited Partner as though it were gain on the sale of his Units. Loss will generally be recognized on a redemption of Units only if a Limited Partner redeems all of his Units in the Partnership and, following the complete redemption, such Limited Partner has remaining tax basis in the Partnership. In such case, the Limited Partner will recognize loss to the extent of the remaining basis. Subject to an exception for certain types of Partnership assets, such gain or loss (assuming that the Units constitute capital assets) will be either short-term capital gain or loss or long-term capital gain or loss, depending upon the length of time that Units were held prior to the distribution or redemption. See "FEDERAL INCOME TAX ASPECTS." The General Partner has been advised that, in the opinion of its legal counsel, a Limited Partner who is a nonresident alien natural person, foreign corporation, foreign partnership, foreign trust, or foreign estate (a "Foreign Limited Partner") should not be deemed engaged in a trade or business in the United States, and should not be subject to United States federal income tax, solely because such Foreign limited Partner is a limited partner in the Partnership. In the event the Partnership's activities should in the future not fall within certain safe harbors from U.S. trade or business status, there is a risk that all of a Foreign Limited Partner's distributive share of income of the Partnership would be treated as effectively connected with the conduct of a trade or business in the United States. In that event, the Foreign Limited Partner would be taxed at regular rates applicable to U.S. taxpayers, and if a foreign corporation, could be subject to a 30% branch profits tax. See "FEDERAL INCOME TAX ASPECTS." As regards tax-exempt Limited Partners, see "PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS." 8 PRINCIPAL RISK FACTORS In addition to the Risk Disclosure Statements appearing at the beginning of this Prospectus and the other disclosures of risks and charges set forth herein, prospective investors should consider the following before subscribing for Units. COMMODITY INTEREST CONTRACT TRADING IS SPECULATIVE AND VOLATILE. Commodity interest contract prices are highly volatile. Price movements of contracts are influenced by, among other things: changing supply and demand relationships; weather; agricultural, trade, fiscal, monetary, and exchange control programs and policies of governments; political and economic events and policies; changes in interest rates and rates of inflation; currency devaluations and revaluations; and emotions of the marketplace. Currency prices may be influenced by, among other things: political events (including restrictions on local exchanges or markets, limitations on foreign investment 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; trade restrictions; and currency devaluations and revaluations. Metals prices can be affected by all such factors and by the effects of production. Governments from time to time intervene, directly and by regulation, in certain markets, particularly those in currencies and gold. Such intervention is often intended to influence prices directly. See "THE COMMODITIES MARKETS." COMMODITY INTEREST CONTRACT TRADING IS HIGHLY LEVERAGED. Because of the low margin deposits normally required in commodity interest contract trading (typically between 2% and 15% of the value of the contract purchased or sold), an extremely high degree of leverage is typical of a commodity interest contract trading account. As a result, a relatively small price movement in a commodity interest contract may result in immediate and substantial losses to the investor. For example, if at the time of purchase 10% of the price of a contract is deposited as margin, a 10% decrease in the price of the contract would, if the contract were then closed out, result in a total loss of the margin deposit (before taking into account any transaction costs). A decrease of more than 10% would result in a loss of more than the total margin deposit. Thus, like other leveraged investments, any purchase or sale of a commodity interest contract may result in losses in excess of the amount invested. See "THE COMMODITIES MARKETS--MARGINS," and "THE LIMITED PARTNERSHIP AGREEMENT-- NATURE OF THE PARTNERSHIP." COMMODITY INTEREST CONTRACT TRADING MAY BE ILLIQUID. It is not always possible to execute a buy or sell order at the desired price or to close out an open position, due to market illiquidity. Such illiquidity can be caused by intrinsic market conditions, the interrelationship between or among markets, or extrinsic factors like the imposition of daily price fluctuation limits. Most United States commodity exchanges limit fluctuations in certain commodity interest contract prices by regulations referred to as "daily price fluctuation limits" or "daily limits." Pursuant to such regulations, during a single trading day (or part thereof), no trades may be executed at prices beyond the daily limits. Once the price of a particular commodity interest contract has increased or decreased by an amount equal to the daily limit, positions in such contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Prices in various commodity interest contracts have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Trading Advisor from promptly liquidating unfavorable positions and subject the Partnership to substantial losses. While daily limits 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 they may prevent the liquidation of unfavorable positions. There is no limitation on daily price movements in trading spot, forward, swap, or over-the-counter commodity option contracts. In addition, the Partnership may not be able to execute trades at favorable prices if little trading in the particular commodity interest contract is taking place. Under some circumstances, the Partnership might be required to accept or make delivery of the commodity underlying a particular contract if the position cannot be liquidated prior to its expiration date. In addition, if the Trading Advisor deems it to be in the 9 Partnership's best interest, the Partnership may make or take delivery of an underlying commodity. In the case of commodity interest contracts that provide for cash settlement in lieu of physical delivery, the Trading Advisor may routinely allow contracts to expire without entering into an offsetting transaction to liquidate the position. It is also anticipated that, if BPL establishes credit and settlement and delivery lines for the physical delivery of currencies, the Trading Advisor will cause the Partnership to make and take actual delivery of currencies in settlement of spot and forward contracts. It is also possible that an exchange or the CFTC may suspend or limit trading in a particular contract, order immediate liquidation and settlement of a particular contract, or order that trading in a particular contract be conducted for liquidation only. Similarly, trading in options on a particular futures contract may become restricted if trading in the underlying futures contract has become restricted. During periods in October 1987 and 1988, for example, trading in certain stock index futures contracts and options was too illiquid for markets to function efficiently and was for a short time actually suspended. The Chicago Mercantile Exchange, which is the commodity exchange on which the Standard & Poor's 500 Stock Index futures contract is traded, and other commodity exchanges which trade stock index futures contracts have adopted rules referred to as "circuit breakers"--procedures for an automatic halt in trading for a period of time that will be triggered whenever the Dow Jones Industrial Average declines by a certain number of points. There has been limited experience with the effect of circuit breakers on liquidity and prices in the stock index futures contract markets; thus the full impact of these rules cannot be determined at this time. Such market conditions could cause the Net Asset Value of a Unit to decline below $500 as of the end of a month or the aggregate Net Assets of the Partnership to decline below $125,000 as of the end of a month, which in either case would cause the Partnership to terminate and dissolve. However, the Partnership's Net Asset Value of a Unit or Net Assets, as the case may be, could decline to zero, either prior to such termination or thereafter. See "THE COMMODITIES MARKETS." UNITS ARE ILLIQUID. Because of the limitations on redemptions and the fact that Units are not tradeable, an investment in the Partnership is a relatively illiquid investment and involves a high degree of risk. A subscription for Units should be considered only by investors financially able to maintain their investment and who can afford to lose all or a substantial part of their investment. Units cannot be assigned, transferred, pledged, encumbered, or otherwise disposed of except under the terms and conditions set forth in the Limited Partnership Agreement, and there is and will be no public market for Units. Limited Partners, after proper notice has been given to the General Partner, may require the Partnership to redeem all or part of their Units as of the last day of any calendar month at the Net Asset Value thereof on such date, subject to certain limitations. See "TRANSFERS AND REDEMPTIONS." TRADING OF SPOT AND FORWARD CONTRACTS. The Partnership enters into spot and forward contracts for the trading of certain commodity interests (such as currencies and metals) with United States and foreign banks and dealers in the spot, forward, and interbank markets. Based on the Partnership's trading during the past two years, spot and forward contracts are expected to comprise, on average, between 20% and 50% of the Partnership's annual trading activities. A spot contract is a cash market contractual obligation to purchase or sell immediately a specified quantity of a commodity, usually with a two-day settlement date. The Partnership may at times extend the settlement date of a spot contract position by "rolling" the contract over into a new spot or forward contract before the settlement date. "Rollover" trading enables the Partnership to maintain an ongoing position in the spot market in order to take better advantage of favorable price movements. A forward contract is a contractual obligation to purchase or sell a specified quantity of a commodity at a specified date in the future at a specified price, and therefore is similar to a futures contract. Spot and forward contracts are not traded on exchanges, and as a consequence investors in such contracts do not benefit from the regulatory protections of such exchanges or the CFTC or other governmental or regulatory authorities in any jurisdiction; rather, banks and dealers act as principals in these markets. See "THE COMMODITIES MARKETS--SPOT AND FORWARD CONTRACTS." 10 Trading in the spot and forward markets presents certain risks in addition to those found in the futures and options contract markets. 1. The interbank markets are not generally regulated by any United States or foreign governmental authorities. Although banks and broker-dealers, which are participants in these markets, are regulated in various ways by United States and foreign banking and securities authorities, they generally do not regulate the interbank markets. 2. There are no limitations on daily price movements in spot and forward contracts. 3. Speculative position limits are not applicable to spot and forward contract trading, although BPL or the principals with which BPL deals may limit the positions available to BPL or the Partnership as a consequence of credit considerations. 4. Participants in the spot and forward contract markets are not required to make continuous markets in the contracts they trade. There have been periods during which certain participants in these markets have refused to quote prices for spot or forward contracts or have quoted prices with an unusually wide spread between the price at which they are prepared to buy and the price at which they are prepared to sell. 5. The Partnership principally trades spot and forward contracts with and through BPL. As a result, liquidity problems might be greater in the Partnership's trading than would be the case if trades were placed through a larger number of market participants. Moreover, because of the relative size of BPL's available lines of credit, the Partnership could experience liquidity difficulties from time to time. However, the General Partner does not anticipate that any such liquidity difficulties will arise. 6. Trading in the spot and forward markets involves the extension of credit by a participant to its counterparty. The counterparties with which BPL trades have traditionally required collateral deposits with respect to BPL's trading of currencies. Consequently, BPL has required the Partnership to deposit and maintain collateral with BPL in amounts up to 20% of the Partnership's Net Assets, which may be a collateral obligation greater than that required of some other affiliated customers of BPL. In order to satisfy this requirement, the Partnership deposits and maintains cash with BPL and receives interest based upon the monthly average of the then-prevailing weekly 90-day United States Treasury bill auction rate. BPL has unrestricted use of such funds deposited as collateral. 7. The General Partner and the Trading Advisor may in the future modify the manner in which the Partnership and the other clients of the Trading Advisor and its affiliates conduct their trading of spot and forward contracts for currencies. Historically, the Partnership has not made or taken actual delivery of currencies underlying spot and forward contracts. 8. Because the Partnership enters into spot and forward contract transactions directly with a counterparty (be it BPL or another party) and because the performance of spot and forward contracts is not guaranteed by any exchange or clearinghouse, the Partnership is subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the principals or agents with or through which BPL and the Partnership trade and of BPL itself. In addition, the Partnership's spot and forward contract transactions generally do not benefit from other safeguards which are applicable to intermediaries in certain exchange-traded markets, including clearinghouse guarantees, daily mark-to-market valuation and settlement of positions, segregation of monies and property, and minimum capital requirements. Because BPL has limited capital, the risk of the inability of BPL to perform with respect to contracts with the Partnership also may be higher than with respect to other market participants. Any such failure or refusal, whether due to insolvency, bankruptcy, default, or other cause, could subject the Partnership to substantial losses. BPL and the Partnership will not be excused from the performance of any spot or forward contracts into which they have entered due to the default of third parties (or BPL) in respect of spot or forward contracts or other transactions which were to have substantially offset such contracts. Thus, the Partnership is exposed to the risk of its counterparties' default in its trading of spot and forward contracts. The Partnership and BPL trade spot and forward contracts only with banks and dealers that the General Partner believes to be creditworthy. 11 9. Trading in the spot and forward markets includes a number of "exotic" currencies, like the Malaysian Ringett, not designated for trading on United States commodity exchanges. The markets in exotic currencies tend to be less liquid than those in the major currencies. As a result, significant mispricings may occur and give rise to opportunities for profit. However, this same illiquidity may make it difficult for the Partnership to liquidate a position without substantial losses. 10. The CFTC has published for comment a statement concerning its jurisdiction over transactions in the foreign currency markets, including transactions of the type which are engaged in by the Partnership. In the future, the CFTC could assert that the forward contracts traded by the Partnership constitute off-exchange futures contracts subject to the CFTC's jurisdiction, and attempt to prohibit the Partnership from participating in transactions in such contracts. If the Partnership were restricted in its ability to trade in the currency forward markets, the activities of the Trading Advisor, to the extent that it trades in such markets on behalf of the Partnership, might be materially adversely affected. See "INVESTMENT PROGRAM AND USE OF PROCEEDS--INVESTMENT PROGRAM--REGULATION." TRADING ON FOREIGN EXCHANGES. The Partnership trades commodity interest contracts on exchanges located outside of the United States, such as the Singapore International Monetary Exchange, the Tokyo Stock Exchange, the Osaka Securities Exchange, the Tokyo International Financial Futures Exchange, the London International Financial Futures and Options Exchange, the International Petroleum Exchange, the Sydney Futures Exchange, the Deutsche Terminboerse (German Futures and Options Exchange) and the Marche a Terme d'Instruments Financiers (French Futures Exchange), where CFTC regulations do not apply. Based on the Partnership's trading during the past two years, trading on foreign exchanges is expected to comprise, on average, between 10% and 40% of the Partnership's annual trading activities. Some foreign commodity exchanges, in contrast to domestic commodity 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, and not of the exchange or clearinghouse, if any. In the case of trading on foreign exchanges, the Partnership may be subject to the risk of the inability or refusal of counterparties to perform with respect to contracts. In the past, certain members of the tin market on the London Metal Exchange failed to perform their obligations under outstanding tin contracts, resulting in a prolonged suspension of trading and, ultimately, a closing of that market and settlement of outstanding positions at an artificial price level dictated by the London Metal Exchange. As a result of such failure, a number of commodity traders suffered substantial losses and others suffered substantial reductions of the profits which they would otherwise have realized. Failure to require sufficient margin and to monitor the financial soundness of clearing members contributed to a similar suspension of trading on the Hong Kong Futures Exchange following the stock market decline in October 1987. Due to the absence of a clearinghouse system on certain foreign markets, such markets are significantly more susceptible to disruptions than on United States exchanges, such as that on the London Metal Exchange. The London Metal Exchange has now instituted a clearinghouse system in an attempt to avoid a recurrence of such difficulties. Since the Partnership determines its Net Assets in United States dollars, the Partnership's trading on foreign markets is subject to the risk of fluctuation in the exchange rate between the local currency and dollars and to the possibility of exchange controls. Unless the Partnership hedges itself against fluctuations in exchange rates between the United States dollar and the foreign currencies in which the foreign commodity interest contracts are denominated, any profits which 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. See "INVESTMENT PROGRAM AND USE OF PROCEEDS--INVESTMENT PROGRAM--REGULATION." Trading on foreign exchanges may involve certain other risks not applicable to trading on United States exchanges, such as the risks of exchange controls, expropriation, burdensome or confiscatory taxation, moratoriums, or political or diplomatic events. In addition, certain foreign markets are newly formed and may lack personnel experienced in floor trading as well as in monitoring floor trades for compliance with exchange rules. See "THE COMMODITIES MARKETS-- EXCHANGES." 12 TRADING OF SWAPS. The Partnership infrequently enters into swap and similar transactions involving or relating to interest rates, currencies, securities interests, commodities interests, indices, prices, or other items. A swap transaction is an individually negotiated, non-standardized agreement between two parties to exchange cash flows (and sometimes principal amounts) measured by different interest rates, exchange rates, indices, or prices, with payments generally calculated by reference to a principal ("notional") amount or quantity. Swap contracts are not traded on exchanges, and as a consequence investors in such contracts do not benefit from the regulatory protections of such exchanges or the CFTC, the Securities and Exchange Commission (the "SEC"), or other governmental or regulatory authorities in any jurisdiction; rather, affiliates of banks and broker-dealers generally act as principals in these markets. Transactions in these markets present certain risks in addition to those in the futures, spot, forward, and option contract markets. 1. The swap markets are generally not regulated by any United States or foreign governmental authorities. Although banks and broker-dealers, which are participants in these markets (either directly or through affiliates), are regulated in various ways by United States and foreign banking and securities authorities, such authorities generally do not regulate swap transactions. 2. There are no limitations on daily price movements in swap transactions. 3. Speculative position limits are not applicable to swap transactions, although the counterparties with which the Partnership deals may limit the size or duration of positions available to the Partnership as a consequence of credit considerations. 4. Participants in the swap markets are not required to make continuous markets in the swap contracts they trade. Participants could refuse to quote prices for swap contracts or quote prices with an unusually wide spread between the price at which they are prepared to buy and the price at which they are prepared to sell. 5. Trading in the swap markets usually involves the extension of credit by a participant to its counterparty. In general, the counterparties with which the Partnership trades do not require collateral deposits, although from time to time such deposits may be required of the Partnership. Similarly, the Partnership generally does not hold collateral from its counterparties. 6. The swap markets are "principals' markets," in which performance with respect to a swap contract is the responsibility only of the counterparty with which the participant has entered into a contract, and not of any exchange or clearinghouse. Such transactions generally do not benefit from clearinghouse guarantees, daily mark-to-market valuation and settlement of positions, segregation of monies and property, and minimum capital requirements applicable to intermediaries in certain exchange-traded markets. As a result, the Partnership is subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the counterparties with which the Partnership trades. Any such failure or refusal, whether due to insolvency, bankruptcy, default, or other cause, could subject the Partnership to substantial losses. The Partnership will not be excused from the performance of any swap contracts into which it has entered due to the default of third parties in respect of swap or other transactions which were to have substantially offset such swap contracts. The Partnership trades swap contracts only with counterparties that the General Partner believes to be creditworthy. 7. In January 1993, the CFTC adopted regulations which provide an exemption from regulation under the Commodity Exchange Act as amended (the "CEAct") for swap transactions that meet certain specified criteria, over which the CFTC will not assert its jurisdiction or regulate such transactions as futures or commodity option contract transactions. The General Partner believes that the Partnership should be able to rely upon the exemption with regard to swap transactions entered into by it. Alternatively, the General Partner believes that the Partnership should be able to rely upon the CFTC's Statement of Policy Concerning Swap Transactions which provides a non-exclusive safe harbor for swap transactions meeting certain conditions from regulation under the CEAct, which was issued in July 1989 and remains in effect. However, 13 the CFTC or a court could conclude in the future that swap transactions entered into by the Partnership constitute off-exchange futures contracts or commodity option contracts subject to the CFTC's jurisdiction or attempt to prohibit the Partnership from engaging in, performing, or enforcing, such transactions. If the Partnership were restricted in its ability to trade in the swap markets, the activities of the Trading Advisor, to the extent that it trades in such markets on behalf of the Partnership, might be materially adversely affected. TRADING OF OPTIONS. An option on a futures contract or on a physical commodity (a "commodity option") is the right (but not the obligation), purchased for a certain price (the "premium"), to either buy (a "call") or sell (a "put") the underlying futures contract or commodity on or until a certain date (the "expiration date") for a fixed price (the "strike price"). The Partnership trades commodity options. Successful commodity options trading requires many of the same skills as does successful futures contract trading. However, since specific market movements of the underlying futures contract or commodity must be predicted accurately, the risks involved are somewhat different. For example, if the Partnership buys an option (either to sell or buy a futures contract or commodity), it will pay a "premium" representing the market value of the option. Unless the price of the futures contract or commodity underlying the option changes and it becomes profitable to exercise or offset the option before it expires, the Partnership may lose the entire amount of the premium. Conversely, if the Partnership sells an option (either to sell or buy a futures contract or commodity), it will be credited with the premium but will have to deposit margin due to its contingent liability to take or make delivery of the underlying futures contract or commodity in the event the option is exercised. Traders who sell options are subject to the entire loss which occurs in the underlying futures contract or commodity (less any premium received). The ability to trade in or exercise options may be restricted in the event that trading in the underlying futures contract or commodity becomes restricted. See "THE COMMODITIES MARKETS--OPTIONS." Based on the Partnership's trading during the past two years, commodity options are expected to comprise, on average, between 5% and 30% of the Partnership's annual trading activities. The Partnership also periodically trades over-the-counter options with respect to United States and foreign government obligations, currencies, and other commodities. Over-the-counter options present certain additional risks to those found in exchange-traded options, similar to those risks involved in trading spot, forward, and swap contracts. These risks include lack of governmental regulation, no limitations on daily price movements, no speculative position limits, no daily mark-to-market valuation and settlement of positions, no minimum capital requirements, and because the performance of over-the-counter options is not guaranteed by a clearinghouse, the risk that counterparties will be unable to perform with respect to such options. In addition, the over-the-counter options market is a "principals' market," in which performance with respect to an option contract is the responsibility only of the counterparty with which the participant has entered into a contract, and not of any exchange or clearinghouse. As a result, the Partnership is subject to the risk of the inability or refusal to perform with respect to contracts on the part of the counterparties with whom the Partnership trades. Any such failure or refusal, whether due to insolvency, bankruptcy, default, or other cause, could subject the Partnership to substantial losses. The Partnership will not be excused from the performance of any option contract into which it has entered due to the default of third parties in respect of option or other transactions which were to have substantially offset such option contracts. The Partnership trades over-the-counter options only with banks and dealers that the General Partner has determined to be creditworthy. FAILURE OF BROKER OR EXCHANGE. Under CFTC regulations, futures commission merchants ("FCMs"), such as the domestic Clearing Brokers, are required to maintain customer assets in segregated accounts. If one or more of the Partnership's FCMs fails to do so, the Partnership may be subject to the risk of loss of the funds on deposit with such FCM in the event of such FCM's insolvency. In addition, under certain circumstances, such as the inability of another customer of an FCM or the FCM itself to satisfy substantial deficiencies in such other customer's account, the Partnership may be subject to the risk of loss of the funds on deposit with such FCM. In the case of any such insolvency or other customer loss, the Partnership might 14 recover, even in respect of property specifically traceable to it, only a pro rata share of all property available for distribution to all of such FCM's customers. Because the Partnership may trade on foreign exchanges with or through foreign brokers or dealers, the failure or default of a foreign broker or dealer could result in the loss of Partnership funds or property on deposit with such brokers or dealers depending on the applicable laws and regulatory rules. BPL, as a dealer in the spot and forward contract markets, is not subject to the CEAct or similar state laws in its capacity as a dealer, and is neither registered nor required to be registered with the CFTC or any self-regulatory organization in such capacity. Moreover, no legal restrictions with regard to segregation of funds or property exist for BPL, and BPL has unrestricted use of the Partnership's funds and property on deposit with it as collateral for the Partnership's spot and forward contract trading. BPL has internal guidelines with respect to the treatment of customer funds and property. In addition, the Partnership may be subject to the risk of loss of the full value of the contracts as well as property on deposit with BPL in the case of a default by or insolvency of BPL or a counterparty of BPL, or the failure by any of them to return funds or property. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." The Partnership is also subject to the risk of the failure of, or delay by, any of the exchanges and markets and their clearinghouses, if any, on which commodity interest contracts are traded. See "INVESTMENT PROGRAM AND USE OF PROCEEDS--INVESTMENT PROGRAM--REGULATION" and "BROKERAGE ARRANGEMENTS." FEES AND CHARGES. The Partnership pays brokerage commissions, option premiums, and other transaction costs to the Clearing Brokers, pays management fees to the Trading Advisor, and pays ordinary, recurring administrative, operational, legal, accounting, and auditing fees and any extraordinary expenses. In addition, the Trading Advisor is paid incentive fees based on Trading Profits earned by the Partnership. The foregoing expenses (other than incentive fees) are payable by the Partnership regardless of whether the Partnership realizes any profits. For fiscal year 1995, the Partnership paid fees and expenses of approximately $609,000 from revenues of approximately $2,658,000. The Trading Advisor was paid approximately $195,000 in incentive fees in 1995. The foregoing expenses (other than the incentive fee paid to the Trading Advisor) are payable by the Partnership regardless of whether the Partnership realizes any profits. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP." THE PARTNERSHIP MAY EXPERIENCE A HIGH TURNOVER IN INVESTMENTS. The Trading Advisor's trading strategy involves certain short-term market considerations. Accordingly, the turnover rate of the Partnership's portfolio is substantial and involves correspondingly high transaction costs. See "THE TRADING ADVISOR," and "INVESTMENT PROGRAM AND USE OF PROCEEDS." CONFLICTS OF INTEREST. Significant actual and potential conflicts of interest exist in the structure and operation of the Partnership, particularly in view of the affiliation of the General Partner, Paul Tudor Jones, II, the controlling principal of the General Partner, and BPL. See "CONFLICTS OF INTEREST." EXPERIENCE OF AND RELIANCE ON THE GENERAL PARTNER AND THE TRADING ADVISOR. The General Partner (and its predecessor) have operated only the Partnership and one other commodity pool. The General Partner is the key participant in the administration of the Partnership. If the General Partner were to become unable to continue as general partner, the Partnership would be terminated and dissolved, unless the Limited Partners elected another general partner and such remaining general partner elected to continue the business of the Partnership. The General Partner may withdraw from the Partnership on 90 days' written notice to the Limited Partners, and the Limited Partners may not be able to replace the General Partner prior to its withdrawal. See "THE GENERAL PARTNER" and "PERFORMANCE RECORDS OF THE PARTNERSHIP AND THE GENERAL PARTNER." 15 Mr. Jones and his affiliated companies have served as pool operator and trading advisor to commodity pools, investment funds, and managed accounts since July 1984. Trading decisions made by the Trading Advisor are based on a combination of technical and fundamental analysis. The Trading Advisor plays the key role in the Partnership's trading operations. Pursuant to the Limited Partnership Agreement, the General Partner has delegated complete trading authority to the Trading Advisor. Trading decisions by the Trading Advisor do not adhere rigidly to any particular trading formula or system, but rather rely to a large extent on the knowledge, judgment, and experience of Mr. Jones and other employee traders of the Trading Advisor. If Mr. Jones were to become unavailable, there is no other person at the Trading Advisor who is designated to carry out his functions as the Partnership's principal trader. Certain employees of the Trading Advisor have been designated to liquidate all open commodity interest contract positions in all accounts (including the Partnership's account) managed or controlled by the Trading Advisor, Mr. Jones, and their affiliates upon Mr. Jones's death or disability. Such liquidation could, in the case of unprofitable positions, result in realized losses and, in the case of profitable positions, result in positions being liquidated prior to the best price being attained. If the Trading Advisor were to become unable to render trading advice to the Partnership and in the absence of any other trading advisors, open commodity interest contract positions of the Partnership would be liquidated as soon as practicable and substantial losses could be incurred. The profitability of technical or fundamental analysis depends upon the accurate forecasting of major price moves or trends in commodity interest contracts. However, there is no assurance that trends will develop in the markets followed by the Trading Advisor or that they will be forecast accurately. In the past, there have been periods without discernible trends, and presumably such periods will occur in the future. Even where major trends develop, their course may be shortened by outside factors, like governmental intervention. Furthermore, a limiting factor in the use of technical analysis is that such an approach requires price movement data which can be translated into price trends sufficient to dictate a market entry or exit decision. In a trendless or erratic market, a technical method may fail to identify a trend on which action should be taken or the method may react to minor price movements and thus establish a position contrary to overall price trends, which may result in losses. In addition, a technical trading method may underperform other trading methods when fundamental factors dominate price moves within a given market. A limiting factor in the use of fundamental analysis is that the analyst may not have knowledge of all of the pertinent factors affecting supply and demand of a particular commodity interest, and prices may be affected by factors which the analyst did not consider. The calculations which underlie the Trading Advisor's trading methods and strategies involve many variables and are determined in part by information generated by computers and charts. The use of a computer in collating information or in developing and operating a trading method does not ensure the success of the method, because a computer is merely an aid in compiling and organizing trade information. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." INCREASED USE OF OTHER TREND-FOLLOWING SYSTEMS. Commodity interest contract trading systems, methods, and strategies employing trend-following timing signals, based either exclusively on technical analysis or on a combination of fundamental and technical analyses, are not new. There has been an increase in both the use of trend-following trading approaches in recent years and in the overall volume of trading and liquidity of the commodities markets. While the precise effect of any increase in the proportion of funds traded pursuant to trend-following trading approaches in recent years cannot be determined, any such increase could alter trading patterns or affect execution of trades to the detriment of the Partnership. See "THE TRADING ADVISOR." TYPES OF COMMODITY INTEREST CONTRACTS PRIMARILY TRADED BY THE TRADING ADVISOR ARE LIMITED. The Trading Advisor historically has focused the substantial majority of its trading in stock index futures contracts, interest rate futures contracts, cash currencies and currency futures contracts, precious metals futures contracts, and energy futures contracts. The Trading Advisor's style of trading is most likely to succeed in volatile markets having substantial liquidity. In the event that all or any of these markets lose their volatility or liquidity, the trading methods and strategies employed by the Trading Advisor on behalf of 16 the Partnership may not be as successful as they have been in the past. Moreover, the concentration of investments in particular commodity interest contracts or groups of related contracts may result in larger overall losses (or gains) to the Partnership from a loss (or gain) in the trading of a particular commodity interest contract or group of related contracts than might be realized by a trading vehicle with a lesser concentration of its investments in particular commodity interest contracts or groups of related contracts. See "THE TRADING ADVISOR." THE PARTNERSHIP'S MARKET POSITIONS MAY LACK DIVERSITY. Because of the Trading Advisor's trading methods and strategies, the Partnership may at times have an unusually high concentration in certain types of positions. Such lack of diversification could result in greater losses than otherwise might be anticipated. See "THE TRADING ADVISOR. EXISTENCE OF SPECULATIVE POSITION LIMITS MAY RESTRICT THE FULL APPLICATION OF THE TRADING ADVISOR'S TRADING STRATEGIES. The CFTC and United States exchanges have established regulations referred to as "speculative position limits" or "position limits" on the maximum net long or net short speculative position which any person or group of persons may hold, own, or control in particular commodity interest contracts. Insofar as such limits exist, all commodity interest accounts owned, held, managed, and controlled (including the account of the Partnership) by the Trading Advisor, the General Partner, their principals, and their affiliates are aggregated for speculative position limit purposes. The Trading Advisor, the General Partner, their principals, and certain of their affiliates currently manage and/or advise trading accounts for other commodity pools, investment funds, and accounts which they own or control, and they intend to manage additional client and proprietary accounts in the future. Mr. Jones may allocate up to 40% of applicable speculative position limits to his own and his affiliates' proprietary accounts and the remainder among all other accounts managed or controlled by Mr. Jones, the Trading Advisor, and their affiliates, pursuant to a neutral allocation system that is designed, over time, not to favor any account managed or controlled by them. The Trading Advisor believes that established position limits will not adversely affect the Partnership's trading. However, it is possible that from time to time the trading decisions of the Trading Advisor may have to be modified and positions held or controlled by the Trading Advisor may have to be liquidated in order to avoid exceeding applicable position limits. Such modification or liquidation, if required, could adversely affect the performance of the Partnership. If the application of speculative position limits were to affect the Trading Advisor's trading decisions, the Trading Advisor would attempt to modify its recommendations in such a manner so as not to affect disproportionately the performance of any one customer account compared with that of any other account managed or controlled by the Trading Advisor and its affiliates. See "CONFLICTS OF INTEREST" and "THE COMMODITIES MARKETS--SPECULATIVE POSITION LIMITS." Speculative position limits are not applicable to bank or dealer spot, forward, swap, or over-the-counter commodity option contract trading or to foreign commodity interest contract trading, although the principals with which the Partnership may trade in such markets may impose such limits as a matter of credit policy. LIMITED OPERATING HISTORY OF THE PARTNERSHIP. The Partnership has been trading since July 2, 1990. See "THE PARTNERSHIP," "PERFORMANCE RECORD OF THE PARTNERSHIP" and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." LIMITED PARTNERS DO NOT PARTICIPATE IN MANAGEMENT. Limited Partners do not participate in the management of the Partnership or in the conduct of its business. Any such participation could subject a Limited Partner to unlimited liability as a general partner or adversely affect the status of the Partnership as a partnership for federal income tax purposes. See "THE LIMITED PARTNERSHIP AGREEMENT--MANAGEMENT OF PARTNERSHIP AFFAIRS." The Limited Partnership Agreement provides that certain actions may be taken upon the affirmative vote of Limited Partners owning more than 50% of outstanding Units then owned by Limited Partners, provided that no such action may be taken unless independent counsel approved by Limited Partners owning more than 50% of outstanding Units then owned 17 by Limited Partners has rendered an opinion to the effect that the action to be taken will not adversely affect the classification of the Partnership as a partnership under the federal income tax laws or the status of the Limited Partners as limited partners under the Partnership Act and is permitted thereunder (or, in lieu of such an opinion, a court of competent jurisdiction renders a final order to such an effect). See "THE LIMITED PARTNERSHIP AGREEMENT--AMENDMENTS." LIMITED PARTNERS MAY BE REQUIRED TO WITHDRAW. Under the Limited Partnership Agreement, the General Partner may, at its sole discretion at any time upon 5 business days' written notice, require any Limited Partner to withdraw all or a portion of such Limited Partner's capital from the Partnership at any month- end. In this regard, the General Partner intends generally to require the withdrawal of a Limited Partner who ceases to be an employee of the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns. Furthermore, the General Partner intends to require redemption in whole or in part of Units held by Plan Investor Partners if the value of such Units, when considered against pending redemptions by non-Plan Investor Partners, would equal or exceed 25% of the value of all Units then outstanding, or because such Units may be deemed to constitute assets of Plan Investor Partners under ERISA and the Code. Upon mandatory redemption, a Limited Partner will receive an amount equal to the Net Asset Value of each Unit redeemed as of the applicable redemption date, less any amount owed to the General Partner or the Partnership pursuant to the Limited Partnership Agreement. Such mandatory redemption may create adverse tax and/or economic consequences to the Limited Partner depending on the timing thereof. Affiliates of the General Partner have in the past required mandatory redemptions of funds managed by them in order to reduce the assets under their management, and they (and the General Partner) may do so again in the future. See "DISTRIBUTIONS" and "TRANSFERS AND REDEMPTIONS." INVESTMENT BY THE GENERAL PARTNER, THE TRADING ADVISOR, THEIR AFFILIATES, AND PRINCIPALS AND EMPLOYEES THEREOF. Certain principals and employees of the General Partner, the Trading Advisor, and their affiliated entities have previously subscribed for Units, and such entities and/or their principals and employees are expected to subscribe for Units during the Continuing Offering. Significant redemptions of Units held by such entities and/or their principals and employees would reduce the amount of capital available for trading, which could affect the Partnership's ability to earn profits in excess of the fees and expenses payable by the Partnership. PARTNERSHIP MAY BE TAXED AS A CORPORATION. The General Partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that under current United States federal income tax (herein "federal income tax") law and regulations, the Partnership will be classified as a partnership and not as an association taxable as a corporation. This status has not been confirmed by a ruling from, and such opinion is not binding upon, the Internal Revenue Service (the "IRS"). No such ruling has been or will be requested. The facts and authorities relied upon by counsel in its opinion may change in the future. If the Partnership were taxed as a corporation for federal income tax purposes, income or loss of the Partnership would not be passed through to the Partners, and the Partnership would be subject to tax on its income at the rates of tax applicable to corporations, without any deductions for distributions to the Partners. In addition, all or a portion of distributions made to the Partners could be taxable to the Partners as dividends or capital gains. See "FEDERAL INCOME TAX ASPECTS--PARTNERSHIP STATUS." PARTNERS' TAX LIABILITY MAY EXCEED DISTRIBUTIONS. If the Partnership has profits for a taxable year, such profits will be taxable to the Partners in accordance with their respective distributive shares of the Partnership's profits, whether or not the profits actually have been distributed to the Partners. Accordingly, taxes payable by the Partners with respect to the Partnership's profits may exceed the amount of Partnership distributions, if any, for a taxable year. Further, the Partnership may sustain losses offsetting such profits in a succeeding taxable year, so that the Partners may never receive the profits on which they were taxed in prior years. See "THE LIMITED PARTNERSHIP AGREEMENT--SHARING OF PROFITS AND LOSSES: FEDERAL TAX ALLOCATIONS," "FEDERAL INCOME TAX ASPECTS," and "DISTRIBUTIONS." 18 REDEMPTION OF UNITS MAY PRODUCE NEGATIVE TAX CONSEQUENCES. The Partnership allocates taxable gains and losses to a Limited Partner who redeems a Unit generally to the extent such Partner's capital account allocable to such Unit differs from the federal income tax basis allocable to such Unit. Because of this special allocation of Partnership gain or loss upon a redemption of Units, amounts received upon the partial or complete redemption of a Limited Partner's Units normally will not be taxable to the Partner. Apart from the special allocation upon a redemption of Units, when a Limited Partner redeems less than all of his Units, amounts received or deemed received are normally not taxable to the Partner. However, if such amounts exceed the Partner's adjusted tax basis for his Units, the excess will be taxable to him as though it were gain from the sale of his Units. A Limited Partner who redeems all of his Units will recognize gain or loss, if any, equal to the difference between the amount realized upon redemption (i.e., the Net Asset Value of the Units redeemed) and the adjusted tax basis of the Units redeemed. If all amounts reflected in the Net Asset Value of the Units redeemed have been recognized for tax purposes, a Partner's tax basis in his Units will equal the amount realized upon redemption. However, because Net Asset Value takes into account both realized and unrealized gains and losses, it is possible that the Net Asset Value of the Units redeemed will be greater or less than the Partner's tax basis in his Units, and that a Partner redeeming all of his Units will recognize gain or loss equivalent to the difference. Unlike gain or loss allocable to a Partner as his distributive share of Partnership gain or loss (including such distributive share arising from a special allocation upon redemption of Units), which retains the same character as in the hands of the Partnership, any such gain or loss (assuming the Units were held as capital assets) will generally be either long-term capital gain or loss (if the Units redeemed were held more than one year) or short-term capital gain or loss (if the Units redeemed were held for one year or less). Accordingly, this special allocation of Partnership gain or loss upon a redemption of Units may alter or modify the character of such Partner's income arising from a redemption of Units. See "THE LIMITED PARTNERSHIP AGREEMENT--SHARING OF PROFITS AND LOSSES: FEDERAL TAX ALLOCATIONS" and "FEDERAL INCOME TAX ASPECTS." TAX LAWS ARE SUBJECT TO CHANGE. It is possible that the current federal income tax treatment accorded an investment in the Partnership will be modified by legislative, administrative, or judicial action in the future. The nature of additional changes in federal income tax law, if any, cannot be determined prior to enactment of any new tax legislation or administrative or judicial action. However, such legislation could significantly alter the tax consequences and decrease the after-tax rate of return of an investment in the Partnership. Prospective subscribers should seek, and must rely on, the advice of their own tax advisers with respect to the possible impact on their investments of any future proposed tax legislation or administrative or judicial action. DEDUCTIBILITY OF PASSIVE LOSSES MAY BE LIMITED. Losses from a passive activity ("passive losses") are generally disallowed to the extent that such losses exceed income from all passive activities ("passive income"). Pursuant to proposed and temporary United States Treasury regulations, the Partnership will not be treated as a passive activity. Accordingly, a Limited Partner's distributive share of items of income, gain, deduction, or loss from the Partnership will not be characterized as passive income or loss, and Partnership gains allocable to the Limited Partners will not be available to offset passive losses from other investments. However, Partnership gains allocable to the Limited Partners will be available to offset losses with respect to "portfolio" investments, such as stocks and bonds. Moreover, any Partnership losses allocable to the Limited Partners will be available to offset other income, regardless of source. See "FEDERAL INCOME TAX ASPECTS-- TAXATION OF LIMITED PARTNERS: LIMITATIONS ON DEDUCTIBILITY OF PASSIVE LOSSES." DEDUCTIONS BY INDIVIDUALS FOR INVESTMENT EXPENSES MAY BE LIMITED. Certain miscellaneous itemized deductions, such as expenses incurred to maintain property held for investment, are deductible only to the extent they exceed 2% of the adjusted gross income of an individual, trust, or estate. In addition, a portion of certain itemized deductions of an individual whose adjusted gross income exceeds certain threshold amounts is disallowed. Based upon the activities of the Partnership, the General Partner has been advised by its legal counsel that expenses incurred in the commodities trading business of the Partnership should not be subject 19 to limitations except to the extent that the IRS promulgates regulations that so provide. See "FEDERAL INCOME TAX ASPECTS--TAXATION OF LIMITED PARTNERS: LIMITED DEDUCTION OF CERTAIN EXPENSES." THE PARTNERSHIP'S TAX RETURNS MAY BE AUDITED. There can be no assurance that the Partnership's tax returns will not be audited by the IRS or that adjustments to such returns will not be made as a result of such an audit. If an audit results in an adjustment, the Limited Partners may be required to file amended returns (which may themselves also be audited) and to pay back taxes, plus interest. See "FEDERAL INCOME TAX ASPECTS--TAX AUDITS." NO ASSURANCE THAT UNITS WILL BE SOLD. Since the Continuing Offering of Units is being made by the Partnership through the Selling Agent on a best efforts basis without any firm commitment by the Selling Agent to purchase any Units, no assurance is given that any or all of the unsold Units will be sold. See "PLAN OF DISTRIBUTION." STATUTORY REGULATION. The Partnership is not registered as an investment company or mutual fund under the Investment Company Act of 1940 as amended (or any similar state laws), and neither the General Partner nor the Trading Advisor is registered as an investment adviser under the Investment Advisers Act of 1940 as amended (or any similar state laws). Investors, therefore, will not generally benefit from the protective measures provided by such legislation. However, in accordance with the provisions of the CEAct, the regulations of the CFTC thereunder, and the NFA rules, the General Partner is registered as a commodity pool operator (a "CPO") and a commodity trading advisor (a "CTA"), the Trading Advisor is registered as a CPO and a CTA, and the domestic Clearing Brokers are registered as FCMs, each subject to regulation by the CFTC and each a member of the NFA in its respective capacities. If the CFTC registration or NFA membership of the General Partner as a CPO were terminated, suspended, revoked, or not renewed, the General Partner would not be able to continue to operate the Partnership until such registration and membership were reinstated or until a new general partner could be admitted and registered. If the CFTC registration or NFA membership of the Trading Advisor as a CTA were terminated, suspended, revoked, or not renewed, the Trading Advisor would not be able to continue to make trading decisions for the Partnership, and the Partnership would be required to cease trading commodity interest contracts until such registration and membership were reinstated or until a new trading advisor could be retained. If the CFTC registration or NFA membership of any domestic Clearing Broker as an FCM were terminated, suspended, revoked, restricted, or not renewed, such Clearing Broker would not be permitted to effect brokerage transactions for the Partnership on United States exchanges until its registration and membership were reinstated. See "INVESTMENT PROGRAM AND USE OF PROCEEDS--INVESTMENT PROGRAM--REGULATION." The Partnership is not registered, by reason of an exemption, as an investment company under the Investment Company Act of 1940 as amended or similar state laws, and the Trading Advisor is not registered, by reason of an exemption, as an investment adviser under the Investment Advisers Act of 1940 as amended or similar state laws. Investors, therefore, are not accorded the protective measures provided by such legislation. BPL, as spot and forward contract dealer, is not registered in such capacity under the CEAct (or similar state laws). Investors, therefore, are not afforded the protective measures provided by the CEAct. See "INVESTMENT PROGRAM AND USE OF PROCEEDS--REGULATION." THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF ALL OF THE RISKS INVOLVED IN THE OFFERING OF UNITS. PROSPECTIVE INVESTORS SHOULD READ THIS PROSPECTUS IN ITS ENTIRETY BEFORE DETERMINING WHETHER TO SUBSCRIBE FOR UNITS. 20 CONFLICTS OF INTEREST 1. RELATIONSHIP AMONG THE GENERAL PARTNER, THE TRADING ADVISOR, AND PAUL TUDOR JONES, II. Both the Trading Advisor and the General Partner are controlled, directly or indirectly, by Mr. Jones. The General Partner has a conflict of interest between its fiduciary duty to the Partnership to select a trading advisor in the Partnership's best interests and to monitor trading in the Partnership's account, and its interest in engaging TIC as the Partnership's Trading Advisor. As a result of the General Partner's decision to delegate complete trading authority to the Trading Advisor, the terms upon which the Trading Advisor renders services to the Partnership were not negotiated at arm's length. However, the rates for management and incentive fees paid by the Partnership are approximately one-half the rates normally charged to other customer accounts managed by the Trading Advisor and its affiliates. In addition, the Partnership does not have available an independent CPO to monitor the trading conducted for its account or to make an impartial determination whether, in certain circumstances, the engagement of an independent trading advisor or advisors would be in the best interests of the Partnership. 2. RELATIONSHIP AMONG THE GENERAL PARTNER, THE TRADING ADVISOR, BPL, PAUL TUDOR JONES, II, AND THEIR AFFILIATES. BPL has historically effected currency spot and forward contract transactions for the Partnership and its other customers by entering into transactions with its counterparties and corresponding back-to-back transactions with the Partnership and such other customers. Since this trading can involve the extension of credit by BPL's counterparties, BPL has required the Partnership to deposit and maintain collateral with BPL in amounts up to 20% of the Partnership's Net Assets. 3. RELATIONSHIP AMONG THE GENERAL PARTNER, THE TRADING ADVISOR, BPL, AND OTHER BROKERS. The Trading Advisor effects substantially all of the Partnership's spot and forward contract transactions through the execution facilities of BPL, an affiliate of the General Partner and the Trading Advisor. The Partnership may deposit and maintain collateral (in the form of cash or United States Government obligations) with BPL in amounts up to 20% of the Partnership's Net Assets. BPL has unrestricted use of the funds and property deposited and maintained with it as collateral. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." Many of the employee traders of TIC who trade small portions of certain customer assets are dual employees of BPL, and thus are responsible for managing their own customer accounts as well as executing transactions for TIC's, Mr. Jones's, and their customer and proprietary accounts. There are conflicts of interest as a result of these traders having knowledge of customer and proprietary orders when they are also managing their own customer accounts. In addition, although they do not conduct such trading currently, employees of BPL have in the past, and may again in the future, trade for their own proprietary accounts or for the proprietary accounts of BPL, the General Partner, the Trading Advisor, other affiliates, or their respective principals. There are conflicts of interest as a result of such employees having knowledge of customer orders when such dual employees engage in such trading. The improper use of trading information or orders by BPL employees and TIC traders would be contrary to BPL and TIC internal guidelines and policies. Neither the General Partner, the Trading Advisor, nor their affiliates participate in any brokerage commissions received by the Clearing Brokers in connection with executing and clearing the Partnership's commodity interest contract transactions. Consequently, no additional conflicts of interest exist with regard to the generation of commissions for the Clearing Brokers and the fiduciary responsibilities of the General Partner and the Trading Advisor. See "BROKERAGE ARRANGEMENTS." 4. TIC AS TRADING ADVISOR. The Trading Advisor has a conflict of interest between its duty to maximize profits from trading and hence maximize its incentive fee, and the possible desire of the Trading Advisor to avoid taking risks which 21 might reduce the assets of the Partnership and consequently reduce the management fee payable to it. In addition, by reason of payment to the Trading Advisor of a lower management fee and incentive fee that is payable from Trading Profits and only approximately one-half the rate normally charged to its customers, the Trading Advisor has a conflict of interest between its obligation to manage the Partnership's trading prudently, and the incentive created by such a fee for the Trading Advisor to make investments that are riskier or more speculative than would be the case in the absence of a low management fee or a low incentive fee. 5. PROPRIETARY TRADING BY THE GENERAL PARTNER, TRADING ADVISOR, MR. JONES, AND THEIR PRINCIPALS, AFFILIATES, AND EMPLOYEES. The General Partner, Trading Advisor, Mr. Jones, and certain of their principals, employees, and affiliates (collectively, the "Proprietary Traders") have in the past traded, currently trade, or may in the future trade, commodity interest contracts for their proprietary accounts. Mr. Jones trades extensively for proprietary accounts. In such proprietary trading, the Proprietary Traders may trade proprietary accounts aggressively and thus may assume more risks than the Trading Advisor normally assumes on behalf of the Partnership. Also, such proprietary trading may be conducted at brokerage commission and advisory fee rates which are substantially lower than the rates which the Partnership is charged. Accordingly, such proprietary accounts may produce trading results which are substantially different from those experienced by the Partnership. Limited Partners will not be permitted to inspect the proprietary trading records or any written policies related to such trading. See "THE TRADING ADVISOR--PROPRIETARY TRADING." 6. PRIORITY ALLOCATION OF SPECULATIVE POSITION LIMITS. Mr. Jones may allocate up to 40% of the applicable speculative position limits in futures contracts to his own and his affiliates' proprietary accounts and the balance among all other accounts managed or controlled by Mr. Jones, the Trading Advisor, and their affiliates, pursuant to a neutral allocation system that is designed, over time, not to favor any account managed or controlled by them. 7. MANAGEMENT OF CUSTOMER ACCOUNTS BY THE GENERAL PARTNER, THE TRADING ADVISOR, AND THEIR AFFILIATES. The Trading Advisor and its affiliates currently manage, and may in the future manage, the accounts of various customers other than the Partnership. Although the General Partner presently serves as commodity pool operator only to the Partnership, the General Partner may in the future serve as commodity pool operator to other pools, and may in the future manage the accounts of customers other than the Partnership. Limited Partners will not be permitted to inspect the trading records of the General Partner, the Trading Advisor, or their affiliates, or any written policies related to such trading. The trading methods and strategies that the Trading Advisor generally utilizes in managing the account of the Partnership is utilized by the Trading Advisor and its affiliates in managing the trading for certain other commodity interest-only customer accounts. Accordingly, all such accounts may be competing for the same or similar positions and, depending upon whose order is placed first, the difference in timing may result in some accounts receiving better prices than others. However, different types of accounts may be traded pursuant to different trading policies. Also, some accounts may be limited in trading in foreign markets. In addition, legal, authorization, and credit considerations may preclude certain accounts from participating in certain transactions, such as swap transactions. Certain employees of the Trading Advisor and its affiliates (other than Mr. Jones) manage other customer accounts. The records of such trading or any written policies related to such trading will not be available for inspection by the Limited Partners. The trading methods and strategies that such employees utilize and the markets in which they trade may be similar to, or different from, the trading methods, strategies, and markets utilized by Mr. Jones, and the trading performance of such accounts may differ significantly from the performance of the customer accounts managed by Mr. Jones. All such accounts may 22 be competing for the same or similar positions and, depending on whose order is placed first, the difference in timing may result in some accounts receiving better prices than others. Alternatively, such accounts may be taking opposite positions to one another. 8. OTHER ACCOUNTS CARRIED BY BROKERS. The Clearing Brokers utilized by the Partnership also serve as brokers, dealers, or counterparties for other customers of the Trading Advisor and its affiliates and for proprietary accounts of the Trading Advisor, Mr. Jones, and their affiliates, principals, and employees. In addition, the Clearing Brokers and their respective principals, directors, officers, employees, and affiliates may from time to time trade commodity interest contracts for their proprietary accounts or for customer accounts which they control or manage. In addition, the Clearing Brokers are large commodities brokers handling substantial customer business in commodity interest contracts, including other commodity pools and investment funds. Thus, each Clearing Broker may execute transactions for the account of the Partnership in which the other parties to the transactions are the Clearing Broker's principals, directors, officers, employees, affiliates, customers, or correspondents. Such persons might also compete with the Partnership in bidding on purchases or sales of commodity interest contracts without knowing that the Partnership is also bidding. Transactions for the principals, directors, officers, employees, affiliates, customers, and correspondents of a Clearing Broker might be executed when similar trades for the Partnership are not executed or are executed at less favorable prices. The operating policies of each Clearing Broker generally require that orders be transmitted in the sequence received regardless of customer size or identity, and consequently an order placed before an order for the Partnership may be executed at a better price than the Partnership's order due to market changes. Also, an order placed for a small number of positions may be executed at a better price than a larger order for the Partnership. For these reasons, it is possible that transactions might be executed for other persons, including parties related to a Clearing Broker, when similar orders for the Partnership are not executed or are executed at less favorable prices. See "CONFLICTS OF INTEREST--RELATIONSHIP AMONG THE GENERAL PARTNER, THE TRADING ADVISOR, BPL, AND THE OTHER BROKERS." Neither the General Partner nor its affiliates participate in any brokerage commissions received by the Clearing Brokers in connection with executing and clearing the Partnership's commodity interest contract transactions. See "BROKERAGE ARRANGEMENTS." 9. DUTIES TO MARKETS AND INDUSTRY ASSOCIATIONS. Certain principals of the General Partner and its affiliates currently serve, and may in the future serve, on various committees and boards of commodity exchanges, the Futures Industry Association, the NFA, and other related associations. In such capacity, they assist in establishing rules and policies and have a fiduciary duty to the exchanges and associations on which they serve and are required to act in the best interests of such organizations. Such rules and policies, while generally enacted for the betterment of the commodities industry as a whole, on occasion may be adverse to the interests of the Partnership. FIDUCIARY RESPONSIBILITY In evaluating the foregoing conflicts of interest, prospective investors should be aware that the General Partner has 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 an evolving area of the law, and Limited Partners who have questions concerning the responsibilities of the General Partner should consult their own legal counsel. In the event that a Limited Partner believes that the General Partner has violated its responsibilities, he may seek legal relief for himself and other similarly situated Limited Partners or on behalf of the Partnership under applicable law to recover damages from, or to require an accounting by, the General Partner. 23 Limited Partners should be aware that the performance by the General Partner of its fiduciary duty to the Partnership will be measured by the terms of the Limited Partnership Agreement as well as by applicable law. Limited Partners also are afforded certain rights to institute reparations proceedings under the CEAct against the General Partner, the Trading Advisor, or the Clearing Brokers for violations of the CEAct or any rule, regulation, or order of the CFTC. A Limited Partner also may institute legal proceedings in court against the General Partner, the Trading Advisor, or the Clearing Brokers for certain violations of the CEAct or the rules, regulations, or orders of the CFTC. Excessive trading of the Partnership's account may constitute a violation of the antifraud provisions of the CEAct. Limited Partners should be aware that it may be difficult to establish that excessive trading has occurred due to the broad trading authority given to the Trading Advisor under the Management Agreement, the broad discretion given to the General Partner in the Limited Partnership Agreement to enter into the Management Agreement, exculpatory provisions in the Management Agreement and the Limited Partnership Agreement, and the relative dearth of judicial decisions providing standards defining excessive trading. See "THE MANAGEMENT AGREEMENT" and "THE LIMITED PARTNERSHIP AGREEMENT." Under the exculpatory provisions of the Limited Partnership Agreement, neither the General Partner nor its affiliates will be liable to the Partnership or any of the Limited Partners except for any act, omission, conduct, or activity (i) not taken in good faith, in a manner reasonably believed to be within the scope of the authority granted to such person by the Limited Partnership Agreement or by law or by the consent of the Limited Partners, or in the best interests of the Partnership, or (ii) which constituted negligence, misconduct, or breach of fiduciary duty. The Partnership has agreed to indemnify the General Partner and its affiliates from and against any loss, liability, damage, cost, and expense resulting from any demand, claim, or lawsuit (other than actions brought by a Limited Partner in the right of the Partnership) relating to the business or activities undertaken by them on behalf of the Partnership or acts, omissions, conduct, or activities by the General Partner in its capacity as such, provided that the acts, omissions, conduct, or activities of such person did not constitute misconduct, negligence, or breach of fiduciary responsibility and was done in good faith, in the reasonable belief that it was within the scope of the authority granted by the Limited Partnership Agreement or by law or by consent of the Limited Partners, and in the best interests of the Partnership. In any action brought by a Limited Partner in the name of the Partnership to which the General Partner or any other person indemnified pursuant to the foregoing provisions 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, no indemnification of the General Partner or its affiliates by the Partnership will be permitted for any loss, liability, damage, cost, or expense resulting from liabilities incurred for violation of federal or state securities laws. 24 THE PARTNERSHIP The Partnership was formed as a limited partnership on November 22, 1989 pursuant to the Partnership Act and was capitalized on that date with the contributions of $1,000 by the General Partner and $1,000 by a principal of the General Partner (as initial Limited Partner). During the Initial Offering Period (June 22, 1990 through June 30, 1990), the Partnership solicited subscriptions for up to 10,000 Units at an offering price of $1,000 per Unit. At the initial closing held on July 2, 1990 (the "Initial Closing"), the Partnership sold 421 Units to qualified employees for an aggregate purchase price of $421,000. At the Initial Closing, the General Partner contributed to the Partnership an additional $399,000 (which with the General Partner's initial capital contribution of $1,000 aggregated a capital contribution of $400,000), which exceeded the minimum capital contribution requirement applicable to it. Accordingly, the Partnership commenced trading operations on July 2, 1990 with Net Assets of $821,000, or $1,000 Net Asset Value per Unit. Following the Initial Closing, a total of 9,579 of the 10,000 registered Units remained unsold. In July 1990, the Partnership commenced the Continuing Offering of the unsold Units, at an offering price equal to 100% of the Net Asset Value of a Unit as of the opening of business on the date of the Quarterly Closing at which such Units are sold. Following the April 1, 1996 Quarterly Closing, 2,725 Units of Limited Partnership Interest were outstanding, with 6,552 Units having been sold, 3,448 of the 10,000 registered Units remaining unsold, and 3,829 of the sold Units having been redeemed. In addition, as of that date, the General Partner held an aggregate of 643 Units of General Partnership Interest. (For purposes of the foregoing, the number of Units has been rounded to the nearest whole unit.) The Continuing Offering will continue until the maximum of 10,000 Units is sold, unless the General Partner sooner withdraws or otherwise discontinues the offering of Units. The Units purchased and paid for pursuant to the Continuing Offering will be fully paid and non-assessable. The liability of a Limited Partner is limited to his unredeemed capital contribution, undistributed profits, if any, and under certain circumstances any distributions and redemptions received together with interest thereon. See "SUMMARY OF PROSPECTUS--INVESTMENT REQUIREMENTS," "THE LIMITED PARTNERSHIP AGREEMENT--NATURE OF THE PARTNERSHIP," and "SUBSCRIPTION PROCEDURE." The actual performance record of the Partnership from July 2, 1990 through March 31, 1996 is set forth in Table A of this Prospectus under "PERFORMANCE RECORD OF THE PARTNERSHIP." See also, "CAPITALIZATION" and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." 25 DESCRIPTION OF CHARGES TO THE PARTNERSHIP The Partnership is subject to substantial charges which are described below.
RECIPIENT NATURE OF CHARGE AMOUNT OF CHARGE --------- ---------------- ---------------- Trading Advisor... Management fee 1/12 of 2% per calendar month (a 2% annual rate) of the Partnership's adjusted Net Assets (as defined in the "GLOSSARY"). Incentive fee 12% of Trading Profits (as defined in the "GLOSSARY") earned by the Partnership as of the end of each calendar quarter. Clearing Brokers.. Brokerage fees Rates of between $9 and $21 per roundturn for futures and options trades on United States exchanges (such rates include all transaction costs in connection with trading activities, including floor brokerage, exchange, clearing, clearinghouse, and NFA fees). For trades effected on exchanges and markets located outside of the United States, rates per transaction which are generally higher than the rates for transactions on United States exchanges. Others............ Ordinary operating Actual expenses incurred. expenses (including escrow agent costs) and extraordinary expenses.
1. Management Fee. The Partnership pays the Trading Advisor a monthly management fee equal to 1/12 of 2% of the Partnership's adjusted Net Assets (as defined in the "GLOSSARY") as of the end of each calendar quarter (a 2% annual rate), without regard to the profitability of the Partnership. As described under "Fees For Plan Investor Partners" below, the Trading Advisor does not receive management fees attributable to Units held by Plan Investor Partners. For purposes of calculating the management fee, the Partnership's month-end Net Assets are determined before any incentive fees are accrued to the Trading Advisor as of such month-end and before any distributions and redemptions are accrued as of such month-end. In 1995, the Partnership paid approximately $155,000 in management fees. If the Management Agreement with the Trading Advisor is terminated on a date other than the end of a calendar month, the management fee payable to the Trading Advisor will be determined as if such termination date were the end of a month, but such fee will be prorated based on the ratio that the number of calendar days in the month through the termination date bears to the total number of calendar days in the month. 2. Incentive Fee. The Partnership pays the Trading Advisor a quarterly incentive fee equal to 12% of "Trading Profits," if any, earned on the Partnership's assets as of the end of each calendar quarter. As described under "Fees For Plan Investor Partners" below, the Trading Advisor does not receive incentive fees attributable to Units held by Plan Investor Partners. The term "Trading Profits" is defined in the Management Agreement with the Trading Advisor and in the "GLOSSARY." Because incentive fees are paid to the Trading Advisor on a quarterly basis, the Trading Advisor could receive substantial fees during a year even though the Partnership incurs a net loss for the year. In 1995, the Partnership paid approximately $195,000 in incentive fees. 26 3. Brokerage Commissions. Commodity brokerage commissions for trades on exchanges which are generally paid on the completion or liquidation of a trade are referred to as "roundturn commissions," and cover both the initial purchase (or sale) of a commodity interest contract and the subsequent offsetting sale (or purchase) of such contract. If a trader closes out a position which involves, for example, 50 futures contracts, he is charged for 50 roundturn commissions, irrespective of whether or not the position is closed out in a single transaction. In the case of options contracts, a "halfturn" brokerage commission is generally charged for the establishment of a position, and another halfturn commission is charged for the liquidation of such position. The Partnership pays the Clearing Brokers brokerage commissions for trades on United States exchanges at rates of between $9 and $21 per roundturn for futures and options trades (such rates include floor brokerage, exchange, clearing, clearinghouse, and NFA fees). For trades effected on exchanges and markets located outside of the United States, the Partnership pays the Clearing Brokers brokerage commissions at rates per transaction which are generally higher than the rates for transactions on United States exchanges, and commissions for trades on foreign exchanges and markets are subject to fluctuations in exchange rates and additional regulatory fees and charges. Brokerage commissions and fees are subject to change from time to time as mutually agreed between the General Partner and the applicable broker or dealer. The General Partner anticipates that the Partnership will normally pay annually up to approximately 5% of its average annual Net Assets in brokerage commissions and other transaction costs and charges (although historically such annual costs have been less than 5%). In 1995, the Partnership paid approximately $158,000 in brokerage commissions and fees and other transaction costs and charges. 4. Other Expenses. The Partnership pays its ordinary operating expenses, including expenses for services provided to the Partnership by third parties (whether or not affiliated with the General Partner) selected by the General Partner. Such expenses include legal, accounting, escrow, auditing, record keeping, administration, computer, and clerical expenses, expenses incurred in preparing, printing, and mailing reports and tax information to Limited Partners and regulatory authorities, expenses of printing and mailing registration statements, prospectuses, and reports to Limited Partners (but not for solicitation purposes and not the expenses of preparing such registration statements and prospectuses, all of which are paid by the General Partner), expenses for specialized administrative services, other printing and duplication expenses, other mailing costs, and filing fees. In 1995, the Partnership paid approximately $100,000 in such other expenses. The Partnership will also pay any extraordinary expenses it may incur. The General Partner is not reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for the Partnership's operations and the administration of the sale and redemption of Units, nor for the Continuing Offering costs paid by the General Partner. All expenses of the Partnership are billed directly to and paid directly by the Partnership. See "PERFORMANCE RECORD OF THE PARTNERSHIP" and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." 5. Fees For Plan Investor Partners. Because of constraints under ERISA and the Code, TIC has irrevocably waived, disclaimed, and renounced its right to receive management fees and incentive fees attributable to Units held by the TIC 401(k) Plan, or any pension, retirement, or other employee benefit plan established for employees of TIC or its affiliates or their present or future affiliates, successors, or assigns ("Plan Investor Partners"). As a consequence of such waiver, disclaimer, and renunciation, and pursuant to the terms of the Limited Partnership Agreement, the capital accounts of Plan Investor Partners will not be charged for management fees or incentive fees payable to TIC, and the number of Units held by each Plan Investor Partner will be restated as necessary to equate the per Unit value of such Plan Investor Partner's capital account with the per Unit value of a non-Plan Investor Partner's capital account. 27 6. Breakeven Analysis. Initial Selling Price per Unit(1)................................... $1,000.00 Trading Advisor's Management Fee(2)................................. 20.00 Fund Operating Expenses(3).......................................... 10.00 Brokerage Commissions and Trading Fees(4)........................... 50.00 Less Interest Income(5)............................................. (30.00) Amount of profit required for the Net Asset Value of a Unit at the end of one year to equal the Initial Selling Price per Unit(6)..... $ 50.00 Percentage of Initial Selling Price per Unit........................ 5.00%
- -------- (1) Investors initially purchased Units at $1,000.00 per Unit. Units are currently purchased at the Partnership's month-end Net Asset Value per Unit. (2) The Trading Advisor is paid a monthly management fee of 1/12 of 2% of the adjusted Net Assets of the Partnership (a 2% annual rate). (3) The Partnership's annual operating expenses are expected to amount to approximately 1% of the average annual Net Assets of the Partnership. (4) Annual brokerage commissions and trading fees are estimated at up to 5% of the average annual Net Assets of the Partnership. (5) The Partnership earns interest estimated at 3% of the average annual Net Assets of the Partnership, on monies and property deposited with its brokers and dealers. (6) Trading profits are net of all of the expenses described above. Therefore, there is no Trading Advisor incentive fee at the break-even point. ---------------- The General Partner is required to furnish to each Limited Partner monthly statements of account describing the performance of the Partnership and setting forth management and incentive fees, brokerage commissions and fees, and other expenses incurred or accrued by the Partnership during the month, and certain other information. In addition, the General Partner is required to furnish an annual report of the Partnership, certified by an independent public accountant and including financial statements, within 90 days of the close of each fiscal year. See the annexed Annual Report of the Partnership for the 1994 and 1995 fiscal years, beginning on Page F-1. See also "THE LIMITED PARTNERSHIP AGREEMENT--REPORTS TO LIMITED PARTNERS." INVESTMENT PROGRAM AND USE OF PROCEEDS INVESTMENT PROGRAM Description Of Commodities Traded. TIC monitors virtually all commodities actively traded on organized exchanges throughout the world. TIC normally trades at any given time contracts for between 5 and 30 types of commodities, although this number may vary substantially from time to time based on the various factors described below. TIC trades contracts involving and relating to financial instruments, currencies, precious metals, energy products, money market instruments, government and government agency debt obligations, stock, financial and economic indices, agricultural and tropical items, and energy and industrial items. Historically, however, TIC has concentrated its commodity interest contract trading in currencies and futures contracts thereon, financial futures, stock index futures, energy futures and precious metals and futures contracts thereon. TIC may trade for the Partnership any of the commodity interest contracts which are now, or may hereafter be, offered for trading on United States, foreign, and international exchanges and markets. At any time in its sole discretion, TIC may add or drop commodity interest contracts from the portfolio it trades. In addition, TIC in its sole discretion may trade newly-designated commodity interest contracts for the Partnership's accounts. 28 TIC trades the world's commodities markets, particularly currencies, stock index futures contracts, interest rate futures contracts, and metals, on a 24- hour basis, and may trade on foreign exchanges and markets when United States exchanges are closed. From time to time, TIC converts cash transactions into futures contract positions. TIC continuously reviews the volatility, liquidity, and risk associated with the various commodities markets and, based upon its judgment, determines the commodities that it will trade and the quantity of contracts it will buy or sell of each. TIC normally attempts to maintain balance in an account among the different commodity interest contracts traded, although diversification of a portfolio is not a primary factor in TIC's trading approach. However, if TIC believes that a particular commodity interest or group of related commodity interests has significant profit potential, TIC may concentrate assets in that area. For example, during 1987 TIC invested up to 90% of participating customers' portfolios in contracts relating to currencies, United States Treasury bonds, and the S&P 500 Stock Index. Description Of Commodity Interest Contract Trading Methods And Strategies. TIC employs the trading methods and strategies developed by Mr. Jones, who is and has always been the principal commodity interest trader for TIC's futures related customer accounts. TIC's trading decisions do not adhere rigidly to any particular trading formula or system devised by TIC or Mr. Jones, but rather rely on the knowledge, judgment, and experience of Mr. Jones and the other employee traders of TIC. TIC's trading methods are generally discretionary and subjective. In arriving at trading decisions, TIC and its employee traders may use a combination of trend-following techniques and technical and fundamental analyses. However, regardless of the method or strategy used, all trading decisions are governed by a disciplined system of risk management. Since the trading methods utilized by TIC are proprietary and confidential, the discussion that follows is of a general nature and not intended to be exhaustive. Generally, TIC and its affiliates attempt to trade all commodity-interest only customer accounts based on similar trading methods, strategies, and policies. However, various factors affecting different types and sizes of accounts may require strategies or methods for some accounts to be adjusted. For example, some accounts may be precluded from trading in foreign markets. Also, legal, authorization, and credit considerations may preclude certain accounts from participating in certain transactions, such as swap transactions. TIC, from time to time at its sole discretion, may refine or change its trading methods and strategies (including technical and fundamental trading factors or analyses, commodity interest contracts traded, and money management principles utilized) without prior notice to, or approval by, the Partners. There can be no assurance that TIC's approach to trading will yield the same results as it has in the past. TIC and its affiliates actively trade proprietary capital in the financial markets, engage in investment management and advisory activities for clients, and serve as general partner of and/or advisor to different investment vehicles. Each proprietary and client account may have different investment goals, objectives, strategies, parameters, and levels of aggressiveness, leverage, and risk. In some cases, it will be appropriate for TIC or its affiliates to employ comparable trading approaches for a number of different accounts. For example, the trading approaches which TIC or its affiliates may employ in trading proprietary or other client accounts may include employing investment strategies which are even more speculative, aggressive, or leveraged than those employed on behalf of the Partnership, engaging in experimental trading and investment strategies, or testing the price movement in certain markets. TIC and its affiliates have adopted guidelines and procedures relating to all accounts managed or controlled by them which are designed, subject to different trading approaches being employed for different accounts due to differences in investment objectives and risk tolerances, not to favor any account managed or controlled by them over any other account. Trading results experienced by the Partnership may be substantially different from trading results experienced in proprietary and other client accounts, including for the reasons set forth above. Limited Partners will not be permitted to inspect trading records pertaining to proprietary or other client accounts or any written policies related to such trading. 29 Goal Of Trading. TIC's trading objective for the Partnership is the gradual and consistent appreciation of assets through the speculative trading of commodity interest contracts. The success of TIC's trading depends largely on the ability of the trading methods and strategies utilized by it to anticipate market trends and effect the purchase and sale of commodity interest contracts accordingly. The trading strategy utilized by TIC is premised on two factors integral to any consistently profitable trading strategy: 1. a higher than average probability that a commodity interest contract price move can be anticipated, measured, and captured; and 2. the assignment of realistic risk definition and control upon initiating a commodity interest contract position. TIC recognizes that a profitable commodity interest contract transaction depends on accurate price prediction in conjunction with a practical system of risk management. Use Of Technical And Fundamental Analyses. There are generally two ways of attempting to forecast price behavior in the commodities markets--"technical" and "fundamental" analysis. Technical analysis operates on the theory that market prices at any given point in time reflect all known factors affecting supply and demand for a particular commodity. Consequently, only a detailed analysis of, among other things, actual daily, weekly, and monthly price fluctuations, volume variations, and changes in open interest are of predictive value when determining the future course of price movements. Trading recommendations are generally based on computer-generated signals, chart interpretation, mathematical measurements, or a combination of such items. As an example with respect to a financial commodity interest, one set of technical procedures might evaluate the following factors, among others, on a daily basis: (1) the price trends of the financial commodity interest and the levels at which to initiate new positions and terminate old positions; (2) the volatility that the financial commodity interest has displayed in the past; (3) the condition of the financial commodity interest market being traded in terms of whether it is a trending market or an erratic and non-trending market; and (4) the state of the financial commodity interest market in terms of determining the proper points for initiating new positions and allowing increases in existing commitments. Fundamental analysis, on the other hand, is based upon the study of the external factors that affect the supply and demand of a particular commodity interest in order to predict future prices. Such factors might include interest rates, weather, crops, the economics of a particular commodity interest, governmental policies, domestic and foreign political and economic events, and changing trade prospects. Fundamental analysis assumes that markets are imperfect, that information is not assimilated or disseminated, and that econometric models can be constructed that generate equilibrium prices that may indicate current prices are unsustainable. As an example with respect to an agricultural commodity interest, some of the fundamental factors that affect the supply of soybeans include the acreage planted, crop conditions (drought, flood, disease, etc.), labor disputes affecting planting, harvesting, and distribution, and the previous year's crop carryover. The demand for soybeans consists of usage and exports, which are affected by general world economic conditions and the cost of soybeans in relation to the cost of competing food products. TIC utilizes aspects of both technical and fundamental analyses in its approach to trading the commodities markets. Fundamentals are assessed to determine the likely price direction of a particular commodity interest, while computer studies in conjunction with chart interpretation and mathematical measurements are used for market timing. All available information on a particular commodity interest is collated, its relative importance weighed, and situations targeted where the relevant fundamental and technical factors tend to collectively indicate price movement in the same direction. Each commodity interest monitored by TIC is graded informally based on a continually evolving model of critical price determining factors which TIC has selected over the years and which it believes have a relevant or controlling influence on current markets. Positions normally are taken only when very bullish or very bearish trends are registered, but trade initiation is at the sole discretion of Mr. Jones and the other employee traders and may be at odds with any trading strategy to which TIC historically has adhered. See "PRINCIPAL RISK FACTORS-- EXPERIENCE OF AND RELIANCE ON THE GENERAL PARTNER AND THE TRADING ADVISOR." 30 Use Of Trend-Following Analysis. TIC's trading strategy attempts to detect trends in price movements for the commodity interests it monitors. TIC's trading strategy normally seeks to establish positions and maintain such positions while the particular market moves in favor of the position, and to exit the particular market and/or establish reverse positions when the favorable trend either reverses or does not materialize. TIC's trading strategy normally is not successful if a particular market is moving in an erratic and non-trending manner or if a market moves in a direction opposite to that predicted by TIC. Subject to the foregoing, TIC normally initiates positions only when the price of a particular market and/or a particular commodity interest is moving in the direction predicted by it. A corollary of this approach is that TIC normally avoids initiating positions in flat or trendless markets, and from time to time may liquidate all existing positions in and withdraw from a particular market or all markets. However, when TIC's analysis of the fundamentals of a particular market indicates a change in the price trend of the market, TIC may initiate positions that are counter to the trend then in effect. However, given the importance placed on participating in sustained trends, a large countertrend position is normally initiated only when clear stop-loss chart points exist to limit losses and when the charts and price movement indicate strong signs of a reversal in prices. Emphasis On Risk Management. Risk control is a very important aspect of TIC's trading methods. Risk control is normally exercised by limiting the overall number of trades in each market and across all markets. However, TIC is an aggressive trader and more often controls risks through the use of close protective stops than through broad diversification--i.e., TIC identifies a predetermined level of loss at which point it will liquidate a position to limit losses if the market moves in the direction contrary to TIC's expectations. TIC's normal policy is that, when positions are initiated, protective stops are identified simultaneously and held by TIC's trading desk to limit losses in case of adverse price movement, although TIC may at times deviate from that policy. Use Of Risk Units. TIC initiates, adds, and exits positions in terms of risk units. A risk unit is defined as the number of commodity interest contracts that would result in realization of a 1% loss in the value of the portfolio in the event of an average worst-case scenario in either intraday or overnight price volatility. The number of risk units used depends on the average volatility of the market, which is determined by computing the average daily dollar net difference from either the high-to-low price intraday, or the maximum net change interday from the previous day's close, whichever is the greater. This average volatility is calculated over a variety of time periods. Mr. Jones determines the optimal time period and thus the actual volatility measure used. Limits On Daily Exposure. TIC determines the size of any particular position based on the amount of capital under management and the recent volatility of the commodity interest contract traded. Daily exposure is normally limited to 1% of equity, but may range from .25% to 6% of the beginning equity for the month for any one commodity interest on an intraday or overnight position. In extraordinarily volatile markets, daily exposure could range materially higher. Under certain market conditions, including but not limited to an abrupt increase in margins required by an exchange or its clearinghouse or an inability to liquidate open positions because of daily price fluctuation limits, TIC may commit a significant amount of equity as margin for a given commodity interest contract. TIC estimates that on average approximately 20% to 50% of the Partnership's Net Assets have normally been committed as margin for commodity interest contracts, although this percentage may vary widely. Tendency For Active Trading. TIC is a very active trader with an intentionally short-term approach to the markets. Accordingly, TIC's trading often results in high account activity and total transaction charges commensurate with such activity. In the past, annual brokerage commissions for TIC's customer accounts have averaged approximately 5% of the average annual net asset value of such accounts. However, neither TIC, Mr. Jones, nor any of their affiliates has any interest (financial or otherwise) in the generation of brokerage commission revenue. See "CONFLICTS OF INTEREST." 31 At times, TIC initiates positions in a series of trades in respect of a commodity interest contract, each one linked to the preceding one. Normally, after an initial position is taken, a second or subsequent position is not added unless the preceding position is profitable. Liquidating stop-loss orders normally are placed at the entry point of the first position. If a trade is profitable, profits normally are accepted on most positions at a predetermined price objective, with the remaining positions left open to track some trend- following strategy. Usually, trades by TIC are initiated and closed out in one to five days. As described above, trading decisions by TIC rely to a great extent on the knowledge, judgment, and experience of Mr. Jones. If Mr. Jones were to become unavailable, there is no other person designated to carry out his functions as the Partnership's principal trader. Certain employees of TIC have been designated to liquidate all open commodity interest contract positions in all accounts (including the Partnership's accounts) managed or controlled by TIC upon Mr. Jones' death or disability. Such liquidation could result, in the case of unprofitable positions, in realized losses and, in the case of profitable positions, in positions being liquidated prior to the best price being attained. Description Of Orders And Order Placement. Mr. Jones determines the timing and method by which orders are placed by TIC with brokers. Mr. Jones also selects the types of orders placed. Executions for a customer's account may be made during the day: (1) on a "stop" basis, where an order becomes a market order when the specified stop price is reached; (2) on an "at market" basis, where the order is executed as soon as possible after being received on the floor of the exchange; (3) on a "limit" basis, where an order is placed to buy or sell at a specified price or better than the specified price; or (4) on a "closing price" basis, which is a contingent order based on the closing range of the market. Order placement varies in accordance with the type of market encountered and the type of order that can be used on the exchange on which a particular commodity interest contract is traded, and is not limited to those described above. Normally, Mr. Jones' or TIC's execution desks place orders for customer accounts, as well as for proprietary accounts directly with exchange floor brokers. When an order for proprietary accounts is placed at the same time as an order for customer accounts, the filled order is allocated among all such accounts, including proprietary accounts, in a neutral manner. Thus, proprietary account orders are filled in the same manner as customer orders. Mr. Jones, however, may place his own orders with a floor broker before customer orders have been placed. As a consequence of this order placement procedure, orders for proprietary accounts may be executed on exchange floors before or at better prices than orders for customer accounts. Accordingly, proprietary accounts may experience trading results which are substantially different from those experienced by customer accounts. Trading Policies. The General Partner requires the Trading Advisor to follow, and monitors its compliance with, such trading policies as the General Partner may determine in its sole discretion from time to time, as well as the following trading policies: (1) The Partnership will not borrow or lend money to any Partner or other person, except that the foregoing does not prohibit: (A) depositing margin with respect to the initiation and maintenance of commodity interest contract positions; (B) obtaining and utilizing lines of credit for the trading of spot and forward contracts, currency contracts, swaps, and related contracts and entering into guarantees, arrangements, and agreements in connection therewith; or (C) guaranteeing obligations of any person or entering into any other arrangement or agreement as contemplated in the Limited Partnership Agreement. (2) The Partnership will not permit "churning" of the Partnership's assets. (3) The Partnership will not employ the trading technique commonly known as "pyramiding," in which the speculator uses unrealized profits on existing positions in a given commodity interest contract due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related commodity interest contract. However, open trade equity (i.e., the profit or loss on an open commodity contract position) may be taken into account when determining the size of positions to be taken in all commodity interest contracts, and the Partnership may add to existing commodity interest contract positions in its portfolio provided that such action is consistent with the foregoing restriction. 32 The General Partner will not approve any material change in the foregoing three trading policies without obtaining the prior written approval of Limited Partners owning more than 50% of the Units then owned by the Limited Partners. Regulation. Commodity exchanges in the United States are subject to regulation under the Commodity Exchange Act as amended (the "CEAct") by the Commodity Futures Trading Commission (the "CFTC"), the governmental agency having responsibility for the regulation of commodity exchanges and futures and option contract trading conducted thereon. The function of the CFTC is to implement the objectives of the CEAct of preventing price manipulation and excessive speculation and promoting orderly and efficient markets. Such regulations, among other things, provide that trading in futures contracts must be on exchanges designated as "contract markets," and that all trading on such exchanges must be done by or through exchange members. In addition, the various exchanges themselves exercise regulatory and supervisory authority over their member firms. The CFTC possesses exclusive jurisdiction to regulate the activities of commodity pool operators ("CPOs") and commodity trading advisors ("CTAs"), and has adopted regulations with respect to certain of such persons' activities. Under the CEAct, a registered CPO, such as the General Partner, is required to make annual filings with the CFTC describing its organization, capital structure, management, and controlling persons. In addition, the CEAct authorizes the CFTC to require and review books and records of, and documents prepared by, a registered CPO. Pursuant to such authority, the CFTC requires a registered CPO to keep accurate, current, and orderly records with respect to each pool it operates. The CFTC may suspend the registration of a CPO (i) if the CFTC finds that the CPO's trading practices tend to disrupt orderly market conditions, (ii) if any controlling person of the CPO is subject to an order of the CFTC denying such person trading privileges on any exchange, and (iii) in certain other circumstances. Suspension, restriction, or termination of the General Partner's registration as a CPO would prevent the General Partner from operating the Partnership until such time, if any, as such registration was reinstated or until a new or successor general partner was elected and registered, and might result in the termination of the Partnership. The Partnership itself is not registered with the CFTC in any capacity. The CEAct gives the CFTC similar authority with respect to the activities of CTAs, such as the Trading Advisor. If the registration of the Trading Advisor as a CTA were terminated, restricted, or suspended, the Trading Advisor would be unable, until such time, if any, as such registration was reinstated, to render trading advice to the Partnership, which would have to cease trading activities until such time, if any, as such registration was reinstated or until another CTA was retained. The CEAct requires all futures commission merchants ("FCMs"), such as the domestic Clearing Brokers, to meet and maintain specified fitness and financial requirements, segregate customer funds from proprietary funds, account separately for customers' funds and positions, and maintain specified books and records open to inspection by the CFTC staff. (The CFTC has similar authority over "introducing brokers" ("IBs"), i.e., persons who solicit or accept orders for trades, but who do not accept margin deposits for the execution of trades.) The CEAct authorizes the CFTC to regulate trading by FCMs and their principals, officers, directors, and employees, permits the CFTC to require action by exchanges in the event of market emergencies, and establishes an administrative procedure under which customers may institute complaints for damages arising from alleged violations of the CEAct. The CEAct also gives the states certain powers to enforce its provisions and the regulations of the CFTC. See "PRINCIPAL RISK FACTORS--STATUTORY REGULATION." Limited Partners are afforded certain rights for reparations under the CEAct. Limited Partners may also be able to maintain a private right of action for certain violations of the CEAct. The CFTC has adopted rules implementing the reparations provisions of the CEAct which provide that any person may file a complaint for a reparations award with the CFTC for violation of the CEAct against a floor broker or an FCM, IB, CTA, CPO, or their respective associated persons. The CFTC has adopted rules designed to regulate option trading on United States commodity exchanges. Under these rules, an exchange is permitted, upon application to and qualification by the CFTC, to trade 33 options on futures contracts and/or on a limited number of physical items. The exchange has primary regulatory responsibility for policing option "retailing," and is required to establish rules, procedures, and safeguards for such trading. Such requirements may vary from exchange to exchange. See "PRINCIPAL RISK FACTORS--TRADING OF OPTIONS" and "THE COMMODITIES MARKETS--OPTIONS." Pursuant to authority in the CEAct, the National Futures Association (the "NFA") has been formed and registered with the CFTC as a "registered futures association." At the present time, the NFA is the only non-exchange, self- regulatory organization for commodity professionals. The CFTC has delegated to the NFA responsibility for registration of CTAs, CPOs, FCMs, IBs, and their respective associated persons, as well as floor brokers. The General Partner, the Trading Advisor, and the domestic Clearing Brokers are all members of the NFA. (The Partnership itself is not required to become a member of the NFA.) As members, they are subject to NFA standards relating to fair trade practices, financial condition, and consumer protection. As the self-regulatory body of the commodities industry, the NFA promulgates rules governing the conduct of commodities professionals, and disciplines those professionals who do not comply with such standards. The NFA also arbitrates disputes between members and their customers, conducts registration and fitness screening of applicants for membership, and conducts audits of its existing members. The regulations of the CFTC and the NFA prohibit any person who is registered with the CFTC or a member of the NFA, respectively, from representing that such registration or membership in any respect indicates that the CFTC or the NFA, as the case may be, has approved or endorsed such person or such person's commodity pool, trading program, or objectives. The registrations and memberships described above must not be considered as constituting any such approval or endorsement. Likewise, no commodity exchange has given or will give any such approval or endorsement. Pursuant to their emergency powers, the CFTC and the commodity exchanges may take extraordinary actions in the event of a market emergency, including for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily price fluctuation limits, and the suspension of trading. Certain emergency actions have been taken in the past, as for example with respect to certain stock index futures and options contracts in response to the extraordinary declines of stock prices. In addition, the regulation of futures and options trading in the United States and other countries is an evolving area of law. The various statements made herein are subject to modification by judicial decisions, legislative actions, and changes in the rules and regulations of the CFTC, NFA, commodity exchanges, or other regulatory authorities. In the future, emergency actions by the CFTC or the exchanges or changes in the regulation of commodity interest contract trading could have a detrimental effect on the Partnership's trading performance. The CFTC does not regulate the spot and forward contract markets, and the Trading Advisor engages in a significant amount of spot and forward trading in currencies. Although banks are regulated in various ways by the Federal Reserve Board, the Comptroller of the Currency, and other federal and state banking authorities, banking authorities do not regulate spot and forward trading, and spot and forward dealers (such as BPL) are not subject to any registration or similar regulatory requirements. The CFTC may in the future seek to assert jurisdiction over forward contracts on currencies, such as those traded by the Partnership, and attempt to prohibit certain United States entities, including the Partnership, from engaging in transactions in such contracts. The Trading Advisor believes, however, that it is unlikely that the forward trading in which the Partnership engages will be prohibited by the CFTC. However, the availability to the Unites States public of "off-exchange instruments" such as forward contracts is a matter of ongoing debate in the industry, and any prohibition or restriction on the Partnership's use of the forward markets could have a materially adverse effect on the ability of the Trading Advisor to trade on behalf of the Partnership. See "PRINCIPAL RISK FACTORS--TRADING OF SPOT AND FORWARD CONTRACTS," "INVESTMENT PROGRAM AND USE OF PROCEEDS-- INVESTMENT PROGRAM--TRADING POLICIES," and "THE COMMODITIES MARKETS--SPOT AND FORWARD CONTRACTS." 34 While the United States Government does not currently impose any restrictions on the movement of currency prices, it could choose to do so in the future. The imposition or relaxation of exchange controls in various jurisdictions could significantly affect the market for that and other jurisdictions' currencies. Trading in the interbank market also exposes the Partnership to the risk of default or delay since the failure or delay of a bank or dealer with which the Partnership had forward contracted would likely result in a default or delay in respect of the forward contract, and thus possibly substantial losses to BPL and in turn the Partnership. See "PRINCIPAL RISK FACTORS--TRADING OF SPOT AND FORWARD CONTRACTS" and "THE COMMODITIES MARKETS--SPOT AND FORWARD CONTRACTS." Swap transactions, and swap market participants, likewise, are generally not regulated in connection with such activities, similar to the forward contract market. See "PRINCIPAL RISK FACTORS--TRADING OF SWAPS" and "--TRADING OF OPTIONS." The CFTC has no authority to regulate trading on foreign commodity exchanges and markets. The CFTC has, however, adopted regulations relating to the marketing of foreign futures contracts and options in the United States. These regulations permit commodity options traded on certain foreign exchanges to be offered and sold in the United States. For a discussion of trading on foreign commodity exchanges and the risks associated with such trading, see "PRINCIPAL RISK FACTORS--TRADING ON FOREIGN EXCHANGES." The CEAct also gives the states certain powers to enforce its provisions and the regulations of the CFTC. The United Kingdom Financial Services Act (the "FSA") provides a comprehensive scheme for regulating the conduct of the investment business in the United Kingdom, including the formation of the Securities and Investments Board, the body with authority to oversee the self-regulatory organizations of the financial services industry in the United Kingdom. The FSA may also apply to persons located outside the United Kingdom who are engaged in investment business therein. The FSA authorized the establishment of a number of self- regulatory organizations with responsibility for regulating specific types of investment activity, including the Securities and Futures Authority Limited (the "SFA"). The SFA functions in a manner similar to the CFTC, NFA, SEC, and NASD, and deals, among other things, with a multitude of commodities- related regulatory issues, including without limitation minimum capital, segregation of funds, risk disclosure, dispute resolution, and self-dealing. USE OF PROCEEDS A portion of the Partnership's assets is deposited and maintained in cash with the Partnership's Clearing Brokers and segregated or secured pursuant to CFTC regulations, and is used to engage in commodity futures and options trading. Additional assets reserved primarily for currency spot and forward contract trading are deposited and maintained with BPL. At the direction of the General Partner, such Clearing Brokers and BPL either invest the Partnership's assets in United States Treasury bills for the account of the Partnership, or periodically credit all or a portion of the Partnership's assets with interest at a rate equivalent to the monthly average of the then-prevailing weekly 90- day United States Treasury bill auction rate, or do a combination of both. The balance of the Partnership's assets normally is held in accounts identified to it and, except as described in the next sentence, invested in short-term investments, including interest-bearing accounts at U.S. and foreign money center banks, certificates of deposit, time deposits, and United States Treasury bills and notes held at a Federal Reserve Bank or Clearing Broker. The General Partner endeavors to earn interest on all of the Partnership's assets, although balances denominated in certain foreign currencies may not earn interest. The General Partner estimates that approximately 20% to 50% of the Partnership's Net Assets normally have been committed as initial margin for commodity interest contracts, but from time to time the percentage of assets committed as initial margin may be more or less than such range. In addition, collateral deposited 35 with BPL in connection with spot and forward contract transactions normally constitutes up to 20% of the Net Assets of the Partnership. To the extent the Partnership trades in futures contracts on United States exchanges, the assets deposited by the Partnership with FCMs as margin is segregated pursuant to the CEAct and the regulations of the CFTC. Such segregated funds may only be invested in the limited range of essentially "risk-free" instruments--principally United States Government obligations. The Partnership utilizes United States Government securities and cash as margin on United States futures and option on futures positions. The General Partner anticipates that from time to time up to 50% of the Partnership's assets will be segregated pursuant to CFTC regulations. To the extent the Partnership trades in futures contracts on markets other than regulated United States futures exchanges, funds deposited to margin positions held on such exchanges are invested in bank deposits or in instruments of a credit standing generally comparable to those authorized by the CFTC for investment of "customer segregated funds," although applicable CFTC rules do not require funds employed in trading on foreign exchanges to be deposited in "customer segregated fund accounts." BPL maintains separate accounts on its books and records in the name of the Partnership with respect to its trading activities and the collateral deposited and maintained by the Partnership. In turn, BPL's counterparties require BPL to deposit and maintain collateral with them to engage in trading and to ensure payment by BPL in respect of its spot and forward contracts. Accordingly, when BPL enters into spot and forward contract transactions with its counterparties, which as described herein mirror transactions between BPL and the Partnership, BPL, in the case of collateralized transactions, normally deposits all or substantially all of the Partnership's collateral deposits held by BPL (which are separately identified on BPL's books and records in the name of the Partnership) with BPL's counterparties, all of which are banks or broker- dealers, or their affiliates. Pursuant to the direction of BPL, typically a small percentage of the collateral deposited by BPL with its counterparties is maintained in the form of cash, with the balance invested in United States Treasury bills. The balance of the Partnership's assets held by BPL and not deposited with its counterparties is instead deposited by BPL in accounts at a money center bank. The Partnership is assigned an account number by BPL, and receives daily and monthly account statements which detail realized and unrealized profits and losses as well as equity balances in the Partnership's account, and provide information about the Partnership's collateral on deposit with BPL. The requirement of counterparties to have collateral on hand prior to the commencement of a transaction could prevent BPL, and in turn the Partnership, from engaging in such trading during Tokyo or London trading hours because of the delays in wire transfers of funds until New York business hours the following day. In addition, annually BPL furnishes the Partnership with its annual audited financial statements and the independent public accountants' report and opinion relating thereto. See "PRINCIPAL RISK FACTORS," "CONFLICTS OF INTERESTS," and "BROKERAGE ARRANGEMENTS." The General Partner and its affiliates do not make any inter-company or inter-fund loans using the assets or other property of the Partnership. 36 CAPITALIZATION The capitalization of the Partnership as of December 31, 1994, December 31, 1995, and March 31, 1996, respectively, is set forth under "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." The following table sets forth (1) the actual capitalization of the Partnership as of April 1, 1996, reflecting the Units of Limited Partnership Interest and Units of General Partnership Interest outstanding as of that date, and (2) the pro forma capitalization of the Partnership adjusted to reflect (i) the sum of the Net Asset Value of the outstanding Units as of April 1, 1996 plus the gross proceeds from the sale of the 3,448 unsold Units of Limited Partnership Interest offered by the Partnership at a price equal to 100% of the Net Asset Value of a Unit as of April 1, 1996 (i.e., $3,223.33 per Unit), and (ii) the capital contribution required of the General Partner based on such capitalizations. (For purposes of this discussion, the numbers of Units and dollar amounts have been rounded to the nearest whole Unit or whole dollar, respectively.) There is no difference insofar as sharing of profits or losses is concerned between a Unit of Limited Partnership Interest and a Unit of General Partnership Interest.
ACTUAL PRO FORMA ------------ ----------------- AMOUNT IF THE MAXIMUM NUMBER OF AMOUNT AS OF UNSOLD UNITS TITLE OF CLASS 4/1/96 IS SOLD -------------- ------------ ----------------- Units of Limited Partnership Interest(1)......... $ 8,782,968 $19,897,449 Units of General Partnership Interest(2)......... 2,072,418 2,072,418 ----------- ----------- TOTAL........................................ $10,855,386 $21,969,867 =========== ===========
- -------- (1) The actual amount shown reflects the Net Asset Value of Units of Limited Partnership Interest outstanding as of April 1, 1996 (2,725 Units). During the Continuing Offering, Units and fractions of Units (to the fourth decimal place) are offered for sale at Quarterly Closings held as of the first day of the applicable calendar quarter, at a purchase price per Unit equal to 100% of the Net Asset Value of a Unit as of the opening of business on the date of the applicable Quarterly Closing at which such Unit is sold. The proceeds from such sales depend upon the Net Asset Value of a Unit at the time of sale. See "PLAN OF DISTRIBUTION." (2) The actual amount shown reflects the Net Asset Value of Units of General Partnership Interest outstanding as of April 1, 1996 (643 Units). The Net Asset Value of a Unit of General Partnership Interest is equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. The General Partner has agreed to contribute such amounts to the Partnership as are necessary from time to time to make the General Partner's capital contribution equal to the greater of (i) $200,000 and (ii) the sum of (a) the lesser of $100,000 or 3% of the first $10,000,000 in aggregate capital contributions to the Partnership by all Partners and (b) 1% of the aggregate capital contributions to the Partnership by all Partners in excess of $10,000,000. 37 SELECTED FINANCIAL DATA The following is a summary of selected financial data of the Partnership for the periods indicated. Certain reclassifications have been made to prior year balances to conform with current year presentations. For the complete audited financial statements for the periods indicated, see "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." For performance information with respect to the Partnership, see "PERFORMANCE RECORD OF THE PARTNERSHIP." (For purposes of this discussion, the numbers of Units and dollar amounts have been rounded to the nearest whole Unit or whole dollar, respectively.)
THREE MONTHS ENDED YEARS ENDED DECEMBER 31, MARCH 31, ------------------------------------------------------ 1996 1995 1994 1993 1992 1991 ------------ ---------- ---------- ---------- ---------- ---------- Revenues................ $ 1,365,102 $2,657,575 $1,028,281 $ 532,032 $2,842,603 $1,427,350 Expenses................ $ 244,848 $ 608,851 $ 502,809 $ 367,647 $ 682,491 $ 528,834 ----------- ---------- ---------- ---------- ---------- ---------- Net Income (Loss)....... $ 1,120,254 $2,048,724 $ 525,472 $ 164,385 $2,160,112 $ 898,516 ----------- ---------- ---------- ---------- ---------- ---------- Total Assets............ $11,450,098 $9,323,890 $7,383,887 $9,995,662 $9,540,911 $6,581,401 ----------- ---------- ---------- ---------- ---------- ---------- Partners' Capital (see "REDEMPTIONS")......... $ 9,775,318 $8,113,393 $6,711,510 $8,177,786 $7,088,708 $5,170,407 ----------- ---------- ---------- ---------- ---------- ---------- Units Outstanding....... $ 3,033 2,733 3,053 3,975 3,510 3,431 ----------- ---------- ---------- ---------- ---------- ---------- Net Asset Value Per Unit................... $ 3,223 $ 2,864 $ 2,199 $ 2,057 $ 2,019 $ 1,507 Change In Net Asset Value Per Unit......... $ 360 $ 665 $ 142 $ 38 $ 512 $ 253 Net Income (Loss) Per Unit................... $ 358 $ 690 $ 149 $ 40 $ 529 $ 250
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY. The assets of the Partnership are deposited and maintained with BPL, banks, and the Clearing Brokers in trading accounts, and are used by the Partnership as margin and collateral to engage in futures, option, cash, spot, and forward contract trading. The Partnership invests in United States Government obligations approved by the various contract markets to fulfill original margin and collateral requirements. As of March 31, 1996, United States Government obligations maturing prior to October 1996 represented approximately 42% of the total assets of the Partnership. The percentage that Government obligations bears to total assets varies each day and from month to month, as the market value of commodity interest contracts changes and as the Partnership sells or redeems Units. Since the Partnership's sole purpose is to trade in futures, option, cash, spot, forward, and similar contracts, it is anticipated that the Partnership will continue to maintain substantial liquid assets for margin and collateral purposes. Interest income for the quarter ended March 31, 1996 was $118,595, compared to $89,368 during the first quarter of 1995. Interest income for the years ended December 31, 1995, December 31, 1994, and December 31, 1993 was $409,148, $274,503, and $228,488, respectively. This increase was due both to higher rates on U.S. Treasury investments available in 1995 and a modest increase in the Partnership's assets. See "PRINCIPAL RISK FACTORS," "INVESTMENT PROGRAM AND USE OF PROCEEDS," and "BROKERAGE ARRANGEMENTS." In addition, cash and cash equivalents are part of the Partnership's inventory. Cash and cash equivalents deposited with banks and the Clearing Brokers represented approximately 39% and 32% of the Partnership's assets as of March 31, 1996 and December 31, 1995, respectively. The cash and United States Government obligations held at banks and the Clearing Brokers at quarter-end satisfy the Partnership's need for cash on a short-term and long-term basis. Since futures contract trading generates a large percentage of the Partnership's income, any restriction or limit on that trading may render the Partnership's investment in futures contracts illiquid. Most United States commodity exchanges limit fluctuations in certain commodity futures and options contract prices 38 during a single day by regulations referred to as "daily price fluctuation limits" or "daily limits." Pursuant to such regulations, during a single trading day, no trade may be executed at a price beyond the daily limit. If the price for a contract has increased or decreased by an amount equal to the "daily limit," positions in such contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity interest contract prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Partnership from promptly liquidating its commodity interest contract positions and impose restrictions on redemptions. See "PRINCIPAL RISK FACTORS--COMMODITY INTEREST CONTRACT TRADING MAY BE ILLIQUID." CAPITAL RESOURCES. The Partnership does not have, nor does it expect to have, any fixed assets. Redemptions and additional sales of Units in the future will affect the amount of funds available for investment in commodity interest contracts in subsequent periods. See "PRINCIPAL RISK FACTORS," "INVESTMENT PROGRAM AND USE OF PROCEEDS," "CAPITALIZATION," "PLAN OF DISTRIBUTION," and "TRANSFERS AND REDEMPTIONS." RESULTS OF OPERATIONS As of December 31, 1995, 1994, and 1993, the Net Asset Value per Unit was $2,863.75, $2,198.53, and $2,057.21, respectively. This represents an increase of 30.26% or $665.22 per Unit for the year ended December 31, 1995, an increase of 6.87% or $141.32 per Unit for the year ended December 31, 1994 and an increase of 1.88% or $37.92 per Unit for the year ended December 31, 1993. As of March 31, 1996 and 1995, the Net Asset Value per Unit was $3,223.33 and $2,659.15, respectively. This represents an increase of 12.56% or $359.58 per Unit for the quarter ended March 31, 1996 and an increase of 20.95% or $460.62 per Unit for the quarter ended March 31, 1995. Net trading gains and losses from strategies that use a variety of derivative financial instruments are recorded in the statements of operations. The following table summarizes the components (in thousands) of net trading gains and losses, net of commissions, for the quarters ended March 31, 1996 and 1995, and for the years ended December 31, 1995, 1994, and 1993, respectively.
FOR THE QUARTER FOR THE YEAR ENDED MARCH 31, ENDED DECEMBER 31, ---------------- ---------------------- 1996 1995 1995 1994 1993 ------- ------- ------ ------ ------ Interest Rate Futures and Option Contracts Domestic...................... $ 167 $ (219) $ (48) $ 267 $ 93 Foreign....................... 93 (26) 18 1,160 101 Foreign Exchange Contracts...... 539 1,019 1,077 23 378 Equity Index Futures Contracts Domestic...................... (117) (65) (266) (158) (712) Foreign....................... 602 871 865 (301) 343 Over the Counter Contracts...... (72) (72) 414 (280) (163) Non-Derivative Financial Instru- ments.......................... (6) 64 29 (145) 108 Total......................... ------- ------- ------ ------ ------ $ 1,206 $ 1,572 $2,089 $ 566 $ 148 ======= ======= ====== ====== ======
Since the Partnership is a speculative trader in the commodities markets, current year results are not comparable to the previous years' results. The Partnership's net trading gain or loss represents a return on average Net Assets of 12.3%, 21.7%, 27.4%, 7.6%, and 1.9%, for the quarters ended March 31, 1996 and 1995, and for the years ended 1995, 1994, and 1993, respectively. Brokerage commissions and fees were 0.4%, 0.8%, 2.1%, 3.5%, and 2.9% of average Net Assets for the quarters ended March 31, 1996 and 1995 and for the years ended 1995, 1994, and 1993, respectively. In general, commission rates have remained stable during the past three years. Incentive fees are paid quarterly based on Trading Profits. For the year ended December 31, 1995, incentive fees were 9.3% of Trading Profits. For the quarters ended March 31, 1996 and 1995, incentive fees were 10.9% and 9.7% of Trading Profits, respectively. For the year ended December 31, 1994, incentive fees were greater than 12% of Trading Profits due to losses incurred in the fourth quarter. 39 Professional fees and other expenses increased during each of the past three years due to increases in legal, audit, and bank charges. Inflation is not expected to be a major factor in the Partnership's operations, except that traditionally the commodities markets have tended to be more active and thus potentially more profitable during times of high inflation. Since the commencement of the Partnership's trading operations in July 1990, inflation has not been a major factor in the Partnership's operations. (For purpose of this discussion, except where indicated otherwise, the numbers of Units and dollar amounts have been rounded to the nearest whole Unit or whole dollar, respectively.) See also "CAPITALIZATION" and "REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AND STATEMENTS OF FINANCIAL CONDITION OF TUDOR FUND FOR EMPLOYEES L.P." THE GENERAL PARTNER Second Management LLC, a Delaware limited liability company formed in April 1996 ("SML" or the "General Partner"), is the general partner of the Partnership. Prior to April 1996, Second Management Company, Inc., a Delaware corporation ("SMCI"), was the general partner of the Partnership. SML is the successor-in-interest to SMCI by virtue of a merger with SMCI. The General Partner's office is located at One Liberty Plaza, 51st Floor, New York, New York 10006; Telephone No. 212-602-6700; and Facsimile No. 212-571-7042. Prior to the merger, SMCI had been continuously registered with the CFTC as a CPO and CTA since November 25, 1987 and a member of the NFA in such capacity. Upon the merger of SMCI into SML on April 4, 1996, SML succeeded to SMCI's registrations with the CFTC and membership in the NFA. The principals of the General Partner (who collectively comprise the Management Committee of the General Partner) are Paul Tudor Jones, II, Mark F. Dalton, Patrick A. Keenan, Andrew S. Paul, and Mark A. Heffernan. Messrs. Jones, Dalton, Keenan, and Paul are officers and employees of the General Partner and its domestic corporate affiliates. Mr. Heffernan is an executive manager and officer of certain of the General Partner's affiliated entities which maintain principal offices in Surrey, England. Mr. Jones is the Chairman and Chief Executive Officer and indirect controlling equity owner, Mr. Dalton is the President and Chief Operating Officer, Mr. Keenan is a Vice President and Chief Financial Officer, and Mr. Paul is Vice President, General Counsel, and Secretary. The business backgrounds of Messrs. Jones, Dalton, Keenan, Paul, and Heffernan are described under "THE TRADING ADVISOR--TRADING ADVISOR AND PRINCIPALS." Mr. Jones is the only principal of the General Partner who makes trading decisions for the Partnership. Mr. Jones makes such decisions in his capacity as Chief Executive Officer of the Trading Advisor. Other employee traders of the Trading Advisor, none of whom is a principal of the General Partner, may make trading decisions with respect to a portion of the Partnership's account with the Trading Advisor. While the General Partner does not presently trade commodity interest contracts for its own account, it may do so in the future. Mr. Jones has in the past traded, currently trades, and intends to continue to trade, commodity interest contracts extensively for his and his affiliated entities' proprietary accounts. It is possible that Mr. Jones may from time to time take positions either similar or opposite to positions taken by the Partnership, and that the Partnership and Mr. Jones may from time to time be competing for similar positions in the commodities markets. Neither the records of such proprietary trading nor any written policies relating to such trading will be available to Limited Partners for inspection. See "CONFLICTS OF INTEREST" and "INVESTMENT PROGRAM AND USE OF PROCEEDS." There has been no material administrative, civil, or criminal action against the General Partner or its principals within the last five years, whether pending or concluded. See "THE TRADING ADVISOR--MATERIAL ACTIONS." 40 The General Partner does not currently own any Units of Limited Partnership Interest. However, the General Partner has made capital contributions to the Partnership and has received Units of General Partnership Interest. The General Partner may subscribe for additional Units of General Partnership Interest as well as Units of Limited Partnership Interest during the Continuing Offering (for investment purposes only and not with the view to resell). As of April 1, 1996, the General Partner owned 642.9433 Units of General Partnership Interest. In addition, principals, employees, and affiliates of the General Partner have previously purchased Units, and it is expected that they will purchase Units during the Continuing Offering. As of April 1, 1996, the principals of the General Partner owned 245.0281 Units of Limited Partnership Interest. There is no limitation on the number of Units that may be subscribed for by the General Partner, its affiliates, and their principals and employees. See "PRINCIPAL RISK FACTORS--INVESTMENT BY THE GENERAL PARTNER, THE TRADING ADVISOR, THEIR AFFILIATES, AND PRINCIPALS AND EMPLOYEES THEREOF" and "CAPITALIZATION." PERFORMANCE RECORD OF THE PARTNERSHIP The General Partner and, prior to its formation, SMCI have operated the Partnership and one other commodity pool, Tudor Select Futures Fund, L.P. ("Tudor Select"), a multi-advisor Delaware limited partnership commodity pool, which ceased operation in November 1991. The actual performance record of the Partnership from July 1990 (commencement of trading) through March 1996 is set forth in Table A below. Since the assets of Tudor Select were managed by several different trading advisors, only one of whom (TIC) manages the assets of the Partnership, and since the fees and commissions charged to Tudor Select were higher than the fees and commissions charged to the Partnership, the performance of Tudor Select is not comparable to the performance of the Partnership. The information in Table A has not been audited. However, the General Partner believes that such information is accurate and fairly presented. THE PAST PERFORMANCE OF THE PARTNERSHIP'S TRADING ADVISOR AND A DESCRIPTION OF SUCH PERFORMANCE IS SET FORTH UNDER "PERFORMANCE RECORDS OF THE TRADING ADVISOR." PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE PERFORMANCE INFORMATION SET FORTH IN TABLE A IS NOT INDICATIVE OF, AND HAS NO BEARING ON, ANY TRADING RESULTS WHICH MAY BE ATTAINED BY THE PARTNERSHIP OR THE GENERAL PARTNER IN THE FUTURE, SINCE PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS. THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIP WILL MAKE ANY PROFITS AT ALL, OR WILL BE ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES. INVESTORS SHOULD ALSO NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT PORTION OF A COMMODITY POOL'S TOTAL INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED OR UNREALIZED LOSSES FROM COMMODITY INTEREST CONTRACT TRADING. 41 TABLE A PERFORMANCE OF TUDOR FUND FOR EMPLOYEES L.P. MONTHLY RATES OF RETURN
1996 1995 1994 1993 1992 1991 1990 ----- ------ ------ ------ ------ ------ ------ January........................ 9.92% 4.12% 4.61% -2.80% 9.61% 3.96% February....................... 0.69% 3.59% -2.24% -0.83% 6.07% -8.01% March.......................... 1.70% 12.14% -0.23% -1.45% 8.13% 0.47% April.......................... 0.53% -1.28% -1.39% 3.02% 5.96% May............................ -3.96% -1.64% -2.99% -4.03% -0.75% June........................... -3.19% 5.62% 0.98% -6.88% 7.95% July........................... 0.18% -4.37% 1.59% -4.30% -4.41% -9.62% August......................... 5.50% 1.04% 0.05% 1.11% 0.10% 13.44% September...................... 1.49% 8.29% 1.23% 13.23% 1.55% 2.46% October........................ 4.73% -3.58% 2.57% 10.13% 5.78% 17.19% November....................... 0.50% 2.04% 1.02% -3.10% 9.07% -1.87% December....................... 2.08% -0.79% 4.12% -0.98% -1.76% 3.83% ----- ------ ------ ------ ------ ------ ------ Compound Annual (Period) Rate of Return..... 12.56% 30.26% 6.87% 1.88% 34.01% 20.13% 25.44% ===== ====== ====== ====== ====== ====== ======
Name of Pool: Tudor Fund For Employees LP Type of Pool: Publicly-Offered Pool Inception of Trading: July 2, 1990 Aggregate Subscriptions Since Inception: $11,466,077 Current Net Asset Value: $8,113,394 Largest Monthly Percentage Draw-down(1): July 1990 (-9.62%) Worst Peak to Valley Percentage Draw- down(2): May 1, 1992 - July 31, 1992 (-14.50%)
The performance data presented in Table A has been calculated on an accrual basis of accounting in accordance with U.S. generally accepted accounting principles. (1) Largest Monthly Percentage Draw-down represents the greatest cumulative percentage decline in month-end Net Assets due to losses sustained by the Partnership during any one month period. (2) Worst Peak to Valley Percentage Draw-down represents the greatest cumulative percentage decline in month-end Net Assets due to losses sustained by the Partnership during any period in which the initial month- end Net Assets were not equaled or exceeded by subsequent month-end Net Assets. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 42 REPORTING TO POOL PARTICIPANTS The General Partner is required to provide all Limited Partners with monthly statements of account and with a certified annual report of financial condition. The General Partner reports monthly to the Limited Partners on such performance, financial, and other information with respect to the Partnership as the CFTC and the NFA from time to time require in such periodic reports to Limited Partners. In addition, if any of the following events occurs, notice of such event will be mailed to each Limited Partner within seven business days of the occurrence of the event: (1) a decrease in the Net Asset Value of a Unit to or below 50% of the Net Asset Value of a Unit for the fiscal year-end most recently reported to the Limited Partners; (2) any change in general partner(s); (3) any change in the Partnership's fiscal year; or (4) any amendment to the Limited Partnership Agreement. The General Partner is required to distribute to the Limited Partners, not more than 90 days after the close of each fiscal year, a certified annual report of financial condition for the Partnership for the fiscal year then ended containing audited financial statements prepared in accordance with U.S. generally accepted accounting principles and certified by an independent public accountant (including a statement of income and a statement of financial condition). The General Partner endeavors to furnish to the Limited Partners tax information relating to the Partnership necessary for the preparation of the Limited Partners' income tax returns within 90 days after the close of each fiscal year. THE TRADING ADVISOR TRADING ADVISOR AND PRINCIPALS. Tudor Investment Corporation ("TIC") is a Delaware corporation having its office located at One Liberty Plaza, 51st Floor, New York, New York 10006; Telephone No. 212-602-6700; and Facsimile No. 212-571-7042. TIC is the Trading Advisor for the Partnership, and makes all trading decisions for the Partnership. TIC was incorporated in November 1980 for the principal purpose of providing commodity floor brokerage services to customers of Paul Tudor Jones, II. In July 1984, TIC also began providing trading advice to, and managing accounts for, investors in the commodity interest markets. Since April 17, 1984, TIC has been continuously registered with the CFTC as a CPO and CTA, and since May 24, 1984 has been a member of the NFA in such capacities. In October 1993, TIC began providing trading advice to certain investment funds, and managing accounts for certain investors, engaged primarily in trading the equity securities markets. TIC previously operated floor brokerage operations on certain New York commodity exchanges in order to improve order executions for TIC's and Mr. Jones's customer and proprietary accounts and to gain a valuable source of market trend information. Bellwether Partners Inc. ("BPI") was formed in July 1986 for the principal purpose of providing commodity floor brokerage services to Mr. Jones, his affiliates, and their customers. In June 1988, BPI expanded its operations to include currency trading operations for Mr. Jones, his affiliates, and their customers, and shortly thereafter transferred its floor brokerage operations to Bellwether Futures Corporation, a Delaware corporation ("BFC") and an affiliate of TIC. BFC terminated substantially all of its floor brokerage operations as of January 1992. Both BPI and BFC were registered as FCMs while engaged in floor brokerage activities. The currency trading operations of BPI are currently conducted by BPL, and BPL serves as the Partnership's principal counterparty in the purchase and sale of currency spot and forward contracts. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP," "CONFLICTS OF INTEREST," and "BROKERAGE ARRANGEMENTS." The Trading Advisor does not currently own any Units, although it may subscribe for Units during the Continuing Offering (for investment purposes only and not with a view to resell). Principals and employees of the Trading Advisor have previously purchased Units, and it is expected that they will purchase Units during the Continuing Offering. There is no limitation on the number of Units that may be subscribed for by 43 the Trading Advisor, its affiliates, and their principals and employees. See "PRINCIPAL RISK FACTORS--INVESTMENT BY THE GENERAL PARTNER, THE TRADING ADVISOR, THEIR AFFILIATES, AND PRINCIPALS AND EMPLOYEES THEREOF." The principals of the Trading Advisor (who collectively comprise the Board of Directors of the Trading Advisor) are Paul Tudor Jones, II, Mark F. Dalton, Patrick A. Keenan, Mark A. Heffernan, Andrew S. Paul, and Richard L. Fisher. Messrs. Jones, Dalton, Keenan, and Paul are also officers and employees of the Trading Advisor and directors, officers, and/or employees of the Trading Advisor's domestic corporate affiliates. Mr. Heffernan is an executive manager and officer of certain of the Trading Advisor's affiliated entities which maintain principal offices in Surrey, England. Mr. Fisher, Vice President-- Investments of Dunavant Enterprises, Inc. (Memphis, Tennessee), is an outside Director and is not otherwise employed by, or affiliated with, the Trading Advisor or its affiliates. Mr. Jones is the only principal of the Trading Advisor who makes trading decisions for the Partnership. Other employee traders of the Trading Advisor, none of whom is a principal of the Trading Advisor, may make trading decisions with respect to a portion of the Partnership's account with the Trading Advisor. BUSINESS BACKGROUNDS PAUL TUDOR JONES, II. Since its incorporation, the Trading Advisor has been continuously controlled by Mr. Jones. A staff of stockholders, directors, officers, employees, and employee traders assists Mr. Jones in the Trading Advisor's and its affiliates' business activities. Mr. Jones, age 41, is Chairman and Chief Executive Officer and controlling stockholder of the Trading Advisor, which serves as trading advisor to, and/or pool operator of, several commodity pools and investment funds. Mr. Jones has traded commodity interests for his proprietary accounts since September 1977 and for customer accounts since January 1981. Mr. Jones is a member of the Commodity Exchange, Inc., the Coffee, Sugar & Cocoa Exchange, Inc., the New York Cotton Exchange, the Chicago Board of Trade, and the Chicago Mercantile Exchange. In addition, Mr. Jones is a member of the Board of Managers of the New York Cotton Exchange and served as Chairman of that exchange from August 1992 through June 1995. Mr. Jones is First Vice Chairman of the Financial Instruments Exchange, a division of the Cotton Exchange. Mr. Jones is also Chairman of the Board of Directors of The Robin Hood Foundation, a charitable foundation. TIC is the sole general partner and trading advisor of Tudor Futures Fund, a New York limited partnership which engages in the speculative trading of commodities interests, and of The Raptor Global Fund L.P. ("Raptor L.P."), a Delaware limited partnership which primarily engages in the speculative trading of equity securities interests, and is the sole trading advisor of The Raptor Global Fund Ltd. ("Raptor Ltd."), a Cayman Islands company which primarily engages in the speculative trading of equity securities interests. An employee of TIC other than Mr. Jones (James J. Pallotta) primarily directs the trading of the accounts of Raptor L.P. and Raptor Ltd. Tudor BVI Futures, Ltd., a British Virgin Islands company, is an investment fund that trades commodities and securities interests under the direction of TIC. MARK F. DALTON. Mr. Dalton, age 45, is President and Chief Operating Officer of the Trading Advisor. Prior to joining the Trading Advisor as President in September 1988, Mr. Dalton was employed by Kidder, Peabody & Co. Incorporated where he served in various senior positions, including Chief Financial Officer. Mr. Dalton is an Associate Director of the Futures Industry Association. Mr. Dalton is also a director of Cathay Investment Fund Limited and various private companies in the United States, Europe and Asia. Mr. Dalton does not participate in the trading of commodity interest contracts for customer accounts of TIC or its affiliates. PATRICK A. KEENAN. Mr. Keenan, age 42, is a Vice President of TIC, and has been its Chief Financial Officer since February 1988. Mr. Keenan graduated from Fordham University with a B.S. in Accounting, and received an MBA in Taxation from Pace University. Mr. Keenan does not participate in the trading of customer accounts for TIC or its affiliates. 44 ANDREW S. PAUL. Mr. Paul, age 43, has been a Vice President, the General Counsel and the Secretary of TIC since July 1989. Mr. Paul graduated from Windham College and received a J.D. from the College of William & Mary School of Law. Mr. Paul does not participate in the trading of customer accounts for TIC or its affiliates. MARK A. HEFFERNAN. Mr. Heffernan, age 32, is a Vice President of the affiliated entities of the General Partner which maintain offices in Surrey, England. From June 1985 until January 1992, Mr. Heffernan was employed by Goldman Sachs International in London as a Vice President-Foreign Exchange. In January 1992, Mr. Heffernan resigned his post to form his own company, Alwyne Investment Corporation Ltd. In July 1992, Mr. Heffernan joined the New York office of the General Partner as a proprietary funds manager where he worked until May 1993, at which time he joined the London office of an affiliate of the General Partner in the same capacity. Mr. Heffernan has primary responsibility for the trading of The Upper Mill Capital Appreciation Fund Ltd., a Cayman Islands company (the "Upper Mill Fund") which is an investment fund under the management of Tudor Capital (U.K.), L.P., an affiliate of the General Partner. The Upper Mill Fund commenced operations in May 1996. RICHARD L. FISHER. Mr. Fisher, age 41, is a Director of TIC. Mr. Fisher received a B.S. with Distinction and a Master of Science in Accounting from the University of Virginia. Since September 1983, Mr. Fisher has been a Managing Director and Senior Vice President of Investments/Acquisitions of Dunavant Enterprises, Inc. Mr. Fisher has been a Director of TIC since June 1991. Mr. Fisher does not participate in the trading or day-to-day management of TIC or its affiliates. The Trading Advisor does not currently own any Units although it may subscribe for Units during the Continuing Offering (for investment purposes only and not with a view to resell). Principals, employees, and affiliates of the Trading Advisor have previously purchased Units, and it is expected that they will purchase Units in the Continuing Offering. See "THE GENERAL PARTNER" and "CONFLICTS OF INTEREST." PROPRIETARY TRADING. The General Partner, TIC, Mr. Jones, and certain of their affiliates, principals, and employees have in the past traded, currently trade, and may in the future trade, commodity interest contracts for proprietary accounts. In his proprietary trading, except as described below, Mr. Jones generally has followed the same basic trading methods and strategies developed, modified, and refined by him since 1976. Although Mr. Jones generally trades proprietary accounts in parallel with customer accounts, there are various times and circumstances in which the trading of customer and proprietary accounts may not be parallel. For example, in trading for proprietary accounts, Mr. Jones may trade a larger number of contracts, utilize a higher degree of leverage, pay lower commission rates, pay lower or no advisory fees, concentrate assets in one or a few commodity interests, and conduct a significant amount of intraday trading. Consequently, Mr. Jones generally assumes more risks when trading proprietary accounts than he normally assumes when trading customer accounts. Limited Partners will not be permitted to inspect the trading records of Mr. Jones, the General Partner, TIC, or their affiliates, principals, or employees or any written policies related to such trading. See "CONFLICTS OF INTEREST." MATERIAL ACTIONS. There has been no material administrative, civil, or criminal action against TIC, its affiliated entities (including the General Partner or BPL), or their principals within the last five years, with the exception of the following: TIC is currently responding to an investigation by the SEC concerning certain alleged violations of the "uptick rule" which may have occurred on one day in March 1994. TIC has been in discussions with the SEC concerning the disposition of this matter, and while TIC cannot predict the outcome of these discussions, it does not believe that the disposition will have a material adverse effect on its business, financial condition, or results of operations, but it may involve payment of a monetary fine by TIC. 45 THE MANAGEMENT AGREEMENT The Trading Advisor has entered into a management agreement (the "Management Agreement") with the Partnership, which provides that the Trading Advisor has sole responsibility (except in certain limited situations and as otherwise provided below) for directing the investment and reinvestment of the Partnership's assets in commodity interest contracts. Term. The Management Agreement continued in effect for a period of one year following the end of the month in which the Partnership initially began to receive trading advice from the Trading Advisor, and thereafter has been, and will be, renewed automatically for additional one-year terms unless either party, upon written notice given not less than 30 days prior to any extended termination date, notifies the other party of its intention not to renew. Either the Partnership or the Trading Advisor may terminate the Management Agreement upon 24 hours prior written notice to the other party. The Management Agreement will terminate immediately if the Partnership terminates or is dissolved in accordance with the Limited Partnership Agreement or otherwise. In addition, the Management Agreement will terminate immediately upon the occurrence of any of the following events: (i) if the Trading Advisor merges or consolidates with, or sells or otherwise transfers its advisory business, any portion of its trading systems or methods, or its goodwill to, any individual or entity; (ii) if the Trading Advisor becomes bankrupt or insolvent; (iii) if the Trading Advisor is unable to use all or any portion of its trading systems or methods as in effect on the date of the Management Agreement or as refined or modified in the future in accordance with the Management Agreement for the benefit of the Partnership for any reason whatsoever; (iv) if the registration of the Trading Advisor with the CFTC as a CTA or its membership in the NFA in such capacity expires or is revoked, suspended, terminated, or not renewed, or limited or qualified in any respect; (v) if the General Partner, upon receipt of notice from the Trading Advisor, sends written notice to the Trading Advisor stating that any change proposed by the Trading Advisor in its trading systems or methods or the manner in which trading decisions are to be made or implemented is unacceptable to the General Partner; (vi) if the Trading Advisor materially violates any of the Trading Policies or any administrative policy of the Partnership; (vii) if the Partnership or Trading Advisor fails to perform any of its respective material obligations under the Management Agreement; (viii) if Mr. Jones ceases to be the majority stockholder of the Trading Advisor or dies or becomes disabled or incapacitated; or (ix) if the General Partner's registration with the CFTC as a CPO or its membership in the NFA in such capacity expires or is revoked, suspended, terminated, or not renewed, or limited or qualified in any respect. No assurance is given that the Partnership will be able to retain the services of the Trading Advisor once the term of the Management Agreement is completed or, if such services are available, that they will be available on the same or similar terms as those of the Management Agreement. Further, no assurance is given that the Partnership will be able to retain the services of a new trading advisor once the Management Agreement is terminated. The compensation payable by the Partnership to the Trading Advisor for its services under the Management Agreement is described under "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--MANAGEMENT FEE" and "--INCENTIVE FEE." Liability And Indemnification. The Management Agreement provides that the Trading Advisor and its stockholders, directors, officers, employees, principals, affiliates, agents, and their respective successors and assigns will not be liable to the Partnership, the General Partner, the General Partner's stockholders, directors, officers, employees, principals, affiliates, and agents, the Limited Partners, and their respective successors and assigns except for an act, omission, conduct, or activity in respect of the Partnership which is found (i) to have constituted willful misconduct, gross negligence, a breach of a warranty, covenant, or agreement, or a material misrepresentation in the Management Agreement by the Trading Advisor, and (ii) to have not been done in good faith and in the reasonable belief that such act, omission, conduct, or activity was in, or not opposed to, the best interests of the Partnership. 46 The Management Agreement provides that the Partnership will indemnify, hold harmless, and defend the Trading Advisor and its stockholders, directors, officers, employees, and principals, and their respective successors and assigns from and against any and all loss, liability, claim, demand, damage, cost, and expense, joint and several, to which any of them may become subject arising out of or based upon an act, omission, conduct, or activity by any of them in respect of the Partnership unless such act, omission, conduct, or activity is found (i) to have constituted willful misconduct, gross negligence, a breach of a warranty, covenant, or agreement, or a misrepresentation in the Management Agreement by the Trading Advisor, and (ii) to have not been done in good faith and in the reasonable belief that such act, omission, conduct, or activity was in, or not opposed to, the best interests of the Partnership. The Management Agreement also provides that the Trading Advisor will indemnify, hold harmless, and defend the Partnership from and against any and all loss, liability, claim, demand, damage, cost, and expense, joint and several, to which the Partnership may become subject arising out of or based upon an act, omission, conduct, or activity by the Trading Advisor or any of its stockholders, directors, officers, employees, principals, affiliates, agents, or their respective successors or assigns which is found (i) to have constituted willful misconduct, gross negligence, a breach of a warranty, covenant, or agreement, or a misrepresentation in the Management Agreement by the Trading Advisor, and (ii) to have not been done in good faith and in the reasonable belief that such act, omission, conduct, or activity was in, or not opposed to, the best interests of the Partnership. In addition, the Trading Advisor and the Partnership have agreed to indemnify each other against certain other liabilities, including other liabilities under federal and state securities and commodities laws. BROKERAGE ARRANGEMENTS The Clearing Brokers. BZW Futures ("BZW Futures"), Cargill Investor Services, Inc. (in such capacity, "CIS"), Daiwa Securities America Inc. ("Daiwa"), E.D. & F. Man International Inc. ("EDF"), Goldman, Sachs & Co. ("Goldman"), J.P. Morgan Futures Inc. ("Morgan Futures"), Merrill Lynch Futures Inc. ("Merrill Lynch"), Morgan Stanley & Co., Incorporated ("Morgan Stanley"), Morgan Stanley & Co. International Limited ("MSIL"), Prudential Securities Incorporated ("Prudential"), and Salomon Brothers Inc ("Salomon Brothers") (individually a "Clearing Broker", and collectively the "Clearing Brokers") currently carry the Partnership's trading accounts and execute and clear the Partnership's transactions. The Clearing Brokers are responsible for holding and maintaining the Partnership's funds, securities, commodity interest contracts, and other property, the execution and/or clearance of trades for the Partnership's account, the record keeping and preparation and transmittal to the Partnership of daily confirmations of transactions and monthly statements of account, the calculation of the equity balances and margin requirements for the Partnership's account, and similar administrative functions. Typically, the Partnership's order placement, execution, and clearance is effected in the following manner. The Trading Advisor normally places commodity interest contract orders for the Partnership's account directly with exchange floor brokers selected by it. If a floor broker other than one employed by the Clearing Brokers is used to execute the Partnership's orders on the floor of the relevant exchange, such floor broker gives up the trade to one or more of the Clearing Brokers for clearance by it. See "THE TRADING ADVISOR--DESCRIPTION OF ORDERS AND ORDER PLACEMENT." The services provided to the Partnership by the Clearing Brokers are limited to those described above and those described below under "BROKERAGE ARRANGEMENTS--DESCRIPTION OF CUSTOMER AGREEMENTS." The Clearing Brokers do not act as underwriters of the offering of Units and have not determined the adequacy or accuracy of this Prospectus, nor do the Clearing Brokers act in any supervisory role with respect to the Partnership, the General Partner, or the Trading Advisor. Similarly, the Clearing Brokers do not participate in any way in the management of the affairs of the Partnership. The furnishing of brokerage services to the Partnership does not constitute an endorsement or recommendation 47 by the Clearing Brokers of an investment in the Partnership. Therefore, a subscriber for Units should not rely on the reputation or expertise of the Clearing Brokers or on the brokerage arrangements in making a decision to invest in the Partnership. Description Of Customer Agreements. The Partnership has entered into non- exclusive customer agreements with the Clearing Brokers (each a "Customer Agreement"), pursuant to which the Clearing Brokers execute and/or clear trades in commodity interest contracts on behalf of the Partnership. Each Customer Agreement may be terminated at any time by the Partnership or the relevant Clearing Broker by giving notice of termination to the other. If so terminated, the General Partner may have to negotiate a new customer agreement with a broker. The General Partner is also authorized under the Limited Partnership Agreement to retain other brokers for the Partnership's trading at any time. The terms and conditions of such other customer agreements and related transaction charges cannot now be determined and may not be as favorable to the Partnership as the current brokerage arrangements. However, the General Partner will endeavor to negotiate transaction charges and other terms that are competitive and similar to those applicable to similar investment pools in the industry at the relevant time. Each Clearing Broker is obligated to follow the instructions of the Trading Advisor with respect to the investment of the Partnership's assets on deposit with or under the control of such Clearing Broker. In general, a sufficient portion of the Partnership's assets are deposited and maintained with the Clearing Brokers to effect the Trading Advisor's trading strategies. The General Partner endeavors to maximize the amount of interest it earns on the balance of the Partnership's funds not allocated to trading consistent with the preservation of capital. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." The Partnership has opened separate trading accounts with each of the Clearing Brokers. Under each of the Customer Agreements, all of the Partnership's funds and all commodity interest contract positions and credits carried for the Partnership are held as security for the Partnership's obligations to the relevant Clearing Broker. The margins required to initiate or maintain open positions are established from time to time by each Clearing Broker and applicable regulatory authorities. A Clearing Broker may close out positions, purchase commodity interest contracts, or cancel orders for the Partnership's account at any time it deems necessary for its protection, generally without the consent of or notice to the Trading Advisor or the General Partner. Generally, the Customer Agreements provide that each Clearing Broker, in performing the services required by its Customer Agreement, will not be liable to the Partnership, the General Partner, the Limited Partners, or their respective successors or assigns except for any loss, damage, liability, and expense to which the Partnership may become subject arising out of, or based upon, an act, omission, conduct, or activity by the Clearing Broker in respect of the Partnership which constitutes misconduct or negligence. Generally, the Customer Agreements provide that the Partnership will indemnify, defend, and hold harmless each Clearing Broker from and against any loss, claim, damage, liability, cost, and expense (including attorneys' fees) to which the Clearing Broker may become subject in respect of the Partnership, provided that such loss, claim, damage, liability, cost, or expense did not arise out of, or was not based upon, an act, omission, conduct, or activity of such Clearing Broker which constituted misconduct or negligence. Description Of Clearing Brokers BZW Futures. BZW Futures, a division of Barclays Bank PLC, has its main business office located at Ebbgate House, 2 Swan Lane, London EC4R 3TS, England; Telephone No. 0171-623-2323. BZW Futures provides execution and clearing services for global futures and options transactions on 33 exchanges. BZW Futures has offices in ten countries. During the five years preceding the date of this Prospectus, neither BZW nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded. 48 Neither BZW Futures nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. BZW Futures and its principals do not own, and will not be permitted to purchase, any Units. Cargill Investor Services, Inc. CIS is a Delaware corporation, formed in October 1972, having its main business office located at Sears Tower, 233 South Wacker Drive, Suite 2300, Chicago, Illinois 60606; Telephone No. 312-460-4000. CIS is registered with the CFTC as an FCM and is a member of the NFA in such capacity, and is registered with the SEC as a broker-dealer and is an NASD member firm. In addition to acting as a Clearing Broker for the Partnership, CIS acts as Selling Agent for the Partnership, and acts as clearing broker and selling agent for certain other investment funds sponsored and/or traded by the Trading Advisor and its affiliates. CIS is a wholly-owned, but separately managed, subsidiary of Cargill, Incorporated, a privately-owned Delaware corporation. Cargill, Incorporated is an international trader, processor, and transporter of a wide variety of goods and commodities. CIS provides commodity brokerage services to numerous individual, corporate, and institutional clients through its ten offices on a worldwide basis. CIS is a member of the Chicago Board of Trade, the Chicago Mercantile Exchange, the Commodity Exchange, Inc., and all other major United States commodity exchanges. In the ordinary course of its business, Cargill is engaged in civil litigation and subject to administrative proceedings which in the aggregate are not expected to have a material effect on its condition, financial or otherwise. During the five years preceding the date of this Prospectus, neither Cargill nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded. Neither CIS nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. CIS and its principals do not own, and will not be permitted to purchase, any Units. Daiwa Securities America, Inc. Daiwa is a wholly-owned, indirect subsidiary of Daiwa Securities Co. Ltd. of Tokyo, Japan, and has its main business office at One World Financial Center, New York, New York 10281; Telephone No. 212-945- 0100. Daiwa is registered with the SEC as a broker-dealer and is a member of the NASD in such capacity, and is registered with the CFTC as an FCM and CPO and is a member of the NFA in such capacities. Daiwa is a member of the major United States securities and commodities exchanges and a primary dealer in United States Government securities. As an integral constituent of the Daiwa group of companies, the firm offers its clients a worldwide, integrated network of financial services. During the five years preceding the date of this Prospectus, neither Daiwa nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: Daiwa is among the defendants in class action litigation pending in federal court in Brooklyn, New York relating to securities of MTC Electronic Technologies Ltd. ("MTC"). Daiwa was the managing underwriter of a public offering of MTC securities in July 1993. The complaints principally allege violations of Section 10(b) of the Securities Exchange Act of 1934 as amended (the "Securities Exchange Act") and Rule 10b-5 thereunder, and seek damages in unspecified amounts. On February 25, 1993, in two unrelated administrative proceedings brought by the SEC, Daiwa, for the purpose of settlement and without admitting or denying liability or any finding, consented to entry of orders finding that it violated (i) Section 17(a) of the Securities Exchange Act and Rule 17a-3 thereunder in connection with the recording of a payment received from a customer to compensate Daiwa for a loss resulting from a customer error, and with practices arising from a failure to comply with certain registration requirements of self-regulatory organizations, and (ii) Section 17(a) of the Securities Exchange Act and Rules 17a-3 and 17a-4 thereunder and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder in 49 connection with Daiwa's accommodation of another broker-dealer's improper request to submit a bid in an auction of government bonds on the other firm's behalf. In each proceeding, Daiwa was censured and ordered to cease and desist from future violations of the relevant sections of the Securities Exchange Act and the rules promulgated thereunder. Daiwa also agreed to pay a civil penalty of $200,000 to comply with certain undertakings, including the retention of outside consultants to review certain of Daiwa's policies, procedures, and practices, and to make a disgorgement payment of $249,340. On January 16, 1992, Daiwa and 97 other firms, for the purposes of settlement but without admitting or denying liability or any finding, consented to an SEC cease and desist order and agreed to pay a civil fine, and to implement certain procedures with regard to the record keeping requirements of Section 17(a) of the Securities Exchange Act and Rules 17a-3 and 4 thereunder in connection with the distribution of unsecured debt securities issued by certain government- sponsored enterprises. Daiwa's fine was $50,000. Neither Daiwa nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. Daiwa and its principals do not own, and will not be permitted to purchase, any Units. E.D.&F. Man International Inc. EDF has its main business office located at Two World Financial Center, 27th Floor, New York, New York 10281-2700; Telephone No. 212-566-9000. EDF is registered with the CFTC as an FCM and is a member of the NFA in such capacity, and is registered with the SEC as a broker- dealer and is a member of the NASD in such capacity. EDF, which is part of the E.D.&F. Man Group of companies, is a member of all major United States commodity exchanges as well as the Philadelphia Stock Exchange. During the five years preceding the date of this Prospectus, neither EDF nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded. Neither EDF nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. EDF and its principals do not own, and will not be permitted to purchase, any Units. Goldman, Sachs & Co. Goldman has its main business office located at 85 Broad Street, New York, New York 10004; Telephone No. 212-902-1000. Goldman is registered with the SEC as a broker-dealer and is a member of the NASD in such capacity, and is registered with the CFTC as an FCM and is a member of the NFA in such capacity. Goldman or one of its affiliates is a member of most major commodities and securities exchanges in the United States, as well as a member of a number of foreign exchanges. During the five years preceding the date of this Prospectus, neither Goldman nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: During January 1994, Goldman, without admitting or denying liability, settled an SEC administrative proceeding involving alleged books and records and supervisory violations unrelated to FCM activities. The allegations relate to certain trades in the secondary markets for U.S. Treasury securities in 1985 and 1986, which include five trades in 1985 and six trades in 1986 in which Goldman realized losses aggregating $36.6 million, and four trades in 1986 in which losses were realized by Salomon Brothers. All the trades were done at prevailing market prices, and thus the losses reflected actual economic declines in the value of Goldman's positions in the securities it held. The SEC charged that Goldman's books and records nonetheless should have reflected that the trades were subject to alleged understandings with the counterparties that the original positions would be re-established through reversing transactions, also effected at market prices. The SEC also cited Goldman with failing to maintain written procedures sufficient to prevent and detect the record keeping deficiencies, and failing to make records of certain unexecuted customer orders for the purchase and sale of U.S. Treasury securities. Goldman cooperated with the SEC's investigation 50 and settled the administrative charges by consenting to entry by the SEC of a cease and desist order and payment of an administrative penalty of $250,000. In an administrative proceeding unrelated to FCM activity initiated by the SEC in January 1992, Goldman, along with many other broker- dealers, without admitting or denying the facts, consented to a finding that, in connection with the distribution of securities issued by certain government sponsored enterprises, it had maintained certain records which were inaccurate. Goldman and the other firms paid a fine in the amount of $100,000 and were ordered to cease and desist from committing future violations. In the preceding five years, there have been no material administrative, civil, or criminal actions against Goldman or any of its principals, nor is any such administrative, civil, or criminal action pending, which could reasonably be expected to result in any material adverse change in the financial condition, business, or operations of Goldman and its subsidiaries taken as a whole. Neither Goldman nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. Goldman and its principals do not own, and will not be permitted to purchase, any Units. J.P. Morgan Futures, Inc. J.P. Morgan is a Delaware corporation having its main business office located at 60 Wall Street, New York, New York 10260; Telephone No. 212-648-6560. J.P. Morgan is registered with the CFTC as an FCM and is a member of the NFA in such capacity. J.P. Morgan is wholly-owned by J.P. Morgan & Company Inc. J.P. Morgan is a futures brokerage firm serving the United States and foreign commodities markets, and as such is engaged in providing institutional clients with services in connection with the purchase and sale of futures and options contracts. J.P. Morgan is a member of the Commodity Exchange, Inc., the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, and the Singapore International Monetary Exchange Ltd., and has access to many other domestic and foreign futures exchanges through affiliated and unaffiliated entities. From time to time, J.P. Morgan may be the subject of certain actions. During the five years preceding the date of this Prospectus, neither J.P. Morgan nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded. Neither J.P. Morgan nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. J.P. Morgan and its principals do not own, and will not be permitted to purchase, any Units. Merrill Lynch Futures Inc. Merrill Lynch is a Delaware corporation with its main business office located at 250 Vesey Street, 23rd Floor, New York, New York 10281-1323; Telephone No. 212-449-1000. Merrill Lynch is registered with the CFTC a an FCM and is a member of the NFA in such capacity. Merrill Lynch is a clearing member of the Chicago Board of Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange and all other principal United States futures exchanges. During the five years preceding the date of this Prospectus, neither Merrill Lynch nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded. Neither Merrill Lynch nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. Merrill Lynch and its principals do not own, and will not be permitted to purchase, any Units. Morgan Stanley & Co. Incorporated. Morgan Stanley has its main business office located at 1251 Avenue of the Americas, New York, New York 10020; Telephone No. 212-703-4000. Morgan Stanley is 51 registered with the SEC as a broker-dealer and is a member of the NASD in such capacity, and is registered with the CFTC as an FCM and is a member of the NFA in such capacity. Morgan Stanley operates on an integrated worldwide basis through six divisions: Investment Banking; Equities; Taxable Fixed Income; Tax Exempt Fixed Income; Asset Management; and Finance, Administration, and Operations. Morgan Stanley conducts its business through its head office in New York, international offices in London, Tokyo, Frankfurt, Zurich, Australia, and Canada, and United States regional offices in Chicago, Los Angeles, and San Francisco. In the ordinary course of its business, Morgan Stanley is involved in numerous legal actions, some of which seek significant damages. During the five years preceding the date of this Prospectus, neither Morgan Stanley nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: On January 16, 1992, in an administrative proceeding brought by the SEC, Morgan Stanley, without admitting or denying liability, consented to the entry of an order finding that it violated Section 17 of the Securities Exchange Act and certain rules promulgated thereunder by creating and maintaining inaccurate books and records in connection with the primary distribution of unsecured debt securities of various government- sponsored enterprises. Morgan Stanley agreed to pay a civil penalty of $100,000. Morgan Stanley also agreed to cease and desist from any future violations of these record keeping requirements in connection with such distributions and to maintain or develop procedures to ensure compliance with this undertaking. Neither Morgan Stanley nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. Morgan Stanley and its principals do not own, and will not be permitted to purchase, any Units. Morgan Stanley & Co. International Limited. MSIL is a subsidiary of Morgan Stanley UK Group which is ultimately owned by Morgan Stanley Group Inc. Its main business office is located at 25 Cabot Square, Canary Wharf, London E14 4QA, England; Telephone No. 171-425-8000. MSIL is regulated by the United Kingdom Securities and Futures Authority Limited (the "SFA") as a member firm. In the ordinary course of its business, MSIL is involved in numerous legal actions, some of which seek significant damages. During the five years preceding the date of this Prospectus, neither MSIL nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: On May 30, 1995, the SFA published Board Notice 256, recording an agreed settlement of disciplinary proceedings against MSIL. MSIL admitted breaches of United Kingdom Securities and Investments Board Principles 2 (failure to exercise skill, care, and diligence) and 9 (lack of appropriate systems) and other related breaches in connection with foreign exchange business on five private client accounts during 1992. MSIL was fined (Pounds)240,000 and made a contribution to the SFA's costs. Neither MSIL nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPL, or any of their principals, affiliates, officers, or directors. MSIL and its principals do not own, and will not be permitted to purchase, any Units. Prudential Securities Incorporated. Prudential has its main business office at One Seaport Plaza, New York, New York 10292; Telephone No. 212-214-1000. Prudential is registered with the SEC as a broker-dealer and is a member of the NASD in such capacity, and is registered with the CFTC as an FCM and is a member of the NFA in such capacity. Prudential is a major securities firm with a large commodity brokerage business. It has over 270 offices in 43 states, the District of Columbia, and 18 foreign countries. Prudential is a clearing member of the Chicago Board of Trade, the Chicago Mercantile Exchange, the Commodity Exchange, Inc., and all other major United States commodity exchanges. 52 From time to time Prudential (in its respective capacities as an FCM and as a broker-dealer) and its principals are involved in numerous legal actions, some of which individually, and all of which in the aggregate, seek significant or indeterminate damages. During the five years preceding the date of this Prospectus, neither Prudential nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: On June 19, 1995, Prudential entered into a settlement with the CFTC in which, without admitting or denying the allegations of the complaint, Prudential consented to findings by the CFTC of certain recordkeeping violations and failure to supervise in connection with the commodity trading activities of a former broker of Prudential in 1990 and early 1991. Pursuant to the settlement, Prudential agreed to (i) pay a civil penalty of $725,000, (ii) the entry of a cease and desist order with respect to the violations charged, and (iii) an undertaking directing the Prudential Compliance Committee that a review of certain of the firm's commodity compliance and supervisory policies and procedures be conducted and a report be submitted to the CFTC, as well as a report to the CFTC on the actions taken as a result of the review. On October 27, 1994, Prudential and Prudential Securities Group entered into an agreement with the Office of the United States Attorney for the Southern District of New York (the "U.S. Attorney") deferring prosecution of charges contained in a criminal complaint. The complaint alleged that Prudential committed fraud in connection with the sale of certain oil and gas limited partnership interests between 1983 and 1990 in violation of federal securities laws. The agreement requires that Prudential deposit an additional $330,000,000 into an account established by the SEC to pay restitution to the investors who purchased oil and gas limited partnership interests. Prudential further agreed to appoint a mutually acceptable outsider to sit on the Board of Directors of Prudential Securities Group and the Compliance Committee of Prudential. The outside director will serve as an "ombudsman" whom Prudential's employees can contact anonymously with complaints about ethics or compliance. Prudential will report any allegations or instances of criminal conduct and material improprieties to the new director. The new director will submit compliance reports of his findings every three months for a three year period. Upon completion of a three year period, if Prudential has complied with the terms of the agreement, then the U.S. Attorney will not pursue the charges in the complaint. If Prudential does not comply with the agreement, then the U.S. Attorney may elect to pursue the charges. On September 19, 1994, Prudential consented to the entry of an agreement and order issued by the State of Idaho, Department of Finance, Securities Bureau (the "Department"). The allegations against Prudential were that the firm failed to supervise certain employees in connection with securities and options trading activities entered into on behalf of Idaho clients, in violation of the Idaho Securities Act (the "Idaho Act"). It was alleged that Prudential failed to amend the Forms U-4 for certain employees. Prudential agreed to a number of sanctions and remedial measures, including but not limited to, the following: (a) to install a new branch manager in the Prudential Boise branch office, who is to function in a supervisory capacity only; (b) to designate a regional quality review officer to review all securities option accounts and option trading activities of Idaho customers in three Prudential offices; (c) to implement procedures reasonably designed to ensure compliance with regulations concerning the timely delivery of prospectuses; and (d) to cooperate in the Department's ongoing investigation and to comply with all provisions of the Idaho Act. In addition, Prudential agreed to pay a fine to the State of Idaho in the amount of $300,000, and Prudential voluntarily reimbursed certain customers for losses suffered in their accounts in the amount of $797,518.49. On June 8, 1994, the Business Conduct Committee of the New York Mercantile Exchange ("NYMEX") accepted an offer of settlement submitted by Prudential concerning allegations that Prudential violated NYMEX rules regarding pre- arranged trades and wash trades. Without admitting or denying the allegations, Prudential consented to a finding by NYMEX that it had violated NYMEX Rule 8.55(A)(18) relating to conduct substantially detrimental to the interest and welfare of NYMEX, agreed to cease and desist from future violations of Rule 8.55, and agreed to pay a fine in the amount of $20,000. 53 On March 10, 1994, Prudential agreed to the entry of a consent order issued by the State of Missouri, Commissioner of Securities. The allegations against Prudential were that the firm failed to supervise a former registered representative, in violation of Missouri securities laws. Without admitting or denying the allegations, Prudential agreed to the following: (a) to maintain and make available to the Missouri Division of Securities all customer and regulatory complaints concerning any Prudential employee working in a branch located in Missouri or any security sold by such employees; (b) beginning 30 days from the date of the consent order and continuing for a period of three years, to include at least one public service information piece selected by the Commissioner of Securities in all of Prudential's new account packages mailed to Missouri residents; (c) for a period of three years from the date of the consent order, to provide a notice annually to Prudential's Missouri customers which details the procedures for filing a complaint with Prudential and the applicable regulatory authorities. In addition, Prudential agreed to pay a fine in the amount of $175,000. On January 25, 1994, Prudential agreed to the entry of a consent order issued by the Banking Commissioner (the "Commissioner") of the State of Connecticut, Department of Banking. The allegations against Prudential were that, from January 1992 through at least July 1993, Prudential employed investment adviser agents who solicited investment advisory business in Connecticut without being registered to do so. This conduct was found by the Commissioner to be in violation of the Connecticut Uniform Securities Act (the "Act") and in violation of the terms and conditions of a stipulation and agreement entered into between the Commissioner and Prudential on February 20, 1992. It was further alleged, with respect to Prudential's investment advisory business, that certain Prudential agents held themselves out to the public in Connecticut under a business name other than Prudential. Without admitting or denying the allegations, Prudential agreed to be censured by the Department of Banking, to cease and desist from violation of the provisions of the Act, and agreed to pay a civil penalty to the Department of Banking in the amount of $150,000. Further, Prudential agreed to be subject to a period of administrative probation which will conclude upon Prudential's completion of certain remedial actions, including, but not limited to, the following: (a) Prudential will review, implement, and maintain supervisory procedures designed to ensure its compliance with the provisions of the Act; and (b) commencing on April 1, 1994 and continuing until April 1, 1996, Prudential will file quarterly reports with the Securities and Business Investments Division of the Department of Banking (the "Division") relating to its investment advisory business. In addition, Prudential agreed to pay the Department of Banking the cost of two or more examinations of any of its offices by the Division, such amount not to exceed $10,000. On January 18, 1994, Prudential agreed to the entry of a final consent order and a parallel consent order by the Texas State Securities Board. Prudential also entered into a related agreement with the Texas State Securities Commissioner. The allegations against Prudential were that the firm had engaged in improper sales practices and other improper conduct resulting in pecuniary losses and other harm to investors residing in Texas with respect to purchases and sales of limited partnership interests during the period from January 1, 1980 through December 31, 1990. Without admitting or denying the allegations, Prudential consented to a reprimand, agreed to cease and desist from further violations, and agreed to provide voluntary donations to the State of Texas in the aggregate amount of $1,500,000. Prudential agreed to suspend the creation of new customer accounts, the general solicitation of new accounts, and the offering for sale of securities in or from Prudential's North Dallas office, irrespective of the place of residence of such new customers, during a period of 20 consecutive business days. Prudential further agreed to suspend the creation of new customer accounts, the general solicitation of new customer accounts, and offering for sale of securities into or from the State of Texas to any new customers, irrespective of the place of residence of such new customers, during a period of five consecutive business days. Prudential also agreed to comply with the terms of the administrative order entered by the SEC on October 21, 1993 (as discussed below), and to institute training programs for its securities salesmen in Texas. On December 17, 1993, Prudential agreed to the entry of a consent order issued by the State of Rhode Island, Department of Business Regulation, Division of Securities (the "Department of Business Regulation"). The allegations against Prudential were that ten employees of Prudential engaged in investment advisory activities with clients in Rhode Island although these employees were neither licensed as investment 54 adviser representatives nor exempt from the licensing requirements of Section 203 of the Rhode Island Uniform Securities Act (the "Rhode Island Act"). Prudential consented to the payment of a civil penalty in the amount of $33,000 and agreed to cease and desist from further violations of Section 203 of the Rhode Island Act. Prudential also agreed to modify relevant internal marketing and training materials distributed to its sales force. Prior to the entry of the consent order discussed above, Prudential entered into a series of consent agreements with the Department of Business Regulation involving similar allegations concerning the registration of Prudential investment advisor representatives. On October 21, 1993, Prudential entered into an omnibus settlement with the SEC, state securities regulators in 51 jurisdictions (49 states, the District of Columbia, and Puerto Rico), and the NASD to resolve allegations that had been asserted against Prudential with respect to the sale of interests in more than 700 limited partnerships generated by Prudential's Direct Investment Group and sold from January 1, 1980 through December 31, 1990. The partnerships principally involved real estate, oil and gas producing properties, and aircraft leasing ventures. The allegations against Prudential were set forth in a complaint filed by the SEC on October 21, 1993 and in an administrative order issued by the SEC also on October 21, 1993. It was alleged that federal and state securities laws had been violated through sales of the limited partnership interests (and a limited number of certain other securities) to persons from whom such securities were not suitable in light of their investment objectives, financial status, or investment sophistication. It was also alleged that the safety, potential returns, and liquidity of the investments had been misrepresented. Prudential neither admitted nor denied the allegations asserted against it. The administrative order included findings that Prudential's conduct violated the federal securities laws and that Prudential had not complied with an order issued by the SEC in 1986 requiring Prudential to adopt, implement, and maintain certain supervisory procedures. The administrative order, to which Prudential consented without admitting or denying the SEC's findings, directed Prudential to cease and desist from violating the federal securities laws and imposed a $10 million civil penalty. The administrative order also required Prudential to adopt certain remedial measures, including the establishment of a Compliance Committee of its Board of Directors. Prudential's settlement with the state securities regulators included an agreement to pay a penalty of $500,000 per jurisdiction. In settling the NASD disciplinary action, Prudential consented to a censure and to the payment of a $5 million fine to the NASD. In connection with the settlement of the allegations asserted against it, and pursuant to a Final Order and Judgment entered on October 21, 1993 in the action commenced by the SEC, Prudential deposited $330 million in a fund to be used for the resolution of claims for compensatory damages asserted by persons who purchased the limited partnership interests from Prudential, and has agreed to provide additional funds, if necessary, for that purpose. The fund is to be administered by a court-approved Claims Administrator who is a former SEC Commissioner. Prudential also consented to the establishment of court- supervised expedited claims resolution procedures with respect to such claims. On July 22, 1993, Prudential entered into a Settlement Agreement with the Office of the Secretary of State of the State of South Carolina. Without admitting or denying the allegations, Prudential agreed to pay $225,000 in settlement of all administrative inquiries, investigations, and other proceedings against Prudential and its agents in South Carolina relating to the supervisory and retail sale activities of Prudential and certain of its registered representatives. On September 29, 1992, Prudential entered into a settlement with the CFTC in which, without admitting or denying the allegations of the complaint, Prudential consented to findings by the CFTC that it failed to supervise employees in connection with the commodity trading activities of a customer of Prudential-Bache Securities Inc. (the predecessor of Prudential), who was indicted and convicted of fraud, and the trading practices of two account executives formerly employed by Prudential-Bache Securities Inc. Prudential further admitted to findings of record keeping violations and for employing an unregistered associated person in 55 connection with this matter. Pursuant to the settlement, Prudential agreed to pay a $240,000 civil penalty and to cease and desist from engaging in further violations of the rules and regulations with which it had been charged. Neither Prudential nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPI, or any of their principals, affiliates, officers, or directors. Prudential and its principals do not own, and will not be permitted to purchase, any Units. Salomon Brothers Inc. Salomon Brothers is a Delaware corporation with its principal place of business at Seven World Trade Center, New York, New York 10048; Telephone No. 212-783-7000. Salomon Brothers is registered with the CFTC as an FCM and is a member of the NFA in such capacity, and is registered with the SEC as a broker-dealer and is an NASD member firm. Salomon Brothers and its affiliates engage in securities and futures trading for their customers and themselves on major markets, and are members of major securities and futures exchanges throughout the world. Salomon Brothers and its affiliates also engage in investment banking and act as financial advisors for companies on a worldwide basis. During the five years preceding the date of this Prospectus, neither Salomon Brothers nor any of its principals has been subject to any material administrative, civil, or criminal action, whether pending or concluded, except as follows: Various civil and administrative actions and proceedings are currently pending against or involve Salomon Brothers. However, Salomon Brothers' management considers that, with the exception of the matters described in the following paragraph, the aggregate liability or loss, if any, resulting from these actions and proceedings will not be significant. On May 20, 1992, Salomon Brothers and its parent Salomon Inc settled various actions arising out of alleged misconduct in auctions of U.S. Treasury securities and government securities trading brought by the SEC and the Department of Justice. Salomon Brothers consented, without admitting or denying any allegations, to among other things, an injunction against federal securities law violations, an SEC administrative order, forfeiture to obtain dismissal of an antitrust complaint, and payment of a total of $290 million in civil penalties and forfeitures, including $100 million for a fund for the payment of private compensatory damage claims. On the same day, The Federal Reserve Bank of New York announced the continuation of Salomon Brothers' primary dealer designation but a cessation of its trading activity with Salomon Brothers commencing June 1, 1992, with full trading resuming on August 3, 1992, and the Department of Treasury announced that Salomon Brothers would be permitted to resume bidding for customers in U.S. Treasury auctions on August 3, 1992, having restricted Salomon Brothers to purchasing securities for its own account in U.S. Treasury auctions since August 18, 1991. In January and February of 1993, Salomon Brothers and Salomon Inc settled with 42 states and the District of Columbia certain claims regarding Salomon Brothers' role in the U.S. Treasury auctions and related matters. Under the accords, Salomon Brothers placed $2 million in a multistate Investor Protection Trust Fund and paid $2.15 million to the jurisdictions that were parties to the accords. These settlements do not affect certain investigations by governmental and self- regulatory authorities into U.S. Treasury auctions and related matters. Numerous private actions have been commenced against Salomon Brothers and Salomon Inc, and certain present and former directors, officers, and employees of Salomon Brothers, with respect to the U.S. Treasury auctions and related matters. On September 13, 1993, Salomon Inc agreed to a settlement of the purported class action brought on behalf of its securities holders, subject to court approval. It is contemplated that the settlement amount of approximately $55 million will be paid from the private compensatory damage fund referred to above, and plaintiffs' attorneys' fees of approximately $12 million will be paid by Salomon Inc. This settlement does not affect other claims, including those of certain Treasury market participants. Neither Salomon Brothers nor any of its principals is affiliated with the General Partner, the Trading Advisor, BPI, or any of their principals, affiliates, officers, or directors. Salomon Brothers and its principals do not own, and will not be permitted to purchase, any Units. 56 Description Of Customer Foreign Exchange Agreement. The Partnership has entered into a non-exclusive customer foreign exchange agreement with BPL (the "CFE Agreement"), pursuant to which BPL acts as intermediary for, and principal to, the Partnership in the purchase and sale of spot and forward contracts for currencies. BPL may also act as intermediary for, and principal to, the Partnership in the purchase and sale of other commodity interests. Pursuant to the CFE Agreement, BPL acts as intermediary in executing a portion or all of the Partnership's foreign exchange spot and forward contracts in the interbank market. BPL, as principal, further contracts with the Partnership and, through the use of credit and settlement and delivery lines proposed to be established with certain of its counterparties, will settle such contracts by making and taking physical delivery of specified quantities of currencies at prices mutually agreed upon by BPL and the Partnership. The Partnership deposits and maintains collateral with BPL in order to engage in some trading activity without settling contracts by physical delivery. Accordingly, the Partnership deposits and maintains with BPL such collateral as BPL in its absolute discretion requires. Normally, the Partnership deposits collateral with BPL in amounts up to 20% of the Partnership's Net Assets. BPL may, in its sole discretion, use any collateral in the ordinary course of its business, including without limitation the pledging by BPL of the collateral to secure the trading obligations of BPL to third parties. In addition, the Partnership pledges, assigns, conveys, and transfers to BPL a first and prior security interest in and to, a general first lien upon, and a right of set-off against, all of the Partnership's right, title, and interest in and to the collateral as security for the punctual payment and satisfaction of all of the Partnership's obligations under the CFE Agreement. BPL pays interest to the Partnership on any cash collateral at a rate equivalent to the monthly average of the then-prevailing weekly 90-day United States Treasury bill auction rate, which for any day means, under the terms of the CFE Agreement, the rate set forth for such day in the weekly statistical release designated as H.15(519) published by the Board of Governors of the Federal Reserve System. Such interest is credited to the Partnership monthly. The Partnership may also deposit and maintain as collateral with BPL interest-bearing obligations, such as United States Treasury bills, and the interest earned thereon is for the Partnership's own account. Pursuant to the CFE Agreement, the Partnership has agreed to back-to-back purchase and sale of spot and forward contracts by BPL with respect to every transaction executed by BPL as principal and/or intermediary to the Partnership. BPL may close out spot and forward positions, buy the underlying items, cancel orders, and sell collateral at any time it deems necessary for its protection and upon the occurrence of other specified events. The Partnership has agreed to indemnify and hold harmless BPL and its principals, employees, and affiliates from, and to pay BPL promptly upon demand, any and all loss, cost, indebtedness, and liability arising from the purchase and/or sale of spot and forward contracts by BPL as intermediary for the Partnership. See "RISK FACTORS--TRADING OF SPOT AND FORWARD CONTRACTS," "THE COMMODITIES MARKETS--SPOT AND FOREIGN CONTRACTS" and "--MARGIN." The General Partner is authorized under the Limited Partnership Agreement to retain other brokers and dealers for the Partnership's trading of spot and forward contracts. Bellwether Partners LLC. BPL, a Delaware limited liability company and an affiliate of the General Partner and the Trading Advisor, having its main business office located at 600 Steamboat Road, Greenwich, Connecticut 06830 and controlled by Mr. Jones, was formed in December 1995 and is the successor in interest, by virtue of merger, to Bellwether Partners, Inc. ("BPI"). Mr. Jones is the Chairman and Chief Executive Officer of BPL. The other principal officers of BPL are the same as the principal officers of TIC. BPI was formed in July 1986 for the principal purpose of providing commodity floor brokerage services to Mr. Jones, TIC, their clients, and their affiliates. In July 1988, BPI expanded its operations to include currency trading operations for Mr. Jones, his affiliates, and their clients, and shortly thereafter terminated its floor brokerage service operations. Such currency trading operations are currently conducted by BPL. 57 There has been no material administrative, civil, or criminal action against BPL or its principals within the last five years, whether pending or concluded. See "THE TRADING ADVISOR--MATERIAL ACTIONS." BPL does not currently own any Units, although it may subscribe for Units during the Continuing Offering (for investment purposes only and not with a view to resell). Principals, employees, and affiliates of BPL have previously purchased Units, and it is expected that they will purchase Units in the Continuing Offering. See "THE GENERAL PARTNER" and "CONFLICTS OF INTEREST." THE COMMODITIES MARKETS FUTURES CONTRACTS Commodity futures contracts are standardized contracts made on domestic or foreign commodity exchanges which call for the future delivery of specified quantities of various agricultural and tropical commodities, industrial commodities, currencies, financial instruments, metals, or other items at a specified time and place. The size and term of futures contracts on a particular commodity are identical and are not subject to any negotiation between the buyer and seller. Standardization of futures contracts generally makes the exchange market more liquid than the forward contract and interbank markets, at least for smaller positions, because exchange-traded contracts are interchangeable. The contractual obligations, depending upon whether one is a buyer or a seller, may be satisfied either by taking or making, as the case may be, physical delivery of an approved grade of commodity or by making an offsetting sale or purchase of an equivalent but opposite futures contract on the same exchange prior to the designated date of delivery. As an example of an offsetting transaction where the underlying commodity is not delivered, the contractual obligation arising from the sale of one contract of December 1997 gold on a commodity exchange may be fulfilled at any time before delivery of the commodity is required by the purchase of one contract of December 1997 gold on the same exchange. The difference between the price at which the futures contract is sold or purchased and the price paid for the offsetting purchase or sale, after allowance for brokerage commissions, constitutes the profit or loss to the trader. Certain futures contracts, such as a futures contract linked to a stock or other financial or economic index approved by the CFTC or Eurodollar contracts, settle in cash (irrespective of whether any attempt is made to offset such contracts) rather than delivery of any physical item. In market terminology, a trader who purchases a futures contract is "long" in the market, and a trader who sells a futures contract is "short" in the market. Before a trader closes out his long or short position by an offsetting sale or purchase, his outstanding contracts are known as "open trades" or "open positions." The aggregate amount of open positions held by traders in a particular contract is referred to as the "open interest" in such contract. SPOT AND FORWARD CONTRACTS Contracts for future delivery of certain commodities may also be made off established exchanges. Currencies may be purchased or sold for current delivery through banks or dealers pursuant to "spot contracts," or for future delivery pursuant to "forward contracts." A forward contract is a contractual right to purchase or sell a specified quantity of an item at or before a specified date in the future at a specified price, and therefore is similar to a futures contract. In forward contract trading, a bank or dealer generally acts as principal in the transaction and includes its anticipated profit (i.e., the "spread" between the "bid" and the "asked" prices) and in some instances a "mark-up" in the prices it quotes for spot and forward contracts. A spot contract is either settled within two days or rolled over (i.e., converted) into a new spot contract or into a forward contract. Unlike futures contracts, spot and forward contracts are not standardized contracts; rather, spot and forward contracts for a given item are generally available in any size (and, in the case of forward contracts, maturity) and are subject to individual negotiation between the parties involved. Moreover, historically there has not been a direct means of "offsetting" or closing out a spot or forward 58 contract by taking an offsetting position, as one would a futures contract on an exchange. When a trader desires to close out a futures position, he establishes an equivalent but opposite position in the contract and settles and recognizes the profit or loss on the two positions at the time that the offsetting position is established. However, if a trader desires to close out a spot or forward contract position, he cannot contract through an exchange but must enter into an offsetting contract with the same counterparty. An offsetting position may not be available at a competitive price. Consequently, a trader may offset a position by establishing an equivalent but opposite position in the contract with another counterparty and settle by making and taking delivery of the underlying items and recognize the profit or loss on both positions simultaneously on the delivery date. As a result, the trader is subject to the risk of default and non-performance of a counterparty. Where the contract is settled by physical delivery, these risks are accentuated by the exposure to the full value of the contract. Thus, unlike in the futures contract market where a trader who has offset positions recognizes profit or loss immediately, in the spot and forward contract market a trader with a position that has been offset at a profit generally does not receive from the counterparty such profit until the delivery date, and likewise a trader with a position that has been offset at a loss generally does not have to pay money to the counterparty until the delivery date. In recent years, the terms of spot and forward contracts have become more standardized, and in many instances such contracts now provide a right of offset or cash settlement as an alternative to making or taking physical delivery of the underlying item. The spot and forward contract markets provide what has typically been a highly liquid market for currency trading, and in certain cases, particularly for large trades, the prices quoted for currency spot and forward contracts may be more favorable than the prices for currency futures contracts on exchanges. Spot and forward contracts on currencies are traded primarily in the interbank market. The interbank market is not a formally organized exchange; it is an informal network of trading relationships among world participants which include primarily major commercial banks and also investment banks, securities and commodities brokers and dealers, pension funds, insurance companies, investment companies, hedge funds, commodity pools, multinational corporations, and sophisticated individuals. In this market, transactions may be conducted in United States dollars or in most other currencies. Virtually all major currencies are traded in the interbank market. The role of banks in this market is particularly important because they maintain active currency trading operations and offer to buy and sell currencies to and from their customers and correspondent banks. Participants in the interbank market can also include any business or institution which buys or sells goods or services abroad and, as a result, has a need for currencies in making or receiving payment for those goods or services. The interbank market is a 24-hour worldwide market, with participants maintaining instantaneous communications with one another through telecommunications devices (e.g., telephones, computers, and telexes) which provide participants with access to the current prices at which other participants are willing to buy or sell currencies. Trading is generally conducted by telephone, with orders confirmed later by written confirmations. Centralization of the marketplace in time and location has generally tended to make the currency markets more liquid, and the volume and size of trades in the interbank market are both much greater than on commodity exchanges. Thus, whereas the futures market may be more liquid for smaller trades, the interbank market may more easily accommodate large trades and offers substantially more flexibility. Indeed, the existence of a 24-hour currency market is essential for commercial hedgers of foreign exchange risks. Neither the interbank market nor participation therein is subject to regulation by the United States Government or by any international agency. While banks and broker-dealers in the United States are subject to federal and/or state regulation, foreign banks, brokers, and dealers may not be subject to similar regulation. See "PRINCIPAL RISK FACTORS--TRADING OF SPOT AND FORWARD CONTRACTS." The term or maturity of a spot or forward contract is established by agreement between the two parties to the contract, and may range from several days to several years. Similarly, the quantity of a spot or forward trade is established by the parties themselves; there are no fixed contract quantities. Also, the price at which the agreed-upon quantity of an item is to be bought or sold is established at the time the spot or forward 59 contract is entered into. Prices in a currency spot or forward contract generally are expressed in terms of the amount of currency to be exchanged per one foreign currency unit (e.g., U.S. $1.50 per one British pound). Currency forward contracts are frequently used to protect the price at which goods or services are to be bought or sold against fluctuations in the value of a foreign currency between the time a commitment to buy or sell is made and the time the required payment is to be made. Thus, forward contract transactions of commercial users generally are made as part of a broader business transaction, and are not entered for the purpose of profiting from the forward contract transaction. See "PARTICIPANTS" below. Unlike certain commercial users of the forward markets, the Partnership engages in spot and forward contract trading for speculative purposes--making a profit from the relative movements of the prices of the commodity that is the subject of the contract between the time a position is taken in a contract (e.g., a sale) and the time the position matures or is offset by an opposite contract (e.g., a purchase) for the identical quantity of commodity at the identical maturity date. For example, the Partnership would sell a spot or forward contract for a given foreign currency (i.e., take a short position) if the Trading Advisor anticipates a decline in the price of that currency, and it would purchase a spot or forward contract for a foreign currency (i.e., take a long position) if the Trading Advisor anticipates an increase in the price of that currency. At the maturity of a spot or forward contract, the Partnership will make or take delivery of the underlying currency, or prior to the maturity the Trading Advisor may enter into another spot or forward contract that offsets its existing position or roll over the contract into another contract. The offsetting contract would have the same maturity date and would be for the same quantity of the foreign currency as the original contract. Subject to obtaining the prior consent of the requisite number of Partners, the Partnership intends to reduce the level of trading currency spot and forward contracts on margin or collateral, and will rely primarily on the use of BPL's credit and settlement and delivery lines to settle currency spot and forward contracts. The Trading Advisor might also buy and sell spot and forward contracts in two different foreign currencies at or about the same time, similar to a spread position, in order to take advantage of potential profit in the price relationship between the two currencies. Profits and losses then generally accrue as the price relationship changes between the two currencies. The interbank market consists of a direct dealing market and a brokers' market. In the direct dealing market, a participant trades directly with another participating bank, dealer, or financial institution. The Partnership trades in the direct dealing market. Generally, when the Trading Advisor determines that the Partnership will either sell or buy a particular currency, BPL does back-to-back principal trades with the Partnership and its counterparties. BPL, as principal, arranges bank lines of credit and settlement and delivery lines and contracts with banks and dealers to make or take future deliveries of specified quantities of currencies at negotiated prices. BPL, again as principal, in turn contracts with the Partnership to make or take future deliveries of the same specified quantities of currencies. BPL does not charge the Partnership any commissions or other fees for its services. In the brokers' market, brokers generally do not buy or sell currencies for their own accounts (although affiliates of brokers may be engaged in such trading) and do not guarantee performance by the parties to transactions they help to arrange. In the brokers' market, brokers may add a commission to the prices that they communicate to their customers, or they may incorporate a fee into the quotations they provide to the customer. See "PRINCIPAL RISK FACTORS-- TRADING OF SPOT AND FORWARD CONTRACTS." Swap transactions involving or relating to interest rates, currencies, commodity interests, securities interests, indices, prices, or other items have many of the same, if not identical, attributes as forward contracts. See "PRINCIPAL RISK FACTORS--TRADING OF SWAPS." 60 OPTIONS An option on a futures contract or on a physical commodity (a "commodity option") gives the buyer of the option the right to take a position at a specified price (i.e., the "striking," "strike," or "exercise" price) in the underlying futures contract or commodity. The buyer of a "call" option acquires the right to take a long position (i.e., the obligation to take delivery of a specified amount of a specified commodity) in the underlying futures contract or commodity, and the buyer of a "put" option acquires the right to take a short position (i.e., the obligation to make delivery of a specified amount of a specified commodity) in the underlying futures contract or commodity. The purchase price of an option is referred to as its "premium." The seller (or "writer") of an option is obligated to take a futures position or physical commodity at a specified price opposite to the option buyer if the option is exercised. Thus, the seller of a call option must stand ready to take a short position in the underlying futures contract or commodity at the strike price if the buyer exercises the option. The seller of a put option, on the other hand, must stand ready to take a long position in the underlying futures contract or commodity at the strike price if the buyer exercises the option. A call option is said to be "in-the-money" if the strike price is below the current market price of the underlying futures contract or physical commodity, and "out-of-the-money" if the strike price is above the current market price. Similarly, a put option is said to be "in-the-money" if the strike price is above the current market price of the underlying futures contract or commodity, and "out-of-the-money" if the strike price is below the current market price. Options have limited life spans, usually tied to the delivery or settlement date of the underlying futures contract or commodity. Some options, however, expire in advance of such date. An option that is out-of-the-money and not offset by the time it expires becomes worthless. On certain exchanges, in-the- money options are automatically exercised on their expiration date, but on others unexercised options simply become worthless after their expiration date. Options usually trade at a premium above their intrinsic value (i.e., the difference between the market price for the underlying futures contract or commodity and the strike price) because the option trader is speculating on (or hedging against) future movements in the price of the underlying futures contract or commodity. As an option nears its expiration date, the market and intrinsic value typically move into parity. The difference between an option's intrinsic value and market value is referred to as the "time value" of the option. The use of interrelated options and futures positions can provide an additional means of risk management and permit a trader to retain a futures contract position in the hope of additional appreciation in that position, while at the same time allowing the trader to limit the possible adverse effects of a decline in the position's value. Selling options creates additional risks. The seller of a call option who does not have a long position in the underlying futures contract or physical commodity is subject to risk of loss should the price of the futures contract or commodity be higher than the strike price upon exercise or expiration of the option by an amount greater than the premium received for selling the option. The seller of a call option who has a long position in the underlying futures contract or commodity is subject to the full risk of a decline in price of the contract or commodity reduced by the premium received for selling the option. In exchange for the premium received for selling a call option, the option seller gives up all of the potential gain resulting from an increase in the price of the underlying futures contract or commodity above the strike price upon exercise or expiration of the option. The seller of a put option who does not have a short position in the underlying futures contract or physical commodity is subject to risk of loss should the price of the contract or commodity decrease below the strike price upon exercise or expiration of the option by an amount in excess of the premium received for selling the option. The seller of a put option on a futures contract or commodity who has a short position in the underlying futures contract or commodity is subject to the full risk of a rise in the price in the futures 61 contract or commodity reduced by the premium received for selling the option. In exchange for the premium received for selling a put option, the option seller gives up all of the potential gain resulting from a decrease in the price of the futures contract or commodity below the strike price upon exercise or expiration of the option. See "PRINCIPAL RISK FACTORS--TRADING OF OPTIONS" and "INVESTMENT PROGRAM AND USE OF PROCEEDS--INVESTMENT PROGRAM--REGULATION." PARTICIPANTS The two broad classes of persons who trade commodity interest contracts are "hedgers" and "speculators." Commercial interests (including farmers) that market or process commodities and financial institutions that market or deal in commodities (including, for example, interest rate sensitive instruments, currencies, and stock portfolios), and which are exposed to exchange, interest rate, and stock market risks, may use the commodities markets primarily for hedging. Hedging is a protective procedure designed to minimize losses that may occur because of price fluctuations occurring, for example, between the time a merchandiser or processor makes a contract to buy or sell a commodity at a certain price and the time it must perform the contract. In such case, at the time the hedger contracts to buy the commodity at a future date, it will simultaneously buy futures or forward contracts for the necessary equivalent quantity of the commodity. At the time for performance of the contract, the hedger may accept delivery under its futures or forward contracts or it may buy the actual commodity and close out its position by making an offsetting sale of its futures or forward contracts. A hedger also may wish to protect against the risk of adverse interest rate shifts, and thus may purchase futures contracts for United States Government obligations to offset its interest rate liabilities. In the foreign exchange context, the need to hedge currency exposures arises because of the volatility of exchange rates. Such exposures include "translation exposures," which occur because of certain accounting rules when an entity must translate its foreign currency-denominated assets and liabilities into domestic currency on its financial statements. Such exposures also include "transaction exposures," which occur in connection with a transaction when an entity expects to receive payment or make payment in a foreign currency. The futures markets enable the hedger to shift the risk of price fluctuations to the speculator. The usual objective of the hedger is to protect the profit that he expects to earn from farming, merchandising, processing, other business operations, or investment activities rather than to profit from his trading. However, at times the impetus for a hedge transaction may result in part from speculative objectives. The speculator risks its capital with the hope of making profits from price fluctuations in commodity interest contracts. The speculator is, in effect, the risk bearer who assumes the risks that the hedger seeks to avoid. Speculators rarely take delivery of physical commodities but generally close out their positions by entering into offsetting purchases or sales of contracts. Since the speculator may take either a long or short position in the commodities markets, it is possible for it to make profits or incur losses regardless of whether prices go up or down. All trades made by the Partnership are for speculative, rather than for hedging, purposes. There are always two parties to a commodity interest contract; consequently, for any gain achieved by one party on a contract, a corresponding loss is suffered by the other. At most, only 50% of commodity interest contracts can experience gain at any one time, without reference to brokerage commissions and other transaction costs which may reduce or eliminate any gain that would otherwise be achieved. EXCHANGES Commodity exchanges provide centralized market facilities for trading futures contracts and options (but not spot and forward contracts) relating to specified commodities. Members of, and trades executed on, a particular exchange are subject to the rules of that exchange. Among the principal exchanges in the United 62 States are the Chicago Board of Trade, the Chicago Mercantile Exchange (including the International Monetary Market division thereof), the Commodity Exchange, Inc., and the New York Mercantile Exchange. Each of the commodity exchanges in the United States has an associated "clearinghouse." Once trades between members of an exchange have been confirmed, the clearinghouse becomes substituted for each buyer and each seller of contracts traded on the exchange, and in effect becomes the other party to each trader's open position in the market. Thereafter, each party to a trade looks only to the clearinghouse for performance. The clearinghouse normally establishes some sort of security or guarantee fund to which all clearing members of the exchange must contribute; this fund acts as an emergency buffer which enables the clearinghouse, at least to a large degree, to meet its obligations with regard to the "other side" of an insolvent clearing member's contracts. Furthermore, clearinghouses require margin deposits and continuously mark positions to market to provide some assurance that their members will be able to fulfill their contractual obligations. Thus, a central function of the clearinghouse is to ensure the integrity of trades, and members effecting transactions on an exchange need not worry about the solvency of the party on the opposite side of the trade; their only remaining concerns are the respective solvencies of their FCMs and the clearinghouse. The exchanges also impose speculative position limits and other restrictions on customer positions to help ensure that no single trader can amass a position that would have a major impact on market prices. See "PRINCIPAL RISK FACTORS--FAILURE OF BROKER OR EXCHANGE." The commodity exchanges in the United States and their clearinghouses are given reasonable latitude in promulgating rules to control and regulate their members. Examples of rules of exchanges and clearinghouses include the establishment of initial margin levels, size of trading units, contract specifications, speculative position limits, and daily price fluctuation limits. The CFTC reviews all such rules (other than those relating to specific margin levels for futures contracts, as opposed to options) and can disapprove or, with respect to certain of such rules, require the amendment or modification thereof. Some foreign exchanges differ in certain respects from their United States counterparts. In contrast to United States exchanges, many foreign exchanges are "principals' markets," where trades remain the liability of the individual traders involved, and the exchange does not become substituted for any party. The participants must satisfy themselves as to the individual creditworthiness of each entity with whom they enter into contracts. See "PRINCIPAL RISK FACTORS--TRADING ON FOREIGN EXCHANGES." SPECULATIVE POSITION LIMITS The CFTC and the United States commodity exchanges have established regulations referred to as "speculative position limits" or "position limits" on the maximum net long or net short speculative position which any person or group of persons (other than a hedger, which the Partnership is not) may hold, own, or control in certain futures or options contracts. Among the purposes of speculative position limits is to prevent a "corner" on a market or undue influence on prices by any single trader or group of traders. The CFTC has jurisdiction to establish position limits with respect to all commodities. The speculative position limits established by the CFTC apply to certain agricultural commodities, such as grains, soybeans, cotton, eggs, rye, corn, wheat, and potatoes. Certain exchanges or their clearinghouses also set limits on the total net positions that may be held by an FCM, such as the domestic Clearing Brokers. Speculative position limits are not applicable to bank or dealer forward contract, swap, or over-the-counter option trading or foreign commodity exchange trading, although the principals with which the Partnership may trade in such markets may impose such limits as a matter of credit policy. The commodity interest contract positions of the Partnership will not be attributable to Limited Partners in their own commodities trading, if any, for purposes of position limits. See "PRINCIPAL RISK FACTORS--EXISTENCE OF SPECULATIVE POSITION LIMITS MAY RESTRICT THE FULL APPLICATION OF THE TRADING ADVISOR'S TRADING STRATEGIES." 63 DAILY PRICE FLUCTUATION LIMITS Most United States commodity exchanges (but generally not foreign exchanges or banks or dealers in the case of spot, forward, or swap contract trading) normally limit the amount of fluctuation in futures and option contract prices during a single trading day (or part thereof) by regulations referred to as "daily price fluctuation limits" or "daily limits." The daily limits establish the maximum amount that the price of a futures or option contract may vary either up or down from the previous day's settlement price (or from the price earlier in the same trading day). Once the daily limit has been reached in a particular commodity interest contract, no trades may be made at a price beyond the limit. This can create liquidity problems. See "PRINCIPAL RISK FACTORS-- COMMODITY INTEREST CONTRACT TRADING MAY BE ILLIQUID." PRICES Commodity interest prices are volatile and, although ultimately determined by the interaction of supply and demand, are subject to many other influences, including the psychology of the marketplace and assessments of future world and economic events. See "PRINCIPAL RISK FACTORS--COMMODITY INTEREST CONTRACT TRADING IS SPECULATIVE AND VOLATILE." REGULATION For a discussion of the regulations applicable to the trading of futures contracts and commodity options, see "INVESTMENT PROGRAM AND USE OF PROCEEDS-- INVESTMENT PROGRAM--REGULATION." MARGINS "Initial" or "original" margin is the minimum amount of funds that must be deposited by a trader with his FCM in order to initiate futures contract trading or to maintain an open position in futures contracts. "Maintenance" margin is the amount (generally less than initial margin) to which a trader's account may decline before he must deliver additional margin. A margin deposit is like a cash performance bond. It helps ensure the trader's performance on the futures contracts he purchases or sells. Futures contracts are customarily bought and sold on margin that represents a very small percentage (ranging upward from less than 2%) of the purchase price of the underlying contract being traded. Because of such low margins, price fluctuations occurring in the futures markets may create profits and losses that are greater, in relation to the amount invested, than are customary in other forms of investment or speculation. The minimum amount of margin required in connection with a particular futures contract is set from time to time by the exchange on which such contract is traded, and may be modified from time to time by the exchange during the term of the contract. See "PRINCIPAL RISK FACTORS--COMMODITY INTEREST CONTRACT TRADING IS HIGHLY LEVERAGED." Brokerage firms carrying accounts for traders in futures contracts may not accept lower, and generally require higher, amounts of margin as a matter of policy in order to afford further protection for themselves. The Clearing Brokers require the Partnership to make margin deposits equal to the exchange minimum levels for all futures contracts. This requirement may be changed from time to time at the discretion of the Clearing Brokers. Trading in the spot and forward contract markets generally does not require margin, but generally does require the extension of credit by a bank or dealer with which a person trades. Since the Partnership's spot and forward contract trading is conducted with and through BPL, the Partnership is able to take advantage of BPL's credit lines with market participants, and is able to take advantage of BPL's credit and settlement and delivery lines with market participants. Most participants with which BPL and the Partnership trade require adequately secured credit and settlement and delivery lines or collateral with respect to their trading of currencies. 64 BPL requires good faith collateral deposits with it in amounts approximately equivalent to those required for trading foreign currency futures contracts on the Chicago Mercantile Exchange. The Partnership generally deposits such amounts with BPL in the forms of cash (and BPL pays the Partnership interest at a rate equivalent to the monthly average of the then-prevailing weekly 90-day United States Treasury bill auction rate) or interest-bearing obligations, such as United States Treasury bills (and the interest earned thereon accrues for the Partnership's account). BPL, in turn, normally is required to deposit all or a portion of such cash or securities with the dealers and banks with which BPL conducts back-to-back trades, as collateral in respect of such trades. Because performance of spot and forward contracts on currencies is not guaranteed by any exchange or clearinghouse, the Partnership is subject to the risk of the inability or refusal to perform with respect to such contracts on the part of the principals or agents with and through which the Partnership and other customers of BPL trade. In its spot and forward contract trading with and through BPL, the Partnership generally contracts directly with BPL. Accordingly, any failure or refusal by BPL, or any dealer or bank with which BPL contracts, to perform with respect to a contract, whether due to the insolvency, bankruptcy, default, delay, or other cause relating to BPL or any dealer or bank with which BPL contracts, could subject the Partnership to the risk of loss with respect to its good faith deposits and the full value of the underlying contracts. When a trader purchases an option, there is no margin requirement. When a trader sells an option, on the other hand, it is required to deposit margin in an amount determined by the margin requirements established for the futures contract or physical commodity underlying the option and, in addition, an amount substantially equal to the current premium for the option. The margin requirements imposed on the selling of options, although adjusted to reflect the probability that out-of-the-money options will not be exercised, can in fact be higher than those imposed in dealing in the futures markets directly. Complicated margin requirements apply to "spreads" and "conversions," which are complex trading strategies in which a trader acquires a mixture of related futures and options contract positions. Margin requirements are computed each day by a trader's FCM. When the market value of a particular open futures contract position changes to a point where the margin on deposit does not satisfy maintenance margin requirements, a "variation" margin call is made by the FCM. If the margin call is not met within the required time, the FCM may close out the trader's position. With respect to the Partnership's trading, the Partnership (and not the Limited Partners personally) is subject to margin calls. Major United States exchanges have certain combined margining arrangements involving procedures pursuant to which the futures and option contract positions held in an account would, in the case of certain accounts, be aggregated and margin requirements assessed on a portfolio basis, measuring the total risk of the combined positions. See "PRINCIPAL RISK FACTORS--COMMODITY INTEREST CONTRACT TRADING IS HIGHLY LEVERAGED," "INVESTMENT PROGRAM AND USE OF PROCEEDS," and "BROKERAGE ARRANGEMENTS." DISTRIBUTIONS The Limited Partnership Agreement, which does not provide for regular or periodic cash distributions, grants the General Partner sole discretion in determining the frequency and amount of distributions (other than on voluntary redemption of Units), if any, the Partnership will make to its Partners. However, no Partner will receive a distribution to the extent that, after giving effect to such distribution, all liabilities of the Partnership (other than liabilities to the Partners on account of their Partnership interests) will exceed the fair market value of the Partnership's assets. Any distributions made by the Partnership will be pro rata in accordance with the respective capital accounts of all Partners. See "PRINCIPAL RISK FACTORS-- PARTNER'S TAX LIABILITY MAY EXCEED DISTRIBUTIONS," "PERFORMANCE RECORDS OF THE PARTNERSHIP," and "TRANSFERS AND REDEMPTIONS." 65 THE LIMITED PARTNERSHIP AGREEMENT This Prospectus contains an explanation of the material terms and provisions of the Limited Partnership Agreement, a copy of which is annexed hereto as EXHIBIT A and is incorporated herein by this reference. The following description is a summary only, is not intended to be complete, and is qualified in its entirety by such reference. Nature Of The Partnership. The Partnership was formed on November 22, 1989 as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the "Partnership Act"). Units purchased and paid for pursuant to the Continuing Offering of Units will be fully paid and non-assessable. The Partnership may have a claim against a Limited Partner after his redemption of Units or receipt of distributions from the Partnership for liabilities of the Partnership that arose before the date of such redemption or distribution, but such claim will not exceed the sum of such Limited Partner's unredeemed capital contribution, undistributed profits, if any, and any redemptions and distributions received together with interest thereon. The Partnership will not make a claim against Limited Partners with respect to amounts distributed to them, paid to them in violation of the Partnership Act or the Limited Partnership Agreement, received by them upon redemption of Units, or otherwise paid to them unless the assets of the Partnership (including the General Partner's capital contribution) are insufficient to discharge liabilities of the Partnership that arose before the return of such amounts. The General Partner will be liable for all obligations of the Partnership to the extent that the assets of the Partnership (including amounts contributed by Limited Partners and paid out as distributions, redemptions, or otherwise to Limited Partners) are insufficient to discharge such obligations. The Limited Partnership Agreement provides that, if the Partnership is made a party to any claim, demand, dispute, or litigation or otherwise incurs any loss, liability, damage, cost, or expense as a result of, or in connection with, any Partner's (or his assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) will be obligated to indemnify, defend, hold harmless, and reimburse the Partnership for all loss, liability, damage, cost, and expense incurred, including attorneys' and accountants' fees and expenses. The Limited Partnership Agreement provides that the death, disability, legal incompetency, withdrawal, insolvency, termination, liquidation, or dissolution of a Limited Partner will not terminate or dissolve the Partnership, and that the legal representative of such Limited Partner has no right to withdraw or value his interest, except by redemption of Units. Each Limited Partner waives on behalf of himself and in the event of his death, on behalf of his estate the furnishing of any inventory, accounting, or appraisal of the Partnership's assets or any right to an audit or examination of the books of the Partnership. The Limited Partnership Agreement provides that the General Partner may, in its sole discretion at any time, require any Limited Partner to withdraw all or a portion of such Limited Partner's unredeemed capital contribution and undistributed profits, if any, from the Partnership at any month-end on 5 business days' written notice. Management Of Partnership Affairs. The Limited Partners do 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. Under the Limited Partnership Agreement, responsibility for managing the Partnership is vested solely in the General Partner. The General Partner may delegate complete trading authority to one or more trading advisors and has done so (except for the ability of the General Partner to override trading instructions that violate the Partnership's trading policies and to the extent necessary to fund distributions or redemptions, to effect the allocation or reallocation of the Partnership's assets among trading advisors, or to pay the Partnership's expenses) in the Management Agreement with TIC. However, the General Partner may make trading decisions at any time at which a trading advisor becomes incapacitated or some other emergency arises as a result of which such trading advisor is unable or unwilling to act or no trading advisor is then retained by the Partnership and the General 66 Partner has not yet retained a successor trading advisor. In addition, the General Partner is authorized and directed to manage the trading of the Partnership's assets itself. Although the General Partner does not presently contemplate doing so, the General Partner is also authorized to delegate trading authority with respect to all or a portion of the Partnership's assets to other trading advisors, and may do so in the future. See "THE TRADING ADVISOR." Other responsibilities of the General Partner include, but are not limited to, the following: determining whether the Partnership will make distributions; administering redemptions of Units; preparing monthly and annual reports to the Limited Partners; preparing reports, filings, registrations, and other documents required by applicable regulatory authorities; depositing the Partnership's assets in accounts at banks, brokers, and other depositories selected by the General Partner; borrowing money (but only in connection with depositing margin with respect to the initiation and maintenance of commodity interest contract positions or obtaining and utilizing lines of credit for the trading of spot and forward contracts, currency contracts, swaps, and related contracts); directing the investment of the Partnership's assets; negotiating, executing, delivering, and performing agreements necessary or desirable to carry out the purposes, business, and objectives of the Partnership, and executing various documents on behalf of the Partnership and the Limited Partners pursuant to the power of attorney described below. To facilitate the execution of various documents by the General Partner on behalf of the Partnership and the Limited Partners, each Limited Partner appoints the General Partner, with full power of substitution, such Limited Partner's agent and attorney-in-fact by executing the Subscription Agreement and Power of Attorney annexed hereto as EXHIBIT B or EXHIBIT C, as applicable. Sharing Of Profits And Losses: Monthly Allocations. Each Partner, including the General Partner, has a capital account with an initial balance equal to the amount such Partner paid for his interest in the Partnership. The Partnership's Net Assets are determined monthly at the close of business on the last day of each calendar month, and any increase or decrease from the end of the preceding month is added to or subtracted from the accounts of the Partners as follows: (1) the Partnership's Net Assets, before accrual of management and incentive fees for such month is determined (the "Adjusted Net Assets"); (2) any increase or decrease in Adjusted Net Assets as compared to the next previous determination of Net Assets is then credited or charged to the capital account of each Partner in the ratio that the balance of each Partner's capital account bears to the balance of all Partners' capital accounts; (3) accrued management fees and accrued incentive fees, if any, are then charged to the capital account of each non-Plan Investor Partner in the ratio that the balance of each such Partner's capital account bears to the balance of all Partners' capital accounts other than Plan Investor Partners' capital accounts; (4) the number of Units held by each Plan Investor Partner is then restated in order to equate the value of each Unit held by such Partner with the value of each Unit held by a non-Plan Investor Partner; and (5) the amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership is charged to that Partner's capital account. Sharing Of Profits And Losses: Federal Tax Allocations. As of the end of each calendar month, the Partnership's recognized profit and loss are allocated among the Partners, and each Partner is required to include in such Partner's personal federal income tax return such Partner's share of such items. Allocation of recognized gains or recognized losses will consist of pro rata shares of each item of capital or ordinary gain or loss. Any management fees or incentive fees payable to any affiliate of the General Partner and any brokerage commissions, transaction fees, or other fees or expenses payable to any affiliate of the General Partner are allocated pro rata among the Units of Partners, other than any Plan Investor Partners, based on the Units outstanding as of the beginning of the calendar month in which such items accrued. Items of ordinary income (such as interest) and ordinary expense not allocated pursuant to the preceding sentence are allocated pro rata among the Units of Partners based on the Units outstanding as of the beginning of the calendar month in which the items of ordinary income and ordinary expense accrued. 67 For the purpose of allocating the Partnership's net realized capital gain and loss among the Partners, an allocation account is established with respect to each Unit, the initial balance of which is generally the amount paid by the Partner for the Unit. The initial balance of the allocation account for a restated Unit of a Plan Investor Partner is an amount equal to a pro rata portion of the aggregate allocation accounts of the other Units owned by such Plan Investor Partner immediately before such Unit restatement, and the allocation accounts of the pre-existing Units held by such Plan Investor Partner are correspondingly reduced pro rata. As of the end of each calendar month, each outstanding Unit's allocation account is increased by the amount of income and gain allocated to the Partner holding the Unit, and decreased by the amount of loss and expense allocated to such Partner and by the amount of distributions made to such Partner. The allocation account with respect to a redeemed Unit is eliminated. Net recognized capital gain is allocated first to each Partner who has redeemed a Unit during the month up to the excess, if any, of the amount such Partner received on redemption over the allocation account as of the date of redemption with respect to the Unit redeemed. Net recognized capital gain remaining after the allocation to the Partners who redeemed Units is allocated among the Partners whose capital accounts are in excess of their Units' allocation accounts in the ratio that each such Partner's excess bears to all Partners' excesses. Any remaining net recognized capital gain is allocated among all Partners in proportion to their capital accounts. Net recognized capital loss is allocated first to each Partner who redeemed a Unit during the month up to the excess, if any, of the allocation account as of the date of redemption with respect to the Unit redeemed over the amount such Partner received on redemption. Net recognized capital loss remaining after the allocation to Partners who redeemed Units is allocated among the Partners who hold Units with allocation accounts which are in excess of the Partners' capital accounts in the ratio that each such Partner's excess bears to all such Partners' excesses. Any remaining net recognized capital loss is allocated among all Partners in proportion to their capital accounts. If a Unit has been assigned as permitted by the Limited Partnership Agreement, the above-described tax allocations are made with respect to the Unit without regard to the assignment, except that in the month of assignment the tax allocations are divided between the assignor and assignee based on the number of calendar days each held the assigned Unit during such month. Upon termination and dissolution of the Partnership, the assets of the Partnership will be distributed to each Partner in the ratio that each Partner's capital account bears to the capital accounts of all Partners. Additional Partners. The General Partner may at any time admit additional Limited Partners who purchase Units. Such newly-admitted Limited Partners may not pay less than the then-current Net Asset Value for the Units acquired. Additional general partners will not be admitted to the Partnership except by vote of the Limited Partners; provided, however, that at any time and from time to time in its sole discretion, the General Partner may admit additional general partners that are affiliated with the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns. Restrictions On Transfers Or Assignments. For a description of the restricitons on the ability of a Limited Partner to transfer, assign pledge, or encumber his Units, see "TRANSFERS AND REDEMPTIONS--TRANSFERS." Termination Of The Partnership. The affairs of the Partnership will be wound up and the Partnership liquidated as soon as practicable upon the first to occur of the following: (1) December 31, 2010; (2) the receipt by the General Partner of a notice setting forth an election to dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the Units then outstanding, which notice is delivered to the General Partner at least 90 days prior to the effective date of such dissolution; (3) the withdrawal, insolvency, termination, dissolution, or liquidation of the General Partner or of any successor entity thereof, unless the business of the Partnership is continued by any new, remaining, or successor general partner(s); (4) a decline in the Net Asset Value of a Unit as of the end of any calendar month to less than $500; (5) a 68 decline in the Partnership's aggregate Net Assets as of the end of any calendar month to less than $125,000; (6) upon the enactment of any law or the adoption of any rule, regulation, policy, or guideline by any regulatory authority having jurisdiction over the Partnership which would make it unlawful, unreasonable, or imprudent in the sole discretion of the General Partner for the principal business of the Partnership to be continued; (7) the Partners terminate the Partnership in accordance with the Limited Partnership Agreement; (8) a determination by the General Partner in its sole discretion either that the Partnership's assets in relation to its operating expenses make it unreasonable or imprudent to continue the business of the Partnership, or the General Partner no longer desires to make available the Partnership to, or operate the Partnership for, the persons permitted to become Limited Partners; or (9) the occurrence of any event requiring termination of the Partnership. The General Partner may not withdraw from the Partnership unless it has given the Limited Partners at least 90 days' prior written notice of its intention to withdraw. Amendments. The Limited Partnership Agreement may be amended only if the amendment is approved (in person or by proxy) and embodied in an instrument signed (personally or by an attorney-in-fact) by the General Partner and by Limited Partners owning more than 50% of outstanding Units and only if the amendment is made in accordance with and to the extent permissible under the Partnership Act. Any amendment to the Limited Partnership Agreement which is approved by Limited Partners owning the percentage of outstanding Units prescribed above will be deemed to have been approved by all Limited Partners and all outstanding Units. Notwithstanding the foregoing, the General Partner is authorized to amend the Limited Partnership Agreement without the consent of Limited Partners in order (1) to change the name of the Partnership, (2) to clarify any ambiguity, (3) to supplement or clarify any inconsistent provisions, (4) to effect the intent of the allocation provisions to the maximum extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations, (5) to attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes, (6) to attempt to ensure that the Partnership is not classified as a "publicly traded partnership" for federal income tax purposes, (7) to make any other amendment that is not adverse to the Limited Partners, or (8) to make any amendment that the General Partner deems advisable or considers necessary to comply with any applicable law, rule, regulation, or interpretation, provided that such amendment is not adverse to the Limited Partners. Upon the affirmative vote (in person or by proxy) of Limited Partners owning more than 50% of outstanding Units (excluding any Units owned by the General Partner), the following actions may be taken without the consent of the General Partner: (1) the Limited Partnership Agreement may be amended in accordance with, and to the extent permissible under, the Partnership Act and the Limited Partnership Agreement; (2) the Partnership may be dissolved; (3) the General Partner may be removed and a new general partner or partners may be elected to replace the General Partner; (4) a new general partner or partners may be elected prior to the withdrawal of the General Partner from the Partnership; (5) any contracts with the General Partner or any of its affiliates may be terminated without penalty on 60 days' prior written notice; or (6) the sale of all or substantially all of the assets of the Partnership may be approved. Without the consent of all Partners, no amendment to the Limited Partnership Agreement may reduce the capital account of any Partner, modify the percentage of profits, losses, or distributions to which any Partner is entitled, or modify the provisions of the Limited Partnership Agreement relating to amendments requiring the consent of all Partners. Books And Records. The books and records of the Partnership are maintained at its principal office. The Limited Partners have the right at all times during normal business hours to have access to and copy such books and records, upon at least 24 hours' prior written notice to the General Partner, in person or by their authorized attorney or agent, and upon request copies of such books and records will be sent to any Limited Partner if reasonable reproduction and distribution costs are paid by such Limited Partner. 69 PLAN OF DISTRIBUTION Units are offered and sold by the Partnership through Cargill Investor Services, Inc. (in such capacity, the "Selling Agent"), a Delaware corporation, an SEC-registered broker-dealer, and an NASD member firm, on a best efforts basis pursuant to a Selling Agreement. The Selling Agent is not affiliated with the General Partner, the Trading Advisor, BPL, or any of their affiliates. The Selling Agent also acts as a Clearing Broker for the Partnership, and acts as a selling agent and clearing broker for certain other investment funds sponsored and/or traded by the Trading Advisor and its affiliates. The Selling Agent is under no obligation to purchase Units, but is only required to use its best efforts to sell Units to investors. With the approval of the General Partner, the Selling Agent may appoint any broker-dealer, which is registered as such with the SEC and is a member as such of the NASD, to make offers or sales of Units. Additionally, with the approval of the General Partner, the Selling Agent may appoint, under certain circumstances, any foreign bank, dealer, institution, or individual which is ineligible for, or not subject to, SEC registration or NASD membership to make offers or sales of Units outside of the United States and its possessions and territories. The Selling Agent has agreed, under circumstances described in the Selling Agreement, to indemnify the Partnership against certain liabilities, including certain liabilities under the Securities Act of 1933 as amended, the Securities Exchange Act of 1934 as amended, and the CEAct arising from specific conduct by the Selling Agent. UNITS MAY ONLY BE SOLD TO AND HELD BY (i) EMPLOYEES OF THE GENERAL PARTNER, THE TRADING ADVISOR, ANY OF THEIR PRESENT OR FUTURE AFFILIATED ENTITIES, OR THEIR SUCCESSORS OR ASSIGNS, (ii) THE GENERAL PARTNER, THE TRADING ADVISOR, ANY OF THEIR PRESENT AND FUTURE AFFILIATED ENTITIES, AND THEIR SUCCESSORS AND ASSIGNS, AND (iii) THE TUDOR INVESTMENT CORPORATION 401(k) SAVINGS AND PROFIT- SHARING PLAN. See "TRANSFERS AND REDEMPTIONS--TRANSFERS." Units and fractions of Units (to the fourth decimal place) are offered for sale on a continuing basis (the "Continuing Offering") at quarterly closings held in the sole discretion of the General Partner as of January 1, April 1, July 1, and October 1 of each year or at such other times as the General Partner may at its sole discretion determine (the "Quarterly Closings"). There is no minimum offering amount. Units are sold at a price equal to 100% of the Net Asset Value of a Unit as of the opening of business on the date of the Quarterly Closing at which such Units are sold. During the Continuing Offering, the Net Asset Value of a Unit may increase or decrease substantially between the date of the submission of a subscription and the date of the Quarterly Closing at which such subscription is accepted by the General Partner. Consequently, a subscriber may receive at a Quarterly Closing more or fewer Units and/or fractions of Units than would be received if the Quarterly Closing were held on the date of the submission of the subscription. The Continuing Offering will continue for as long as there are registered Units which have not been subscribed for, unless the General Partner in its sole discretion at any time or from time to time withdraws or discontinues the Continuing Offering. A subscription received and not immediately rejected by the General Partner is held in a non-interest bearing escrow account (the "Escrow Account") maintained with United States Trust Company of New York, located in New York, New York (the "Escrow Agent"), until the General Partner either rejects such subscription prior to the applicable Quarterly Closing or accepts such subscription at such Quarterly Closing. Neither the Partnership nor any investor will pay any selling commissions to the Selling Agent in connection with subscriptions for Units. However, the General Partner (out of its own funds) may reimburse the Selling Agent for certain of its out-of-pocket administrative expenses and may otherwise compensate the Selling Agent for its selling efforts, to the extent permitted by applicable law. Historically, the Selling Agent has not requested, and has not received, reimbursement for its expenses. 70 SUBSCRIPTION PROCEDURE The minimum subscription per subscriber is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. Any subscriber may subscribe for amounts of Units in excess of the foregoing minimum in increments of $1,000. To subscribe for Units, a subscriber must complete, date, and sign a Subscription Agreement and other subscription documentation annexed hereto as EXHIBIT B, EXHIBIT C, and/or EXHIBIT D, as applicable (the "Subscription Agreement"), and must deliver the Subscription Agreement to the Selling Agent. Subscription funds are due upon delivery of the Subscription Agreement. As provided in the Subscription Agreement, a subscriber must pay for his subscription by either (1) delivering to the Selling Agent a check payable to "UNITED STATES TRUST COMPANY OF NEW YORK, AS ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", or (2) wire transferring Federal Funds to the Partnership's escrow account designated as "CHASE MANHATTAN BANK, NEW YORK, NEW YORK, ABA NO. 021000021, FOR CREDIT TO ACCOUNT NO. 9201073195, UNITED STATES TRUST COMPANY OF NEW YORK, FOR FURTHER CREDIT TO SUBSCRIPTION ACCOUNT NO. 098791, TUDOR FUND FOR EMPLOYEES L.P., REFERENCE: [SUBSCRIBER'S NAME]". Upon receipt of subscription funds, the Selling Agent promptly delivers the subscription funds to the Escrow Agent. All subscriptions for Units are irrevocable. The General Partner, in its sole discretion, may reject any subscription in whole or in part at any time prior to acceptance. Subscriptions must be received at least (i) 2 full business days in the case of checks drawn on New York City banks, (ii) 5 full business days in the case of checks drawn on out-of-town banks, or (iii) 1 full business day in the case of wire transfers, prior to any Quarterly Closing. If the General Partner does not receive a subscription within the prescribed time period prior to a Quarterly Closing, the subscription will be accepted or rejected at the next following Quarterly Closing. All Units subscribed for are issued subject to the collection of good funds. If at any time good funds representing payment for Units are not made available to the Partnership because a subscriber has failed to provide good funds, the General Partner will cancel the Units issued to the subscriber, and the subscriber's name will be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership in connection with the Partnership's trading allocable to such cancelled Units will be deemed a decrease or increase in Net Assets and allocated among the remaining Limited Partners. Each Limited Partner will reimburse the Partnership for any expense and loss (including any trading loss) incurred in connection with the issuance and cancellation of any Units issued to such Limited Partner. PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS Investment Considerations. The purchase of Units might or might not be a suitable investment for an employee benefit plan. Before proceeding with such a purchase, the person with investment discretion on behalf of an employee benefit plan must determine whether the purchase of Units is (a) permitted under the governing instruments of the plan, and (b) appropriate for the plan in view of its overall investment policy, the composition and diversification of its portfolio, and the considerations discussed below. In the case of participant directed, individual account plans, the participant considering an investment in Units must make these determinations with regard to such participant's account. For purposes of this discussion, the term "employee benefit plans" refers to plans and accounts of various types (including their related trusts) which provide for the accumulation of a portion of an individual's earnings or compensation, as well as investment income earned thereon, free from United States federal income tax until such time as funds are distributed from the plan. Such plans include corporate pension and profit sharing plans, so-called 401(k) plans, so-called "Keogh" plans for self-employed individuals (including 71 partners), "simplified employee pension plans," and, for purposes of this discussion, Individual Retirement Accounts for persons (including employees and self-employed persons) who receive compensation income as described in Section 408 of the Internal Revenue Code of 1986 as amended (the "Code"). As discussed below, the General Partner has determined that the TIC 401(k) Plan will, at present, be the only employee benefit plan permitted to invest in Units, and the Limited Partnership Agreement places certain restrictions on the extent to which any employee benefit plans in the aggregate may hold Units. Appropriate fiduciaries acting on behalf of investors which are employee benefit plans must complete in full, execute, and deliver to the General Partner or the Selling Agent, as the case may be, (1) a Subscription Agreement and Power of Attorney in the form provided by the General Partner and the Selling Agent, and (2) a check made payable to "UNITED STATES TRUST COMPANY OF NEW YORK, AS ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P." for the full amount of the subscription, or a federal funds wire transfer to the Escrow Agent pursuant to the instructions provided in the Subscription Agreement. See "SUBSCRIPTION PROCEDURE." If the assets of an investing employee benefit plan were to be treated, for purposes of the prohibited transaction and certain other of the fiduciary responsibility provisions of Title I of the Employee Retirement Income Security Act of 1974 as amended ("ERISA") and Section 4975 of the Code, as including the underlying assets of the Partnership, an investment in Units would, in general, be an inappropriate investment for the plan. The Department of Labor (the "DOL") has published regulations (the "Regulations") concerning whether or not the assets of an employee benefit plan would be deemed to include any of the underlying assets of an entity, such as a limited partnership, for purposes of the reporting, disclosure, and fiduciary responsibility provisions of ERISA if the employee benefit plan acquires an "equity interest" in such entity. The Regulations state that the underlying assets of an entity will not be considered to be "plan assets" of an investing employee benefit plan if (a) immediately after the most recent acquisition of an equity interest in the entity, whether or not from the issuer or an underwriter, less than 25% of the value of each class of equity interests in the entity is held by "benefit plan investors" i.e.,--employee benefit plans subject to ERISA, Individual Retirement Accounts, and other employee benefit plans not subject to ERISA (for example, governmental plans and plans maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens), (b) the equity interests acquired by employee benefit plans are "publicly-offered securities"--that is, they are widely held, freely transferable, and registered pursuant to certain provisions of the federal securities laws, or (c) the entity is an "operating company" as defined in the Regulations. The Partnership may issue Units to employee benefit plans meeting certain criteria discussed below, and from time to time in the future employee benefit plans might also acquire Units by transfer from existing Limited Partners. In keeping with the Regulations, the General Partner does not intend to accept subscriptions from an employee benefit plan, will not consent to the admission of an employee benefit plan as a substituted Limited Partner, and will require an employee benefit plan to which a transfer of Units has been made to redeem part or all of its Units if, after giving effect to such subscription, admission, or transfer, 25% or more of the value of all Units then outstanding would be deemed to be held by "benefit plan investors." For purposes of this 25% standard, the value of equity interests held by the General Partner or certain of its affiliates will be disregarded. Pursuant to the Limited Partnership Agreement, the General Partner in its sole discretion may, on five days' prior written notice, require a Limited Partner to withdraw all or any portion of its investment in the Partnership for any reason whatsoever, such as because the value of Units held by benefit plan investors, when considered against pending redemptions by non-Plan Investor Partners, would equal or exceed 25% of the value of all Units then outstanding, or because Units may be deemed to constitute assets of benefit plan investors. See "PRINCIPAL RISK FACTORS--LIMITED PARTNERS MAY BE REQUIRED TO WITHDRAW." 72 Generally, Units may not be purchased with the assets of an employee benefit plan if the General Partner or any of its affiliates either: (a) has investment discretion with respect to the investment of such plan assets; (b) has authority or responsibility to give or regularly gives investment advice with respect to such plan assets for a fee and pursuant to an agreement or understanding that such advice will serve as a primary basis for investment decisions with respect to such plan assets and that such advice will be based on the particular investment needs of such plan; or (c) is an employer maintaining or contributing to such plan. However, as authorized under the Limited Partnership Agreement, the General Partner has determined that, unless and until it decides to the contrary, the TIC 401(k) Plan (and no other plans) will be allowed to invest in Units. Participants in the TIC 401(k) Plan should review this Prospectus carefully before directing that any portion of their accounts be invested in Units. Such participants should consider, among other factors, the discussion set forth herein under "DESCRIPTION OF CHARGES TO THE PARTNERSHIP." After the considerations discussed above have been taken into account and if the purchase of Units is permitted by the General Partner and under the governing instruments of the employee benefit plan, the trustee or custodian of the plan might decide or be instructed to subscribe for Units. A fiduciary and/or plan participant subscribing for Units on behalf of a plan assumes responsibility for evaluating the appropriateness of the investment and should perform such person's duties with respect to the plan solely in the interest of the participants of the plan and with the care, skill, and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of a similar enterprise. Tax Considerations. Federal income tax consequences to employee benefit plans that subscribe for Units differ from those consequences pertaining to other types of Limited Partners based upon the Code and the rules and regulations promulgated thereunder and existing interpretations thereof, any of which could be changed at any time. Pension, profit sharing, and stock bonus plans qualified under Section 401(a) of the Code should consider the special tax rules relating to such plans before investing in the Partnership. Such employee benefit plans are generally exempt from federal income taxation except to the extent that their "unrelated business taxable income" under Section 512 of the Code exceeds $1,000 for any taxable year. Interest as well as gains or losses from the sale, exchange, or other disposition of property (including commodity interest contracts), other than inventory or property held primarily for sale in the ordinary course of trade or business, are excluded from the computation of unrelated business taxable income. The person with investment discretion on behalf of an employee benefit plan who is considering the purchase of Units should consult a professional tax adviser with regard to whether the purchase of Units might give rise to "unrelated business taxable income" under Section 512 of the Code. Although the IRS has issued favorable private letter rulings to taxpayers in somewhat similar circumstances, and there exists a favorable memorandum by the General Counsel of the IRS, other taxpayers may not use or cite such rulings or memorandum as precedent. See "FEDERAL INCOME TAX ASPECTS." ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR THE PARTNERSHIP THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY SUCH PLANS GENERALLY OR ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR PLANS GENERALLY OR ANY PARTICULAR PLAN. TRANSFERS AND REDEMPTIONS TRANSFERS A Limited Partner may only transfer, assign, pledge, or encumber his Units for the benefit of (i) another person who is an employee of the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns, (ii) the General Partner, the Trading Advisor, any of their 73 present or future affiliated entities, or their successors or assigns, or (iii) such other person or entity as the General Partner in its sole discretion may determine, which to date has only been the TIC 401(k) Plan. A Limited Partner's transferee, assignee, pledgee, or secured creditor may become a substituted Limited Partner, provided that there is compliance with the transfer provisions of the Limited Partnership Agreement, which provide, among other things, that: (a) any transfer, assignment, pledge, or encumbrance of Units which is permitted thereunder will be effective as of the last day of the calendar month in which such transaction occurs, provided that the Partnership need not recognize any transfer, assignment, pledge, or encumbrance until the General Partner has received at its principal office at least 30 days' prior written notice of such proposed transaction from the transferring Limited Partner; (b) such notice is signed by the transferring Limited Partner and sets forth the name, residence address, and social security or taxpayer identification number of the proposed transferee, assignee, pledgee, or secured creditor, the number of Units that are proposed to be transferred, assigned, pledged, or encumbered, and a certification that the proposed transferee, assignee, pledgee, or secured creditor is a person permitted by the Limited Partnership Agreement to own and hold Units; and (c) the transferring Limited Partner's signature is guaranteed by a commercial bank, a trust company, or a member of either a United States registered national securities exchange or the NASD, other than a sole proprietor. A transfer, assignment, pledge, or encumbrance of Units will not be effective and the General Partner need not recognize the transferee, assignee, pledgee, or secured creditor as a substituted Limited Partner if such transaction: (1) would be in violation of the Partnership Act; (2) would be in violation of applicable federal or state securities law or any applicable foreign law; (3) would adversely affect the classification of the Partnership as a partnership for United States federal income tax purposes; (4) would cause the transfer, assignment, pledge, or encumbrance to or for the benefit of a minor, an incompetent, a person who will become insolvent after such transaction, or a person not permitted to own and hold Units; (5) would adversely affect the status of Limited Partners as limited partners under the Partnership Act; or (6) would otherwise violate the Partnership Act or the transfer provisions of the Limited Partnership Agreement. Any transferee, assignee, pledgee, or secured creditor of Units who has not been admitted to the Partnership as a substituted Limited Partner will not have any of the rights of a Limited Partner, except that such person will receive the share of capital and profits and will have the right of redemption to which his transferor, assignor, pledgor, or debtor would otherwise have been entitled and will remain subject to the other terms of the Limited Partnership Agreement binding upon Limited Partners. A Limited Partner will bear all costs (including attorneys' and accountants' fees and expenses) related to any transfer, assignment, pledge, or encumbrance of his Units. A Limited Partner and his assignee, transferee, pledgee, personal representative, or estate may not withdraw any capital or profits from the Partnership except by redemption of Units. The General Partner, without notice to or consent of the Limited Partners, may withdraw any portion of its interest in the Partnership which is in excess of the interest required of it under the Limited Partnership Agreement. REDEMPTIONS Except as limited below, a Limited Partner may redeem all or part of his Units as of the last day of any calendar quarter--March 31, June 30, September 30, and December 31--at the Net Asset Value thereof on such date. A Limited Partner may redeem only in $1,000 increments and not in fractions of Units, unless he is redeeming his entire interest in the Partnership. Moreover, a Limited Partner may not make a partial redemption of Units which would reduce the Net Asset Value of the Units retained by such Partner (after giving effect to such redemption) to less than the amount of the minimum investment then required of new Limited Partners by the Partnership, and any request for partial redemption will be honored (to the nearest whole Unit) only to the extent it complies with such limitation. Notwithstanding the foregoing, the General Partner may, in its sole discretion, waive any of the foregoing restrictions. Redemptions are effective as of the close of business on the last day of the calendar quarter during which a Request for Redemption in proper form is received by the General Partner. A "Request for Redemption" 74 is a letter in the form specified by the General Partner, sent by a Limited Partner (or an assignee thereof) and received by the General Partner at least 5 business days prior to the end of the quarter in which redemption is to be effective. A form of Request for Redemption is annexed to the Limited Partnership Agreement as ANNEX A. Additional forms of Request for Redemption may be obtained by written or telephone request to the General Partner. Upon Redemption, a Limited Partner receives, for each full or partial Unit redeemed, an amount equal to the Net Asset Value of such Unit as of the redemption date, less any amount which is owed by such Partner to the General Partner or the Partnership in accordance with the Limited Partnership Agreement. For example, if, pursuant to applicable law, the Partnership has been required to pay or withhold tax on certain income of the Partnership allocable to a Limited Partner and the General Partner has paid such tax out of its own funds (which the General Partner is not obligated to do), upon redemption of Units by such Limited Partner the amount of the tax paid may be deducted from the Net Asset Value of the redeemed Units. In addition, upon redemption of Units, all amounts which are owed to the Partnership under the indemnification provisions of the Limited Partnership Agreement or otherwise will be deducted from the Net Asset Value of such Units. Limited Partners are not charged any redemption fee. The General Partner endeavors to pay redemptions no later than 20 business days after the applicable redemption date, and the Partnership's commodity interest contract positions will be liquidated to the extent necessary to effect redemptions. Under certain circumstances (including but not limited to the inability on the part of Partnership to liquidate positions or the default or delay in payments due the Partnership from banks, brokers, dealers, or other persons), the Partnership may delay payment to Limited Partners requesting redemption of the proportionate part of the Net Asset Value of the Units represented by the sums which are the subject of such default or delay. The right to obtain payment on redemption is contingent upon (1) the Partnership having assets on the redemption date sufficient to discharge its liabilities, (2) the receipt by the General Partner of a Request for Redemption in a timely manner as described above, and (3) otherwise satisfying the terms and conditions set forth in the Limited Partnership Agreement. The Limited Partnership Agreement also contains a mandatory redemption provision. The General Partner may, in its sole discretion, require a Limited Partner to withdraw entirely from the Partnership or to withdraw a portion of the Limited Partner's unredeemed capital contribution and undistributed profits, if any, as of the end of any month. The General Partner must give written notice to the affected Limited Partner, which notice must be mailed at least 5 business days prior to the applicable month-end. The Limited Partner will be obligated to redeem his Units from the Partnership as of the end of the month specified in such notice. The Limited Partner will receive an amount equal to the Net Asset Value of the redeemed Units less any amounts owed by the Limited Partner to the General Partner or the Partnership. The General Partner intends generally to require the withdrawal of a Limited Partner who ceases to be an employee or affiliate of the General Partner, the Trading Advisor, any of their present or future affiliated entities, or their successors or assigns. Also, affiliates of the General Partner have in the past required mandatory redemptions of funds managed by them in order to reduce assets under the management of the General Partner or its affiliates or to distribute trading profits, and they (and the General Partner) may do so again in the future. See "DISTRIBUTIONS." The liability of Limited Partners (including the possible liability of a Limited Partner who has redeemed Units, for liabilities of the Partnership which arose before such redemption) is described under "THE LIMITED PARTNERSHIP AGREEMENT--NATURE OF THE PARTNERSHIP." Federal income tax aspects of redemptions are described under "FEDERAL INCOME TAX ASPECTS." 75 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners. As of April 1, 1996, the only persons who owned more than five percent (5%) of the outstanding interests in the Partnership were:
NAME(1) ADDRESS NO. UNITS PERCENT - ------- ------- --------- ------- Second Management Company, Inc. .... One Liberty Plaza 642.943 19.1% (Succeeded by Second Management 51st floor LLC) New York, NY 10006 Christian J. Hore................... Eastdale East Road 243.047 7.2% St. Georges Hill Weybridge Surrey KT13OLF England Mark A. Heffernan(2)................ 98 Frognal 208.496 6.2% Hampstead NW3 England Tudor Investment Corporation 401(k) One Liberty Plaza 183.001 5.4% Savings and 51st Floor Profit-Sharing Plan................ New York, NY 10006 James J. Pallotta................... 61 Bristol Road 178.754 5.3% Wellesley, MA 02181
Security Ownership of Management. As of April 1, 1996, the General Partner and the executive officers and members of the Management Committee of the General Partner collectively owned 43.5% of the outstanding interests in the Partnership. As of April 1, 1996, in addition to the persons identified in the table above, Patrick A. Keenan, a principal of both the General Partner and the Trading Advisor, owned 36.53 Units (1.1%). Changes in Control. On April 4, 1996, as part of the reorganization of the Tudor Group of companies, the shareholders of Second Management Company, Inc. ("SMCI"), the immediately preceding general partner of the Partnership, merged SMCI into Second Management LLC, a newly-formed Delaware limited liability company and the general partner of the Partnership ("SML" or the "General Partner"). The General Partner is owned by holding companies, and such holding companies are owned by the former shareholders of SMCI in substantially the same proportions that such shareholders formerly owned SMCI. The General Partner acceded to all of the assets and liabilities of SMCI, including its rights and obligations under the Partnership's Limited Partnership Agreement to act as general partner of the Partnership. The members of the Management Committee of the General Partner (formerly certain of the shareholders of SMCI) do not believe that the merger has materially affected, or will materially affect, the conduct of its business or financial condition. The individual controlling persons, principals, officers, and employees have remained the same, and no registration has been materially affected. - -------- (1) The persons named in this table have sole voting and investment power with respect to all interests in the Partnership shown as beneficially owned by them, subject to community property or similar laws where applicable. (2) Mr. Heffernan is a Director of the Trading Advisor and a member of the Management Committee of the General Partner. FEDERAL INCOME TAX ASPECTS Introduction. The General Partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that, in its opinion, the following summary correctly describes the material United States federal income and certain other tax (herein "federal income tax") consequences to the Limited Partners of owning Units. The discussion is based upon the Internal Revenue Code of 1986 as amended (the "Code"), rulings thereon, 76 regulations promulgated thereunder, and the existing administrative and judicial interpretations thereof, any of which could be changed at any time and which changes could be retroactive. This discussion in general relates only to the tax implications of owning an interest in the Partnership by individuals who are citizens or residents of the United States or its states, territories, possessions, or areas subject to its jurisdiction. Except as indicated below or under "PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS," this discussion does not address the tax implications of owning an interest in the Partnership by corporations, partnerships, trusts, and other non-individuals. Moreover, this discussion is not intended as a substitute for careful tax planning, particularly since certain of the tax consequences of owning an interest in the Partnership may not be the same for all taxpayers, such as non- individuals or foreign persons. Partnership Status. The General Partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that, in its opinion under current federal income tax law, the Partnership will be classified as a partnership and not as an association taxable as a corporation. No ruling has been requested from the Internal Revenue Service (the "IRS") with respect to the classification of the Partnership, and the General Partner does not intend to request such a ruling. The advice of counsel described above is based upon the facts set forth herein, including that: (i) the General Partner will maintain a net worth equal to the sum of at least 10% of the total contributions to the Partnership by all Partners; (ii) the General Partner's interest in each item of the Partnership's income, gain, loss, deduction, or credit will be equal to at least 1% of each such item; and (iii) a principal activity of the Partnership consists of buying and selling of commodities not held as inventory or from futures, options, and forward contracts with respect to such commodities, and at least 90% of the Partnership's gross income consists of gains from such trading and interest income. Certain "publicly traded partnerships" are treated as corporations. While this treatment does not affect the Partnership, new legislation governing the taxation of limited partnerships may be enacted at any time and may apply to the Partnership retroactively. If a partnership were classified as an association taxable as a corporation, income or loss of such partnership would not be passed through to its partners, and such partnership would be subject to tax on its income without deduction for any distributions to its partners at the rates applicable to corporations. In addition, all or a portion of any distributions by such partnership to its partners could be taxable to the partners as dividends or capital gains. Partnership Taxation. PARTNERS, RATHER THAN PARTNERSHIP, SUBJECT TO FEDERAL INCOME TAX. The Partnership, as an entity, is not subject to federal income tax. Except as provided below with respect to certain nonresident aliens, each Limited Partner in computing his federal income tax liability for a taxable year is required to take into account his distributive share of all items of Partnership income, gain, loss, deduction, and credit for the taxable year of the Partnership ending within or with the taxable year of such Partner, regardless of whether such Partner has received any distributions from the Partnership. The characterization of an item of profit or loss is usually determined at the Partnership level. ORGANIZATION AND SYNDICATION COSTS. Neither the Partnership nor any Partner is entitled to any deduction for syndication expenses (i.e., amounts paid or incurred in connection with issuing and marketing Units). The General Partner initially paid the costs incurred in connection with the commencement of operations of the Partnership (the "Organization Costs") and has been reimbursed by the Partnership for such Organization Costs. ALLOCATION OF PARTNERSHIP PROFITS AND LOSSES. For federal income tax purposes, a Limited Partner's distributive share of items of Partnership income, gain, loss, deduction, and credit is determined by the Limited Partnership Agreement, annexed hereto as EXHIBIT A, unless an allocation under such Agreement does not have "substantial economic effect" or is not in accordance with the Partners' interests in the 77 Partnership. The allocations provided by the Limited Partnership Agreement are described under "THE LIMITED PARTNERSHIP AGREEMENT--SHARING OF PROFITS AND LOSSES: FEDERAL TAX ALLOCATIONS." In general, the Limited Partnership Agreement allocates items of ordinary income and expense pro rata among the Partners based upon their respective capital accounts as of the beginning of the month in which such items accrue. Net realized capital gain or loss is generally allocated among all Partners based upon their respective capital accounts. However, net realized capital gain or loss is allocated first to Partners who redeemed Units in the Partnership during a taxable year to the extent of the difference between the amount received on redemption and the allocation account as of the date of redemption attributable to the redeemed Units. Net realized capital gain for each year is allocated next among all Partners whose capital accounts are in excess of their Units' allocation accounts to the extent of such excess in the ratio that each such Partner's excess bears to all such Partners' excesses. Net realized capital loss for each year is allocated next among all Partners whose Units' allocation accounts are in excess of their capital accounts to the extent of such excess in the ratio that each such Partner's excess bears to all such Partners' excesses. These allocation provisions are designed to reconcile tax allocations to economic allocations. However, no assurance can be given that the IRS will not challenge such allocations, especially in light of recently-issued final Treasury Regulations. Although the allocations are generally consistent with recently-issued Treasury Regulations governing a "securities partnership," the Partnership may not technically qualify as a "securities partnership." Moreover, the application of such Regulations to the Partnership's tax allocations in respect of investors that redeem Units during a taxable year is unclear. If the allocations provided by the Limited Partnership Agreement are not recognized by the IRS for federal income tax purposes, the amount of income or loss allocated to the Partners for federal income tax purposes under the Limited Partnership Agreement may be increased or reduced or the character of such income or loss may be modified. Cash Distributions And Redemptions. Because of the special allocation of Partnership gain or loss upon a redemption of Units, distributions by the Partnership and amounts received upon the partial or complete redemption of a Limited Partner's Units normally will not be taxable to the Limited Partner. However, if cash distributions by the Partnership or amounts received upon redemption by a Limited Partner exceed such Partner's adjusted tax basis in his Units, the excess will be taxable to him as though it were a gain from a sale of the Units. A loss will be recognized upon a redemption of Units only if, following the redemption of all of a Limited Partner's Units, such Partner has any tax basis in his Units remaining. In such case, the Limited Partner will recognize loss to the extent of such remaining basis. See "PRINCIPAL RISK FACTORS--PARTNER'S TAX LIABILITY MAY EXCEED DISTRIBUTIONS" and "PRINCIPAL RISK FACTORS--REDEMPTION OF UNITS MAY PRODUCE NEGATIVE TAX CONSEQUENCES." Generally, if a Limited Partner has held his interest in the Partnership for more than one year, such gain or loss will be long-term capital gain or loss. Accordingly, the special allocation of Partnership gain or loss pursuant to a redemption of Units, which retains the same character as in the hands of the Partnership, may alter the character of a redeeming Partner's income. See "FEDERAL INCOME TAX ASPECTS--TAXATION OF LIMITED PARTNERS--TAX ON CAPITAL GAINS AND LOSSES." Gain Or Loss On Trading Activity. Because the Partnership purchases commodity interest contracts for its own account and not for the account of others and because the Partnership does not maintain an inventory of commodity interest contracts, except as described below with respect to certain foreign currency gain or loss, certain periodic income from notional principal contracts (such as swaps), and certain portions of the gain from "conversion transactions," for federal income tax purposes the profit and loss generated by the Partnership from its trading activities generally is capital gain and loss, which in turn may be either short-term, long-term, or a combination of both. For individuals, estates, and trusts, net long-term capital gains are taxed at a maximum marginal rate of 28%, while other income is taxed at a maximum marginal rate of 39.6%. Corporate taxpayers are subject to a maximum marginal tax rate of 35% on all income. Gain or loss with respect to a "Section 1256 contract" is generally treated as short-term capital gain or loss to the extent of 40% of such gain or loss, and long-term capital gain or loss to the extent of 60% of such gain or loss 78 ("60/40 tax regime"). Accordingly, an individual's gains from a Section 1256 contract are taxed at a maximum rate of 32.64%. Gain or loss with respect to capital assets that are not Section 1256 contracts or Section 988 contracts, such as non-currency forward contracts and swap agreements, generally will be long-term only if such property has been held for more than one year. Some of the commodity interest contracts entered into pursuant to the Partnership's trading activities are Section 1256 contracts. A Section 1256 contract includes a "regulated futures contract," a "foreign currency contract," a "nonequity option," and a "dealer equity option." A "regulated futures contract" is a futures contract which is traded on or subject to the rules of a national securities exchange which is registered with the SEC, a domestic board of trade designated as a contract market by the CFTC, or any other board of trade, exchange, or other market designated by the Secretary of the Treasury (a "qualified board or exchange") and which is "marked-to-market" to determine the amount of margin which must be deposited or may be withdrawn. A "foreign currency contract" is a contract which requires delivery of, or the settlement of which depends upon the value of, a foreign currency which is a currency in which positions are also traded through regulated futures contracts, which is traded in the interbank market, and which is entered into at arm's length at a price determined by reference to the price in the interbank market. A "nonequity option" is an option which is traded on a qualified board or exchange and the value of which is not determined directly or indirectly by reference to any stock (or group of stocks) or stock index unless (i) there is in effect a designation by the CFTC of a contract market for a contract based on such group of stocks or stock index, or (ii) such option is a cash-settled option on a stock index that the SEC has determined to be "broad-based." A "dealer equity option" is, with respect to an options dealer, any listed option which is an equity option, is purchased or granted by such options dealer in the normal course of his activity of dealing in options, and is listed on the qualified board or exchange on which such options dealer is registered. Each Section 1256 contract held at the end of the Partnership's taxable year will be treated as having been sold for its fair market value on the last day of such taxable year, and gain or loss will be taken into account for such year. Currency gain or loss from transactions in physical currencies, debt securities denominated in a foreign currency and certain other financial instruments (other than regulated futures contracts and nonequity options) is generally treated as ordinary income or loss under Section 988 of the Code. With respect to foreign currency futures contracts or option contracts that are not Section 1256 contracts or any foreign currency forward contract, any gain or loss on such contracts will be ordinary unless (i) the contract is a capital asset in the hands of the Partnership and is not part of a straddle transaction, and (ii) the Partnership makes an election (by the close of the day the transaction is entered into) to treat the gain or loss attributable to such contract as capital gain or loss. In addition, gain or loss with respect to foreign currency forward and futures contracts that are not traded on United States exchanges or on certain foreign exchanges designated as "qualified boards or exchanges" by the IRS ("foreign currency positions") is treated as capital gain or loss if held by an electing "qualified fund." In general, a "qualified fund" is an electing partnership that: (1) has at least 20 unrelated partners (no one of which owns more than 20% of the capital or profits of the partnership); (2) has as a principal activity the buying and selling of option, futures, or forward contracts with respect to commodities; and (3) receives at least 90% of its gross income from interest, dividends, gain from the sale or disposition of capital assets held for the production of interest or dividends, and income and gain from futures, forward, and option contracts with respect to commodities. All such foreign currency positions held by a qualified fund are treated as Section 1256 contracts (i.e., marked-to-market at year-end). Gain or loss with respect to "regulated futures contracts," "foreign currency contracts," and "nonequity options" is treated as 60% long-term gain or loss and 40% short-term gain or loss, and gain or loss with respect to all other foreign currency positions is treated as 100% short-term gain or loss. If the General Partner does not make (or cannot make) the qualified fund election with respect to the Partnership, the Partners may individually elect to have their share of foreign currency gain or loss from the Partnership's currency futures and options that are regulated futures contracts and nonequity options treated as ordinary gain or loss, rather than 60% long-term and 40% short-term capital gain or loss. Subject to certain limitations, a Limited Partner, other than a corporation, estate, or trust, may elect to carry back net Section 1256 contract losses to each of the three preceding years. Net Section 1256 contract 79 losses carried back to prior years may only be used to offset net Section 1256 contract gains. Generally, such losses are carried back as 40% short-term capital loss and 60% long-term capital loss. During taxable years in which little or no profit is generated from trading activities, a Limited Partner may still have interest income. The Partnership may engage in "spread and straddle" trading (i.e., holding offsetting positions whereby the risk of loss from holding either or both position(s) is substantially diminished). Realized losses with respect to any position in a spread or straddle are taken into account for federal income tax purposes only to the extent that the losses exceed unrecognized gain (at the end of the taxable year) from offsetting positions, successor positions, or offsetting positions to the successor positions. Thus, spreads or straddles may not be used to defer gain from one taxable year to the next. For purposes of applying the above rules restricting the deductibility of losses with respect to offsetting positions, if a Partner takes into account gain or loss with respect to a position held by the Partnership, the Partner will be treated as holding the Partnership's position, except to the extent provided otherwise in regulations. Accordingly, positions held by the Partnership may limit the deductibility of realized losses sustained by a Limited Partner with respect to positions held for his own account, and positions held by a Limited Partner for his own account may limit his ability to deduct realized losses sustained by the Partnership. Reporting requirements generally require taxpayers to disclose all unrecognized gains with respect to positions held at the end of the taxable year. The above principle, whereby a Limited Partner may be treated as holding Partnership positions, may also apply to require a Limited Partner to capitalize (rather than deduct) interest and carrying charges allocable to property held by him. Pursuant to current proposed and temporary United States Treasury regulations, the holding period of any position included in a straddle begins anew when the straddle is terminated unless the position was held for more than the long-term capital gain and loss holding period before the straddle was established. Further, the loss on any position included in a straddle will be treated as a long-term capital loss if, at the time the loss position was acquired, the taxpayer held offsetting positions with respect to such loss position that would give rise only to long-term capital gain or loss if disposed of on the same day. A portion of the gain on a "conversion transaction," including certain spread and straddle trading, may be characterized as ordinary income where substantially all the expected return is attributable to the time value of the net investment in the transaction. Where the positions of a straddle are comprised of both Section 1256 and non- Section 1256 contracts, the Partnership will be subject to the mixed straddle rules of the Code and the regulations promulgated thereunder. The appropriate tax treatment of any gains and losses from trading in mixed straddles will depend on which of the following four alternatives the General Partner elects to pursue in respect of the Partnership. The General Partner may elect to treat Section 1256 positions as non-Section 1256 positions, and the straddle would be subject to the rules governing non-Section 1256 straddles. Alternatively, the General Partner may identify the positions of a particular straddle as an "identified mixed straddle" under Section 1092(b)(2) of the Code, and thereby net the capital gain or loss attributable to the offsetting positions. The net capital gain or loss is treated as 60% long-term and 40% short-term capital gain or loss if attributable to the Section 1256 positions, or all short-term capital gain or loss if attributable to the non-Section 1256 positions. Alternatively, the General Partner may place the positions in a "mixed straddle account" which is marked-to-market daily. Under a special account cap, not more than 50% of net capital gain may be long-term capital gain and not more than 40% of net capital loss may be short-term capital loss. If the General Partner does not make any of the aforementioned three elections (and, to date, it has not), any net loss attributable to either the Section 1256 or the non-Section 1256 positions generally will be treated as 60% long-term and 40% short-term capital loss. Taxation Of Limited Partners. LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES. The amount of Partnership loss, including capital loss, which a Limited Partner is entitled to take into account for federal income tax purposes is limited 80 to the lesser of the tax basis of such Partner's Units or (in the case of certain Limited Partners, including individuals and closely-held C corporations) the amount for which such Partner is "at risk" with respect to such interest as of the end of the Partnership's taxable year in which such loss occurs. Generally, a Limited Partner's initial tax basis is the amount paid for each Unit. A Limited Partner's adjusted tax basis is his initial tax basis reduced by his share of Partnership distributions, losses, and expenses, and increased by his share of Partnership income, including gains. The amount for which a Limited Partner is "at risk" with respect to his interest in the Partnership is generally equal to his tax basis for such interest, less (i) any amounts borrowed in connection with his acquisition of such interest for which he is not personally liable and for which he has pledged no property other than his interest, (ii) any amounts borrowed from persons who have a proprietary interest in the Partnership, and (iii) any amounts borrowed for which the Limited Partner is protected against loss through guarantees or similar arrangements. Because of the limitations imposed upon the deductibility of capital losses referred to below, a Limited Partner's share of the Partnership's net capital losses, if any, will not materially reduce his federal income tax on his ordinary income. In addition, certain expenses of the Partnership might be deductible by a Partner only as so-called itemized deductions, and therefore will not reduce the federal taxable income of a Partner who does not itemize his deductions. Furthermore, an individual who is subject to the alternative minimum tax for a taxable year will not realize any tax benefit from such itemized deductions. LIMITATIONS ON DEDUCTIBILITY OF PASSIVE LOSSES. In general, losses from a passive activity ("passive losses") are disallowed to the extent such losses exceed income from all passive activities ("passive income"). A passive activity is defined as a trade or business in which the taxpayer does not materially participate unless otherwise provided in United States Treasury regulations. The General Partner has been advised by its legal counsel that the trading of personal property, such as commodities, is not treated as a passive activity under proposed and temporary United States Treasury regulations. Accordingly, a Limited Partner's distributive share of items of income, gain, deduction, or loss from the Partnership will not be treated as passive income or loss, and Partnership gains allocable to Limited Partners will not be available to offset passive losses from sources outside the Partnership. Partnership gains allocable to Limited Partners will, however, be available to offset losses with respect to "portfolio" investments, such as stocks and bonds. Moreover, any Partnership losses allocable to Limited Partners will be available to offset other income, regardless of source. Final Treasury regulations may modify the proposed and temporary regulations, and such regulations may be retroactive in effect. LIMITED DEDUCTION OF CERTAIN EXPENSES. Certain miscellaneous itemized deductions are deductible only to the extent that they exceed 2% of the adjusted gross income of an individual, trust, or estate. The Code also imposes additional limitations on the amount of certain itemized deductions allowable to individuals by reducing the otherwise allowable portion of such deductions by an amount equal to the lesser of (i) 3% of the individual's adjusted gross income in excess of certain threshold amounts and (ii) 80% of the amount of certain itemized deductions otherwise allowable for the taxable year. Based upon the contemplated activities of the Partnership, the General Partner has been advised by its legal counsel that various expenses incurred by the Partnership should not be subject to the 2% "floor" or the 3% "phase out" except to the extent that the IRS promulgates regulations that so provide. TAX ON CAPITAL GAINS AND LOSSES. For individuals, trusts, and estates, net long-term capital gains are taxed at a maximum marginal rate of 28%, while other income is taxed at a maximum marginal rate of 39.6%. Corporate taxpayers are subject to a maximum marginal tax rate of 35% on all income. The excess of capital losses over capital gains is deductible by an individual against ordinary income on a dollar-for-dollar basis, subject to an annual limitation of $3,000 ($1,500 for married individuals filing a separate return). As such, capital losses can offset gain attributable to Partnership ordinary income only to 81 the extent of such limit. Accordingly, Partners may be required to pay tax on such income even when losses are sustained by the Partnership. Excess capital losses may be carried forward. Net losses from Section 1256 contracts are treated as 60% long-term capital loss and 40% short-term capital loss. Such losses may, at the individual taxpayer's election, be carried back to each of the preceding three years and applied against gains from Section 1256 contracts. ALTERNATIVE MINIMUM TAX. An alternative minimum tax may be imposed on Limited Partners, depending on their particular circumstances. This tax, with respect to taxpayers other than corporations, will be assessed to the extent that 26% of the first $175,000 ($87,500 for married individuals filing a separate return) of "alternative minimum taxable income" in excess of the exemption amount ($45,000 in the case of married taxpayers filing joint returns or a surviving spouse, $33,750 in the case of an unmarried taxpayer who is not a surviving spouse, or $22,500 in the case of a married individual filing a separate return or an estate or trust) plus 28% of the balance of such excess exceeds the taxpayer's regular federal income tax liability (subject to special modifications) for the year. The alternative minimum tax exemption is phased out for individual taxpayers with alternative minimum taxable income in excess of $112,500 ($150,000 for married taxpayers filing a joint return and surviving spouses, and $75,000 for married taxpayers filing separate returns, estates, and trusts). "Alternative minimum taxable income" is equal to adjusted gross income computed without deducting normal net operating losses, less specified net operating losses, credits, trust distributions, and itemized deductions, and increased by certain tax preferences. Long-term capital gains are taxed at a maximum 28% rate for individuals, estates, and trusts. However, the limitation on the long-term capital gains rate does not give rise to an adjustment or increase in "alternative minimum taxable income." Therefore, transactions in Section 1256 contracts should not directly affect the application of the alternative minimum tax. The extent, if any, to which the alternative minimum tax will be imposed will depend on the overall tax situation of each Limited Partner at the end of each taxable year. LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS. Interest paid or accrued on indebtedness properly allocable to property held for investment is investment interest. Such interest is generally deductible by noncorporate taxpayers only to the extent it does not exceed net investment income. A noncorporate Limited Partner's distributive share of net Partnership income and any gain from the disposition of Units is treated as investment income, except that a Limited Partner's net capital gain from the disposition of Units is not investment income unless the Limited Partner waives the benefit of the 28% tax rate on such gain. It is not clear whether a Limited Partner's distributive share of Partnership net capital gain constitutes investment income where such gain is taxed at the maximum 28% rate. Interest expense incurred by a Limited Partner to acquire or carry his Units generally will be investment interest. Any investment interest disallowed as a deduction in a taxable year solely by reason of the limitation above is treated as investment interest paid or accrued in the succeeding taxable year. TAXATION OF FOREIGN LIMITED PARTNERS. A Limited Partner who is a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, or foreign estate (a "Foreign Limited Partner") generally is not subject to taxation by the United States on United States source capital gains from commodity trading for a taxable year, provided that such Foreign Limited Partner does not have certain present or former connections with the United States (e.g., if the Foreign Limited Partner (in the case of an individual) does not spend more than 182 days in the United States during his taxable year, or if the Foreign Limited Partner is not (and has not been) engaged in a trade or business within the United States during the taxable year to which income, gain, or loss from the Partnership is treated as effectively connected). As explained below, an investment in the Partnership should not, by itself, cause a Foreign Limited Partner to be engaged in a trade or business within the United States for the foregoing purposes. Pursuant to a "safe harbor" provision of the Code, a Foreign Limited Partner will not be engaged in a trade or business within the United States solely because such Foreign Limited Partner is a limited partner of a partnership which effects transactions in the United States in commodities for the partnership's own 82 account, as long as the partnership is not a dealer in commodities, the partnership only trades commodities which are of a kind customarily dealt in on an organized commodity exchange in transactions of a kind customarily consummated on such an exchange, and the principal business of the partnership is not trading in stocks or securities for its own account. It is anticipated that the Partnership will not be trading in stocks or securities for its own account as its principal business. It is anticipated that the Partnership's commodity interest contract transactions should satisfy the safe harbor provision. There is little guidance on whether certain types of transactions, such as certain swap transactions, are properly viewed as transactions in commodities, but the General Partner believes that such transactions should be so classified. Accordingly, owning an interest in the Partnership should not, by itself, cause a Foreign Limited Partner to be engaged in a trade or business within the United States. In the event that future Partnership transactions are not covered by the safe harbor, there is a risk that all of a Foreign Limited Partner's distributive share of income of the Partnership will be treated as effectively connected with the conduct of a trade or business in the United States and taxed at regular rates (discussed previously) and, in the case of a Foreign Limited Partner which is a foreign corporation, subject to an additional 30% branch profits tax (unless reduced or eliminated by treaty). If a Foreign Limited Partner is a dealer in commodities or otherwise is engaged in a United States trade or business and if income, gain, or loss from the Partnership is treated as effectively connected with such trade or business, the Partnership may be required to withhold tax on income allocable to such Foreign Limited Partner and remit to the IRS an amount equal to 39.6% (35% in the case of corporations) of the amount of such effectively connected taxable income allocable to such Foreign Limited Partner. Any amounts remitted will constitute a refundable credit against the Foreign Limited Partner's United States federal income tax liability, which can be claimed on the Foreign Limited Partner's U.S. federal income tax return. A Foreign Limited Partner generally is subject to a 30% withholding tax (unless reduced or exempted by treaty) on certain types of United States source income which are not effectively connected with the conduct of a United States trade or business, such as certain interest-bearing obligations, the income attributable to which is not exempt from tax. This tax must be withheld by the person having control over the payment of such income. Accordingly, the Partnership may be required to withhold tax on items of such income which are included in the distributive share (whether or not actually distributed) of a Foreign Limited Partner. However, 30% withholding is not required in respect of certain interest-bearing obligations, such as United States Treasury securities issued after July 18, 1984 (where procedural requirements are met). If the Partnership is required to withhold tax on the income of a Foreign Limited Partner, the General Partner may pay such tax out of its own funds and then be reimbursed out of the proceeds of any distribution to, or redemption of, Units by the Foreign Limited Partner. The estate of a deceased Foreign Limited Partner may be liable for U.S. estate tax, and may be required to obtain an estate tax release from the IRS in order to transfer the Units of such Foreign Limited Partner. FOREIGN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING WHETHER TO INVEST IN THE PARTNERSHIP. TAX ELECTIONS. The Code provides for optional adjustments to the basis of Partnership property upon distributions of Partnership property to a Partner (Section 734) and transfers of Units, including transfers by reason of death (Section 743), provided that the Partnership has made an election pursuant to Section 754. As a result of the complexities and added expense of the tax accounting required to implement such an election, the General Partner does not presently intend to make such an election in respect of the Partnership. Therefore, any benefits which might be available to Partners by reason of such an election will be foreclosed. TAX RETURNS AND INFORMATION. The General Partner files the Partnership's information return using the accrual method of accounting. The General Partner endeavors to furnish each Limited Partner (and the assignee of the Units of any Limited Partner), within 75 days after the close of the Partnership's taxable year, copies of (i) the Partnership's Schedule K-1 indicating the Limited Partner's distributive share of tax items 83 and (ii) such additional information as is reasonably necessary to permit the Limited Partners to prepare their own federal and state tax returns. PARTNERSHIP'S TAX ACCOUNTING. The Partnership has the calendar year as its taxable year. UNRELATED BUSINESS TAXABLE INCOME OF EMPLOYEE BENEFIT PLAN LIMITED PARTNERS AND OTHER TAX-EXEMPT INVESTORS. Income allocated to a Limited Partner which is an employee benefit plan or other tax-exempt entity (including Plan Investor Partners) should not be subject to tax under Section 511 of the Code. See "PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS." TAX AUDITS. All Partners are required under the Code to report all Partnership items on their own income tax returns consistent with the treatment by the Partnership, unless they file a statement with the IRS disclosing the inconsistencies. Adjustments in tax liability with respect to Partnership items are made at the Partnership level. The General Partner will be the "Tax Matters Partner," and will represent the Partnership during any audit and in any dispute with the IRS. Each Limited Partner will be informed by the General Partner of the commencement of an audit of the Partnership. In general, the Tax Matters Partner has the authority to bind certain Limited Partners (i.e., Limited Partners owning less than a 1% profits interest in the Partnership) to settlement agreements. However, prior to any such settlement, any such Limited Partner may file a statement with the IRS stating that the Tax Matters Partner does not have the authority to settle on behalf of such Limited Partner. The period for assessing a deficiency against a partner in a partnership, such as the Partnership, with respect to a partnership item is the later of three years after the partnership files its return or, if the name and address of the partner does not appear on the partnership return, one year after the IRS is furnished with the name and address of the partner. The General Partner may consent on behalf of the Partnership to the extension of the period for assessing a deficiency with respect to a Partnership item. As a result, a Limited Partner's federal income tax return may be subject to examination and adjustment by the IRS for a Partnership item more than three years after it has been filed. ---------------- All of the foregoing statements are based upon the existing provisions of the Code, the regulations promulgated thereunder, and the existing administrative and judicial interpretations thereof. No assurance can be given that legislative, administrative, or judicial changes will not occur which will modify such statements. The foregoing statements are not intended as a substitute for careful tax planning, particularly since certain of the federal income tax consequences of an interest in the Partnership may not be the same for all taxpayers. There can be no assurance that the Partnership's tax return will not be audited by the IRS or that no adjustments to the return will be made as a result of such audits. If an audit results in adjustment, Limited Partners may be required to file amended returns and their returns may be audited. Accordingly, prospective investors are urged to consult their own tax advisers with specific reference to their own tax situation under federal law and the provisions of applicable state, local, and foreign laws before subscribing for Units. STATE AND LOCAL INCOME TAX ASPECTS In addition to the federal income tax consequences described under "FEDERAL INCOME TAX ASPECTS," the Partnership and the Limited Partners may be subject to various state and local taxes. A Limited Partner's distributive share of the realized profits of the Partnership may be required to be included in determining such Partner's reportable income for state or local tax purposes. For example, Delaware, under whose law the Partnership is formed, does not impose an income tax on the Partnership with respect to its 84 income, but does impose an income tax on (i) each Partner who is a resident of Delaware and (ii) each Partner who is not a resident of Delaware based upon such Partner's share of any income derived from the Partnership's activities having sources within Delaware. State and local taxation of gains and losses from the Partnership may not reflect recent changes made to income tax law, and hence may be inconsistent with the federal income tax treatment of such gains and losses. Furthermore, state and local taxation of gains and losses from Section 1256 contracts may be inconsistent with the treatment of such gains and losses for federal income tax purposes. Accordingly, prospective investors should consult with their own tax advisers concerning the applicability of state and local taxes to an investment in the Partnership. The General Partner has been advised by its legal counsel, Cadwalader, Wickersham & Taft, that the Partnership should not be liable for New York City unincorporated business tax. Limited Partners who are nonresidents of New York State should not be liable for New York State personal income tax on their income from the Partnership. Likewise, Limited Partners who are nonresidents of New York City should not be liable for New York City earnings tax on their income from the Partnership. Limited Partners who are New York City residents may be subject to New York City personal income tax on their income from the Partnership. Because the Partnership conducts its business in the State and City of New York, corporate Limited Partners may be subject to the New York State franchise tax and the New York City general corporation tax by reason of their investment in the Partnership, unless certain exceptions apply. However, under recently-issued regulations, the Partnership may qualify as a "portfolio investment partnership" if it meets an annual gross income test, in which case non-New York corporate Limited Partners not otherwise subject to New York State franchise tax might not be subject to such tax solely by reason of their investment in the Partnership. No ruling from the New York State Department of Taxation and Finance or the New York City Department of Finance has been, or will be, requested regarding such matters. LIMITED PARTNERS MUST CONSULT THEIR OWN ADVISERS REGARDING THE POSSIBLE APPLICABILITY OF STATE, LOCAL, OR MUNICIPAL TAXES TO AN INVESTMENT IN THE PARTNERSHIP. POTENTIAL ADVANTAGES OF AN INVESTMENT IN THE PARTNERSHIP An investment in the Partnership is speculative and involves risks. See "PRINCIPAL RISK FACTORS." However, such an investment offers the following potential advantages. Market Diversification. An investor who is not prepared to spend substantial time trading various commodity interest contracts individually nevertheless may participate in the commodity markets through an investment in the Partnership, thereby obtaining diversification from investments in stocks, bonds, and real estate. The Trading Advisor believes, on the basis of past experience, that the profit potential of the Partnership does not depend upon favorable general economic conditions, and that the Partnership is as likely to be profitable during periods of declining markets as at any other time; conversely the Partnership may be unprofitable (as well as profitable) during periods of generally favorable economic conditions. Commodity Interest Contract Diversification. The Trading Advisor generally trades between 5 and 30 types of commodity interest contracts, but may trade a greater or lesser number of contracts from time to time. The Partnership is designed to afford investors a convenient vehicle for participating in a diverse range of world markets and positions within each market. Each Limited Partner obtains greater diversification in commodity interest contracts traded than would be possible trading individually, unless substantially more than the required minimum investment of $1,000 were committed to the commodities markets. See "THE TRADING ADVISOR." Limited Liability. Unlike an individual who invests directly in commodity interest contracts, a Limited Partner cannot be subjected individually to margin calls and cannot lose more than the amount of his 85 unredeemed capital contribution and undistributed profits, if any, and under certain limited circumstances amounts received by such Limited Partner as distributions and redemptions and interest thereon. See "THE COMMODITIES MARKETS," "THE LIMITED PARTNERSHIP AGREEMENT--NATURE OF THE PARTNERSHIP," and "TRANSFERS AND REDEMPTIONS." Professional Trading Management. Trading decisions for the Partnership are made by TIC. See "THE TRADING ADVISOR." The Trading Advisor's trading program is not available for investments as small as the required minimum investment in the Partnership. In addition, the rates for management and incentive fees payable by the Partnership are approximately one-half the rates normally charged to other customer accounts managed by the Trading Advisor and its affiliates. The actual performance record of the Partnership is described under "PERFORMANCE RECORD OF THE PARTNERSHIP. No assurance is given that the Partnership will not incur substantial losses in the future. Interest Income. A portion of the Partnership's assets is deposited and maintained in cash with the Partnership's Clearing Brokers and with BPL. At the direction of the General Partner, such brokers and dealers invest such assets in United States Treasury bills, or periodically credit all or a portion of the Partnership's assets with interest at a rate approximately equivalent to the prevailing Treasury bill rate, or do a combination of both. The balance of the Partnership's assets normally is held either in United States Treasury bills or notes at a Federal Reserve Bank or Clearing Broker or in other short-term investments, including interest-bearing accounts at banks, certificates of deposit, and commercial paper. The General Partner endeavors to earn interest on all of the Partnership's assets, although balances denominated in certain foreign currencies do not earn interest. See "INVESTMENT PROGRAM AND USE OF PROCEEDS." Brokerage Commissions. The Partnership pays to its Clearing Brokers brokerage commissions and other transaction fees at rates which are competitive with rates charged to large funds and other institutional traders. Such rates are generally lower than could be obtained by an individual investor unless substantially more than the minimum investment of $1,000 was deposited with such investor's broker. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP" and "BROKERAGE ARRANGEMENTS." Administrative Convenience. The Partnership is structured to provide Limited Partners with numerous services designed to alleviate the administrative details involved in engaging directly in commodity interest contract trading, and provides monthly and annual financial reports showing, among other things, the Net Asset Value of a Unit, trading profits or losses, and expenses. See "THE LIMITED PARTNERSHIP AGREEMENT." AUDITORS The independent public accounting firm retained by the Partnership and the General Partner is Arthur Andersen LLP, 1345 Avenue of the Americas, New York, New York 10105. LEGAL MATTERS Legal matters in connection with the Units have been passed upon for the Partnership and the General Partner by Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, New York 10038. Cadwalader, Wickersham & Taft also serves as regular legal counsel for the General Partner, and advises the General Partner with respect to its responsibilities as general partner of, and with respect to matters pertaining to, the Partnership. Cadwalader, Wickersham & Taft also serves as regular legal counsel to the Trading Advisor, BPL, and the affiliates of the foregoing. 86 ADDITIONAL INFORMATION This Prospectus does not contain all of the information set forth in the Registration Statement and the Exhibits relating thereto that have been filed with the Securities and Exchange Commission (the "SEC") in Washington, D.C. For further information pertaining to the Partnership and the Units offered hereby, reference is hereby made to the Registration Statement, including the Exhibits filed as part thereof. The Registration Statement and Exhibits as well as all reports, proxy, and information statements and any other information filed by or with respect to the Partnership are on file at the offices of the SEC, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at its regional offices located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and may be examined, without charge, at the offices of the SEC and at the regional offices described above, and copies may be obtained of all or part thereof from the SEC upon payment of the prescribed fees. GLOSSARY CERTAIN TERMS AND DEFINITIONS Knowledge of various terms and concepts relating to commodity interest contract trading and this offering is necessary for a prospective investor to determine whether to invest in the Partnership. "affiliate"--an affiliate of a person means (i) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of such person; (ii) any partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by such person; (iii) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with, such person; or (iv) any officer, director, or partner of such person. "break-even point"--the profit that the Partnership must realize in the first year of a participant's investment to equal all fees and expenses, such that the participant will recoup its initial investment. "brokerage commissions"--the fee charged by a broker or dealer for executing a trade in a commodity interest contract trading account of a customer. The Clearing Brokers charge the Partnership brokerage commissions at roundturn rates of between $9.14 and $21.14 for futures and option trades on United States exchanges (such rates include all transaction costs in connection with trading activities, including floor brokerage, exchange, clearing, clearinghouse, and NFA fees). For trades effected on exchanges and markets located outside of the United States, the rates charged per transaction are generally higher than the rates for transactions on United States exchanges. "call option"--an option which gives the buyer the right, but not the obligation, to take a long position in the underlying futures contract or physical commodity related to such option. "churning"--engaging in excessive trading with respect to a commodity interest contract trading account for the purpose of generating brokerage commissions. "commodity exchange"--a centralized market facility for trading futures contracts and options thereon relating to specified commodities. "commodity pool operator"--any person engaged in a business which is of the nature of an investment trust, syndicate, or similar form of enterprise and who, in connection therewith, solicits, accepts, or receives from others funds, securities, or property, either directly or through capital contributions, the sale of stock, 87 other forms of securities, or otherwise, for the purpose of trading futures contracts and options thereon on commodity exchanges. "commodity trading advisor"--any person who for compensation engages in the business of advising others, either directly or indirectly, as to the value of or the advisability of trading futures contracts or options thereon. "daily price fluctuation limits"--limits imposed by commodity exchanges on the amount of fluctuation in futures and option contract prices during a single trading day (or part thereof). "forward contract"--a contractual right to purchase or sell a specified quantity and type of a commodity at a specified date and place in the future at a specified price. It is distinguished from a futures contract in that it is not traded on an exchange and it contains terms and conditions specifically negotiated by the parties. "futures commission merchant"--a firm engaged in soliciting or accepting orders for the purchase or sale of futures contracts and options thereon on commodity exchanges and that in connection with such solicitation or acceptance of orders accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result therefrom. "futures contract"--a standardized contract made on a commodity exchange which calls for the future delivery of a specified quantity and type of a commodity at a specified price, time, and place. "halfturn commission"--with respect to option contracts, a halfturn commission is charged for the establishment of a position and another halfturn commission is charged for the liquidation of such position. "limit order"--an order to execute a trade at a specified price or better. As contrasted with a stop order, a limit order does not become a market order when the limit price is reached. "long position"--when a trader purchases a commodity interest contract in the relevant market. "margin"--good faith deposits with a broker to ensure fulfillment of a purchase or sale of a futures contract or, under certain circumstances, an option contract. "market order"--an order to execute a trade at the prevailing price as soon as possible. "Net Assets"--the total assets of the Partnership (including but not limited to all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all open commodity interest contract positions and all other assets of the Partnership) less the total liabilities of the Partnership (including but not limited to legal, accounting, and auditing fees, organizational and offering expenses, brokerage commissions and fees and other transaction costs, management fees and incentive fees, and extraordinary expenses, whether incurred or accrued), determined in accordance with the principles specified in the Limited Partnership Agreement or, where no principle is specified, in accordance with U.S. generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a commodity interest contract traded on a United States exchange or market means the settlement price on the exchange or market on which the particular commodity interest contract is traded by the Partnership on the day with respect to which Net Assets is determined; provided, however, that if a commodity interest contract could not have been liquidated on such day due to the operation of daily price fluctuation limits or other rules of the exchange or market upon which that contract was traded or otherwise, the settlement price on the first subsequent day on which the commodity interest contract could have been liquidated is the market value of such contract for such day. The market value of a forward contract, a futures contract traded on a foreign exchange or market, a swap contract, or other off-exchange contract, instrument, or transaction (including but not limited to an over-the-counter commodity option) means its market value as determined by the General Partner on a basis consistently applied. 88 "Net Asset Value per Unit"--the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the number of such Units outstanding on the date of calculation. "option"--an option on a futures contract or a physical commodity gives the buyer of the option the right, but not the obligation, to take a position at a specified price in the related underlying futures contract or commodity. "organizational and offering expenses"--costs incurred in the organization of the Partnership and the offering of Units, including legal, accounting and auditing fees, printing costs, filing fees, escrow agent fees, sales and marketing costs, and other related expenses. "principal"--when referring to a person that is a principal of a particular entity, means: (i) any person having the power to exercise a controlling influence over the activities of the entity; (ii) any holder or beneficial owner of ten percent or more of any class of outstanding interest in the entity; and (iii) any person who has contributed ten percent or more of the capital of the entity. "put option"--an option which gives the buyer the right, but not the obligation, to take a short position in the underlying futures contract or physical commodity related to such option. "pyramiding"--using unrealized profits on existing positions in a given commodity interest contract due to favorable price movements as margin specifically to buy or sell additional positions in the same or a related commodity interest contract. "realized profit or loss"--the profit or loss which is recognized after an open position is closed out at the current settlement price. "roundturn commission"--commodity brokerage commissions for trades on exchanges which are generally paid on the completion or liquidation of a trade and which cover both the initial purchase (or sale) of a commodity interest contract and the subsequent offsetting sale (or purchase) of such contract. "settlement price"--the closing price for futures or option contracts in a particular commodity established by the exchange or clearinghouse after the close of each day's trading. "short position"--when a trader sells a commodity interest contract in the relevant market. "speculative position limits"--limits established by the CFTC and United States commodity exchanges on the maximum net long or short speculative positions which a person or group of persons may hold, own, or control in certain commodity interest contracts. "spot contract"--a cash market transaction in which the buyer and seller agree to the immediate purchase and sale of a specific amount of a commodity, usually with a two-day settlement date. "stop order"--an order given to a broker to execute a trade in a commodity interest contract when the contract price reaches the specified stop order price. Stop orders become market orders when the stop price is reached. "Trading Profits"--net trading profits (realized and unrealized) attributable solely to commodity interest contract trading by the Trading Advisor as of the end of a calendar quarter, increased by any decline in Net Asset Value on redeemed Units and decreased by certain expenses allocable to the Partnership's assets, with such profits and items of increase and decrease determined from the end of the last calendar quarter in which an incentive fee was earned by the Trading Advisor to the end of the calendar quarter as of which such incentive fee calculation is being made. Trading Profits do not include any interest income earned by the Partnership on its assets. 89 "transaction fees and costs"--brokerage commissions, floor brokerage fees, exchange fees, clearing fees, clearinghouse fees, exchange, regulatory, and self-regulatory (including NFA) fees, give-up fees, transfer fees, dealer fees, mark-ups, custodial fees, delivery, insurance, and storage costs, and other fees, charges, expenses, and costs associated with the trading of commodity interest contracts. "unrealized profit or loss"--the profit or loss which could be realized on an open position if it were closed out at the current settlement price or market value. BLUE SKY GLOSSARY Prospective investors should be aware of the following definitions, reprinted verbatim from the "Guidelines for Registration of Commodity Pool Programs" adopted by the North American Securities Administrators Association, Inc., as revised in September 1993 (the "Guidelines"), which Guidelines are applied by certain state securities administrators in reviewing public offerings of "commodity pools" (such as the Partnership). For ease of reference, each of these definitions is followed by the comparable defined terms used in the Limited Partnership Agreement or this Prospectus, in brackets. "Affiliate"--an Affiliate of the General Partner means (a) any natural person, partnership, corporation, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of the General Partner; (b) any natural person, partnership, corporation, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the General Partner; (c) any natural person, partnership, corporation, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with the General Partner; or (d) any officer or director of the General Partner. ["Affiliate"--Page A-30] "Capital Contributions"--the total investment in a Program by a Participant or by all Participants, as the case may be. ["Unit of General Partnership Interest"--Page A-4; "Unit of Limited Partnership"--Pages A-3 and A-5] "Commodity Broker"--any person who engages in the business of effecting transactions in Commodity Contracts for the account of others or for his own account. ["brokers"--Page A-17; "Clearing Broker"--Page 50; "BPL"--Page 61] "Commodity Contract"--a contract or option thereon providing for the delivery or receipt at a future date of a specified amount and grade of a traded commodity at a specified price and delivery point. ["commodity interest contracts"--Pages A-2 and 2; "futures contracts"--Page 61; "spot and forward contracts"--Page 62; "swap transaction"--Page 13; "option"--Page 64] "Net Assets"--the total assets, less total liabilities, of the Program determined on the basis of generally accepted accounting principles. Net Assets shall include any unrealized profits or losses on open positions, and any fee or expense including Net Asset fees accruing to the Program. ["Net Assets" and "Net Asset Value per Unit"--Pages A-11-A-12] "Net Worth"--the excess of total assets over total liabilities as determined by generally accepted accounting principles. Net Worth shall be determined exclusive of home, home furnishings, and automobiles. ["net worth,"--as regards subscribers' investment requirements, is referenced on Pages 1, B-3 and D-1; as regards the General Partner's net worth requirement, Page A-4] "Participant"--the holder of a Program Interest. ["General Partner," "Limited Partners," "Partners"--Page A-1] "Person"--any natural Person, partnership, corporation, association, or other legal entity. [No comparable term] 90 "Program"--a limited partnership, joint venture, corporation, trust, or other entity formed and operated for the purpose of investing in Commodity Contracts. ["Partnership"--Page A-1] "Pyramiding"--a method of using all or part of an unrealized profit in a Commodity Contract position to provide margin for any additional Commodity Contracts of the same or related commodities. ["Pyramiding"--Page A-18] "Sponsor"--any Person directly or indirectly instrumental in organizing a Program or any Person who will manage or participate in the management of a Program, including a Commodity Broker who pays any portion of the Organizational Expenses of the Program, the general partner(s), and any other Person who regularly performs or selects the Person who performs services for the Program. Sponsor does not include wholly independent third parties such as attorneys, accountants, and underwriters whose only compensation is for professional services rendered in connection with the offering of the Units. The term "Sponsor" shall be deemed to include its Affiliates. ["General Partner"--Page A-1; "Trading Advisor"--Page 44] "Valuation Date"--the date as of which the Net Assets of the Program are determined. [No comparable term. For purposes of determining allocations to the capital accounts, Net Assets and Net Asset Value per Unit are determined as of the last day of each calendar month--Page A-8. For purposes of redemptions, Net Assets and Net Asset Value per Unit are determined as of the last day of each calendar quarter--Page A-25. For purposes of subscriptions, Net Assets and Net Asset Value per Unit are determined as of the first day of each calendar quarter--Page A-4] 91 I affirm that, to the best of my knowledge and belief, the information contained in the attached financial statements of Tudor Fund For Employees L.P. for the years ended December 31, 1995 and 1994, is accurate and complete. /s/ Mark F. Dalton -------------------- Mark F. Dalton President & Chief Operating Officer Second Management Company, Inc. General Partner /s/ Patrick A. Keenan ---------------------- Patrick A. Keenan Vice President & Chief Financial Officer Second Management Company, Inc. General Partner February 12, 1996 F-1 TUDOR FUND FOR EMPLOYEES L.P. ---------------------------- FINANCIAL STATEMENTS -------------------- AS OF DECEMBER 31, 1995 AND 1994 -------------------------------- TOGETHER WITH AUDITORS' REPORT ------------------------------ F-2 ARTHUR ANDERSEN LLP Report of Independent Public Accountants ----------------------------------------- To the Partners of Tudor Fund For Employees L.P.: We have audited the accompanying statements of financial condition of Tudor Fund For Employees L.P. (a Delaware limited partnership) as of December 31, 1995 and 1994, and the related statements of operations and changes in partners' capital for the years then ended. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tudor Fund For Employees L.P. as of December 31, 1995 and 1994, and the results of its operations for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York February 12, 1996 F-3 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1995 AND 1994 ASSETS 1995 1994 ------ -------------------------- Cash $2,986,405 $2,042,560 U.S. Government obligations -- 787,885 Equity in commodity trading accounts: Cash 1,349,843 409,469 U.S. Government Obligations 4,845,289 4,110,681 Net unrealized gain on open commodity 142,353 28,292 interests -------------------------- Total equity 6,337,485 4,548,442 Organizational Costs -- 5,000 -------------------------- Total assets $9,323,890 $7,383,887 ========================== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------- LIABILITIES: Pending partner additions $ 718,024 $ 468,798 Redemptions payable 392,382 161,442 Incentive fee payable 42,095 -- Management fee payable 13,636 1,473 Payable to general partner -- 5,833 Accrued professional fees and other 44,360 34,831 ---------------------- Total liabilities 1,210,497 672,377 ---------------------- PARTNERS' CAPITAL: Limited Partners, 10,000 units authorized and 2,190.191 and 2,409.778 units outstanding as of December 31, 1995 and 1994 6,272,162 5,297,977 General Partner, 642.943 units outstanding as of December 31, 1995 and 1994 1,841,231 1,413,533 ---------------------- Total partners' capital 8,113,393 6,711,510 ---------------------- Total liabilities and partners' $9,323,890 $7,383,887 capital ======================= The accompanying notes are an integral part of these statements. F-4 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 1995 1994 ------------------------- REVENUES: Net realized trading gain $2,134,865 $ 856,023 Change in net unrealized trading gain 113,562 (102,245) (loss) Interest income 409,148 274,503 ------------------------- Total revenues 2,657,575 1,028,281 ------------------------- EXPENSES: Brokerage commissions and fees 158,461 187,625 Management fee 155,378 150,566 Incentive fee 194,603 66,867 Amortization expense 5,000 10,000 Professional fees and other 95,409 87,751 Total expenses 608,851 502,809 ------------------------- Net income $2,048,724 $ 525,472 ========================= Limited Partners' Net income $1,621,026 $ 394,814 General Partner's Net income 427,698 130,658 ------------------------- Net income $2,048,724 $ 525,472 ========================= The accompanying notes are an integral part of these statements. F-5 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
LIMITED PARTNERS GENERAL PARTNER TOTAL NET ASSET VALUE UNITS CAPITAL UNITS CAPITAL CAPITAL PER UNIT -------------------------------------------------------------------------------------------- Partners' Capital, January 1, 1994 2,379.394 $ 4,894,911 1,595.791 $ 3,282,875 $8,177,786 $2,057.21 Net income --- 394,814 --- 130,658 525,472 Capital contributions 781.172 1,615,000 --- --- 1,615,000 Redemptions (750.788) (1,606,748) (952.848) (2,000,000) (3,606,748) --------------------------------------------------------------------------------- Partners' Capital, December 31, 1994 2,409.778 5,297,977 642.943 1,413,533 6,711,510 $2,198.53 --------------------------------------------------------------------------------- Net income --- 1,621,026 --- 427,698 2,048,724 TIC 401(k) Plan unit adjustment (a) 0.674 --- --- --- --- Capital contributions 489.296 1,197,007 --- --- 1,197,007 Redemptions (709.557) (1,843,848) --- --- (1,843,848) --------------------------------------------------------------------------------- Partners' Capital, December 31, 1995(b) 2,190.191 $ 6,272,162 642.943 $ 1,841,231 $ 8,113,393 $2,863.75 =================================================================================
(a) (See Note 3-Capital Accounts) (b) (See Note 4-Redemption of Units) The accompanying notes are an integral part of these statements. F-6 TUDOR FUND FOR EMPLOYEES L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (1) Organization and Business: -------------------------- Tudor Fund For Employees L.P. (the "Partnership") was organized under the Delaware Revised Uniform Limited Partnership Act on November 22, 1989, and commenced trading operations on July 2, 1990. Second Management Company, Inc. (the "General Partner") is the general partner for the Partnership. Ownership of limited partnership units is restricted to employees of Tudor Investment Corporation ("TIC") and its affiliates. The objective of the Partnership is to realize capital appreciation through speculative trading of commodity futures, forward and option contracts and other commodity interests ("commodity interests"). The Partnership will terminate on December 31, 2010 or at an earlier date if certain conditions occur as outlined in the Limited Partnership Agreement. Duties of the General Partner ------------------------------ The General Partner acts as the commodity pool operator for the Partnership and is responsible for the selection and monitoring of the commodity trading advisors and the commodity brokers used by the Partnership. The General Partner is also responsible for the performance of all administrative services necessary to the Partnership's operations. (2) Summary of Significant Accounting Policies: -------------------------------------------- Revenue Recognition -------------------- Commodity interests are recorded on the trade date at the transacted contract price and are valued at market. Brokerage Commissions and Fees ------------------------------- These expenses represent all brokerage commissions, exchange, National Futures Association and other fees incurred in connection with the execution of commodity interests trades. Commissions and fees associated with open trades at the end of the period are accrued on a round-turn basis. Incentive Fee -------------- The Partnership pays TIC, an affiliate of the General Partner, as trading advisor, an incentive fee equal to 12% of the Net Trading Profits (as defined by the Limited Partnership Agreement) earned as of the end of each fiscal quarter of the Partnership. Effective August 1, 1995, TIC has waived its right to receive incentive fees attributable to units held at the beginning of each month by the Tudor Investment Corporation 401(k) Savings and Profit Sharing Plan (the "TIC 401(k) Plan"). F-7 Management Fee --------------- The Partnership also pays TIC, for the performance of its duties, a monthly management fee equal to 1/6 of 1% (2% per annum) of the Partnership's net assets. Effective August 1, 1995, TIC waived its right to receive management fees attributable to units held at the beginning of each month by the TIC 401(k) Plan. Organizational and Offering Costs --------------------------------- The General Partner paid all of the offering ($128,220) and organizational ($55,000) costs incurred with the start up of the Partnership and the initial offering of units. The General Partner was reimbursed by the Partnership for offering expenses of $106,728 over the first 12 months of its operations and was being reimbursed for organizational expenses of approximately $48,200 since inception (July 1990) through June 1995. Foreign Currency Translation ---------------------------- Assets and liabilities denominated in foreign currencies are translated at year-end exchange rates. Gains and losses resulting from foreign currency transactions are calculated using daily exchange rates and are included in the accompanying statements of operations. U.S. Government Obligations ---------------------------- The Partnership invests varying amounts of its assets in U.S. Treasury bills. A portion of such bills are held in commodity trading accounts and are used to fulfill initial margin requirements. U.S. Treasury bills, with varying maturities through October 1996, are valued in the statements of financial condition at original cost plus accrued discount, which approximates the market value. These bills have a face value of $5,000,000 (cost $4,782,246 and $4,856,283) at December 31, 1995 and 1994. Use of Estimates ---------------- Certain estimates, as determined by the General Partner, were used in the preparation of these financial statements. (3) Capital Accounts: ------------------ Each partner, including the General Partner, has a capital account with an initial balance equal to the amount such partner paid for its units. The Partnership's net assets are determined monthly, and any increase or decrease from the end of the preceding month is added to or subtracted from the capital accounts of the partners based on the ratio that the balance of each capital account bears in relation to the balance of all capital accounts as of the beginning of the month. The number of units held by the TIC 401(k) Plan will be restated as necessary for management and incentive fees attributable to units held at the beginning of each month by the TIC 401(k) Plan to equate the per unit value of the TIC 401(k) Plan's capital account with the Partnership's per unit value. F-8 (4) Redemption of Units: ---------------------- At each quarter end, units are redeemable at the discretion of the limited partner. Redemption of units in $1,000 increments and full redemption of all units are made at 100% of the net asset value per unit effective as of the last business day of any quarter as defined in the Limited Partnership Agreement. Partial redemptions of units which would reduce the net asset value of a limited partner's unredeemed units to less than the minimum investment then required of new limited partners or such partner's initial investment, whichever is less, will be honored only to the extent of such limitation. (5) Income Taxes: -------------- No provision for income taxes has been made in the accompanying financial statements. Partners are responsible for reporting income or loss based upon their respective share of revenue and expenses of the Partnership. (6) Related Party Transactions: ---------------------------- The General Partner, due to its relationship with its affiliates and certain other parties, may enter into certain related party transactions. Bellwether Partners Inc. ("BPI"), a Delaware corporation and an affiliate of the General Partner, is the Partnership's primary forward contract counterparty and receives commissions on foreign exchange forward and commodity forward contracts. The Partnership typically has on deposit with BPI, as collateral for forward contracts, up to 20% of the Partnership's net assets. During 1995 and 1994, the Partnership paid commissions of $44,921 and $48,631 to BPI and received $45,659 and $22,681 in interest income for the amounts on deposit with BPI. At December 31, 1995 and 1994, the amount on deposit with BPI was $1,251,171 and $433,676 (including $29,090 and $46,895 in unrealized gains). Effective August 1, 1995, BPI ceased charging commissions for transacting the Partnership's foreign exchange forward and commodity forward contracts. Bellwether Futures Corporation, a New York "S" corporation qualified to do business in Illinois and an affiliate of the General Partner, receives give-up fees as compensation for managing the execution of treasury bond futures by floor brokers on the Chicago Board of Trade. TIC, an affiliate of the General Partner, receives incentive and management fees as compensation for acting as trading advisor (see Note (2) above). F-9 (7) Financial Instruments with Off-Balance Sheet Market Risk and Concentration -------------------------------------------------------------------------- of Credit Risk: --------------- The Partnership is a party to financial instruments with elements of off- balance sheet credit and market risk in excess of the amounts recognized in the statements of financial condition through its trading of financial futures, forwards, swaps and exchange traded and negotiated over-the- counter options. Exchange traded futures and option contracts are marked to market daily, with variations in value settled on a daily basis with the exchange upon which they are traded and with the futures commission merchant through which the commodity futures and options are executed. The Partnership has not taken or made physical delivery on futures contracts. The forwards are generally settled with the counterparty two days after the trade. At December 31, 1995 and 1994, the Partnership held financial instruments with the following approximate aggregate notional values (in millions): 1995 1994 --------------- Exchange Traded Contracts: - ------------------------- Interest Rate Futures and Option Contracts - --------------------------------- Domestic $ 2.4 $55.9 Foreign 5.2 --- Foreign Exchange Contracts - -------------------------- Financial Futures Contracts .4 1.2 Forward Currency Contracts 4.8 17.1 Equity Index Futures - -------------------- Domestic 6.2 .9 Foreign 1.9 --- Over-the-Counter Contracts: - -------------------------- Forward Currency Contracts 4.9 --- ---------------- Total $25.8 $75.1 ================ As of December 31, 1995 and 1994, there were no swaps outstanding. Notional amounts of these financial instruments are indicative only of the volume of activity and should not be used as a measure of market and credit risk. The various financial instruments held at December 31, 1995 and 1994 mature through the following dates: 1995 1994 ------------------------ Interest Rate Futures and Option March 1996 June 1995 Contracts Foreign Exchange Contracts March 1996 March 1995 Equity Index Futures March 1996 March 1995 Over-the-Counter Contracts January 5, 1996 --- F-10 The following table summarizes the year-end and the average assets and liabilities resulting from unrealized gains and losses on derivative instruments included in the statement of financial condition based on month- end balances (in thousands):
Exchange Traded Contracts: Assets Liabilities - ------------------------- 1995 Average 1995 Average Interest Rate Contracts --------------------- ------------------- - ----------------------- Domestic $ --- $ 8 $ 20 $10 Foreign 17 6 --- --- Foreign Exchange Contracts 28 22 --- 16 - -------------------------- Equity Index Futures - -------------------- Domestic --- 4 --- 15 Foreign --- 28 6 7 Over-the-Counter Contracts: - -------------------------- Forward Currency Contracts 72 30 --- 12 -------------------------------------------- Total $ 117 $98 $ 26 $60 ============================================
Net trading gains and losses from strategies that use a variety of derivative financial instruments are recorded in the statements of operations. The following table summarizes the components (in thousands) of trading gains and losses, net of commissions and fees, for the years ended December 31, 1995 and 1994: 1995 1994 ---------------------------- Interest Rate Futures and Option Contracts - ------------------------------------------ Domestic $ (48) $ 267 Foreign 18 1,160 Foreign Exchange Contracts 1,077 23 - -------------------------- Equity Index Futures - -------------------- Domestic (266) (158) Foreign 865 (301) Over-the-Counter Contracts 414 (280) - -------------------------- Non-Derivative Financial Instruments 29 (145) - ------------------------------------ -------------- ------------- Total $2,089 $ 566 ========= =========== F-11 In general, exchange traded futures and option contracts possess low credit risk as most exchanges act as principal to a futures commission merchant ("FCM") on all commodity transactions. Furthermore, most global exchanges require FCM's to segregate client funds to insure ample customer protection in the event of an FCMs default. The Partnership monitors the creditworthiness of its FCMs and counterparties and, when deemed necessary, reduces its exposure to these FCMs and counterparties. The Partnership's exposure to credit risk associated with the non-performance of these FCMs and counterparties in fulfilling contractual obligations can be directly impacted by volatile financial markets. A substantial portion of the Partnership's open financial futures positions were transacted with major international FCMs. BPI is the Partnership's primary forward contract counterparty (see Note (6) above). Notwithstanding the risk monitoring and credit review performed by the Partnership with respect to its FCMs and counterparties, including BPI, there always is a risk of non-performance. Generally, financial contracts can be closed out at the discretion of the trading advisor. An illiquid or closed market, however, could prevent the closeout of positions. F-12 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF FINANCIAL CONDITION MARCH 31, DECEMBER 31, 1996 1995 (UNAUDITED) (AUDITED) ----------------------------- ASSETS ------ Cash $4,408,609 $2,986,405 Equity in commodity trading accounts: Due From Broker 1,928,352 1,349,843 U.S. Government obligations 4,840,102 4,845,289 Net unrealized gain on open commodity interests 273,035 142,353 --------------------------- Total equity 7,041,489 6,337,485 --------------------------- Total assets $11,450,098 $9,323,890 =========================== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- LIABILITIES: Pending Partner Additions $1,080,068 $718,024 Redemptions payable 381,026 392,382 Incentive fee payable 131,741 42,095 Management fee payable 32,025 13,636 Accrued professional fees and other 49,920 44,360 --------------------------- Total liabilities 1,674,780 1,210,497 --------------------------- PARTNERS' CAPITAL: Limited Partners, 10,000 units authorized and 2,389.736 and 2,190.191 outstanding at March 31, 1996 and December 31, 1995 7,702,900 6,272,162 General Partner, 642.943 units outstanding at March 31, 1996 and December 31,1995 2,072,418 1,841,231 --------------------------- Total partners' capital 9,775,318 8,113,393 --------------------------- Total liabilities and partners' capital $11,450,098 $9,323,890 --------------------------- The accompanying notes are an integral part of these statements. F-13 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) MARCH 31, MARCH 31, 1996 1995 REVENUES: Net realized trading gains $1,116,079 $1,362,547 Change in net unrealized trading gains 130,428 272,498 Interest income 118,595 89,368 Total revenues 1,365,102 1,724,413 -------------------------- EXPENSES: Brokerage commissions and fees 40,416 63,042 Incentive fees 131,741 152,508 Management fees 47,961 38,917 Professional fees and other 24,730 18,000 Amortization expense ---- 2,500 Total expenses 244,848 274,967 -------------------------- Net income $1,120,254 $1,449,446 ========================== Limited Partners' Net Income 889,067 1,153,299 General Partner's Net Income 231,187 296,147 -------------------------- $1,120,254 $1,449,446 ========================== Change in Net Asset Value Per Unit $359.58 $460.62 ========================== Average Net Income Per Unit $358.15 $457.66 ========================== The accompanying notes are an integral part of these statements. F-14 TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
Limited Partners General Partner ------------------------------------- ---------------------------------- Units Capital Units Capital ------------------------------------- ---------------------------------- Partners' Capital, January 1, 1995 2,409.778 $ 5,297,977 642.943 $ 1,413,533 Net income - 1,621,026 - 427,698 TIC 401(k) Plan unit adjustment (a) 0.674 - - - Capital contributions 489.296 1,197,007 - - Redemptions (709.557) (1,843,848) - - ---------- ------------------- -------- ------------------ Partners' Capital, December 31, 1995 (b) 2,190.191 6,272,162 642.943 1,841,231 ---------- ------------------- --------- ------------------ Net income - 889,067 - 231,187 TIC 401(k) Plan unit adjustment (a) 2.005 - - - Capital contributions 315.749 922,696 - - Redemptions (118.209) (381,025) - - ---------- ------------------- -------- ------------------ Partners' Capital, March 31, 1996 (b) 2,389.736 $ 7,702,900 642.943 $ 2,072,418 ========== ================== ======== ================= Total Net Asset Value Capital Per Unit ------------------------------------ Partners' Capital, January 1, 1995 $ 6,711,510 $ 2,198.53 Net income 2,048,724 TIC 401(k) Plan unit adjustment (a) - Capital contributions 1,197,007 Redemptions (1,843,848) -------------- Partners' Capital, December 31, 1995 (b) 8,113,393 2,863.75 ------------------ Net income 1,120,254 TIC 401(k) Plan unit adjustment (a) - Capital contributions 922,696 Redemptions (381,025) ------------------ Partners' Capital, March 31, 1996 (b) $ 9,775,318 $3,223.33 ==================
(a) (See Note 3-Capital Accounts) (b) (See Note 4 -Redemption of Units) The accompanying notes are an integral part of these statements. F-15 NOTES TO FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) (1) ORGANIZATION ------------- Tudor Fund For Employees L.P. (the "Partnership") was organized under the Delaware Revised Uniform Limited Partnership Act (the "Act") on November 22, 1989, and commenced trading operations on July 2, 1990. Second Management Company, Inc., a Delaware corporation ("SMI"), was the general partner for the Partnership during the quarter ended March 31, 1996 and owned approximately 643 units of general partnership interest. Ownership of limited partnership units is restricted to employees of Tudor Investment Corporation ("TIC") and its affiliates and certain employee benefit plans. Effective April 4, 1996, SMI was merged into Second Management LLC, a Delaware limited liability company (together with SMI , the "General Partner"). The objective of the Partnership is to realize capital appreciation through speculative trading of commodity futures, forward, and option contracts and other commodity interests ("commodity interests"). The Partnership will terminate on December 31, 2010 or at an earlier date if certain conditions occur as outlined in its Limited Partnership Agreement. DUTIES OF THE GENERAL PARTNER ------------------------------- The General Partner acts as the commodity pool operator for the Partnership and is responsible for the selection and monitoring of the commodity trading advisor and the commodity brokers used by the Partnership. The General Partner is also responsible for the performance of all administrative services necessary to the Partnership's operations. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -------------------------------------------- ACCOUNTING POLICY ----------------- The financial statements presented have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management of the General Partner, include all adjustments necessary for a fair statement of each period presented. REVENUE RECOGNITION --------------------- Commodity interests are recorded on the trade date at the transacted contract price and valued at market. BROKERAGE COMMISSIONS AND FEES -------------------------------- These expenses represent all brokerage commissions, exchange, National Futures Association and other fees incurred in connection with the execution of commodity interest trades. Commissions and fees associated with open commodity interests at the end of the period are accrued on a round-turn basis. F-16 INCENTIVE FEE ------------- The Partnership pays TIC, as trading advisor, an incentive fee equal to 12% of the Trading Profits (as defined by the Limited Partnership Agreement) earned as of the end of each fiscal quarter of the Partnership. Effective August 1, 1995, TIC has waived its right to receive incentive fees attributable to units held at the beginning of each month by the Tudor Investment Corporation 401(k) Savings and Profit Sharing Plan (the "TIC 401(k) Plan"). MANAGEMENT FEE -------------- The Partnership also pays TIC, for the performance of its duties, a monthly management fee equal to 1/6 of 1% (2% per annum) of the Partnership's net assets. Effective August 1, 1995, TIC has waived its right to receive management fees attributable to units held at the beginning of each month by the TIC 401(k) plan. ORGANIZATIONAL AND OFFERING COSTS ---------------------------------- The General Partner paid all of the offering and organizational costs incurred in connection with the start up of the Partnership and the initial offering of units. The General Partner was reimbursed by the Partnership for offering expenses of $106,728 over the first 12 months of its operations and was reimbursed for organizational expenses of $48,200 from commencement of trading operations (July 1990) through June 1995. FOREIGN CURRENCY TRANSLATION ---------------------------- Assets and liabilities denominated in foreign currencies are translated at month-end exchange rates. Gains and losses resulting from foreign currency transactions are calculated using daily exchange rates and are included in the accompanying statements of operations. U.S. GOVERNMENT OBLIGATIONS --------------------------- The Partnership invests a varying amount of its assets in U.S. Treasury bills. A portion of such bills is held in commodity trading accounts and used to fulfill initial margin requirements. U.S. Treasury bills, with varying maturities through October 1996, are valued in the statements of financial condition at original cost plus accrued discount which approximates the market value. These bills had a face value of $5,000,000 (cost $4,751,711 and $4,782,246) at March 31, 1996 and December 31, 1995. (3) CAPITAL ACCOUNTS ---------------- Each partner, including the General Partner, has a capital account with an initial balance equal to the amount such partner paid for its units. The Partnership's net assets are determined monthly, and any increase or decrease from the end of the preceding month is added to or subtracted from the capital accounts of the partner based on the ratio that each capital account bears to all capital accounts as of the beginning of the month. The number of units held by the TIC 401(k) Plan will be restated as necessary for management and incentive fees attributable to units held at the beginning of each month by the TIC 401(k) Plan to equate the per unit value of the TIC 401(k) Plan's capital account with the Partnership's per unit value. F-17 (4) REDEMPTION OF UNITS ------------------- At each quarter-end, units are redeemable at the discretion of the limited partner. Redemption of units in $1,000 increments or a full redemption of all units are made at 100% of the net asset value per unit effective as of the last business day of any quarter as defined in the Limited Partnership Agreement. However, monthly redemptions have been required in the case of employee resignations. Partial redemptions of units which would reduce the net asset value of a limited partner's unredeemed units to less than the minimum investment then required of new limited partners or such partner's initial investment, whichever is less, will be honored only to the extent of such limitation. (5) INCOME TAXES ------------ No provision for income taxes has been made in the accompanying financial statements. Partners are responsible for reporting income or loss based upon their respective shares of revenue and expenses of the Partnership. (6) RELATED PARTY TRANSACTIONS -------------------------- The General Partner, due to its relationship with its affiliates and certain other parties, may enter into certain related party transactions. Bellwether Partners LLC ("BPL"), a Delaware limited liability company and an affiliate of the General Partner, is the Partnership's spot and forward contract counterparty and receives commissions on foreign exchange forward and commodity forward contracts. The Partnership typically has on deposit with BPL, as collateral for forward contract transactions, no more than 20% of the Partnership's net assets. Effective August 1, 1995, BPL ceased receiving commissions for transacting the Partnership's foreign exchange forward and commodity contracts. Bellwether Futures LLC, a Delaware limited liability company and an affiliate of the General Partner, receives give-up fees as compensation for managing the execution of treasury bond futures by floor brokers on the Chicago Board of Trade. TIC, an affiliate of the General Partner, receives incentive and management fees as compensation for acting as the Partnership's trading advisor (see Note 2). (7) FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION OF ---------------------------------------------------------------------- CREDIT RISK ----------- The Partnership is a party to financial instruments with elements of off- balance sheet credit and market risk in excess of the amount recognized in the statements of financial condition through its trading of financial futures, forwards, swaps and exchange traded and negotiated over-the- counter option contracts. F-18 Exchange traded futures contracts are marked to market daily, with variations in value settled on a daily basis with the exchange upon which they are traded and with the futures commission merchant through which the commodity futures and options are executed. The Partnership has not taken or made physical delivery on futures contracts. The forward contracts are generally settled with the counterparty at least two business days after the trade. At March 31, 1996 and December 31, 1995, the Partnership held financial instruments with the following approximate aggregate notional value (in millions): March December 1996 1995 ------------------ Exchange Traded Contracts: - ------------------------- Interest Rate Futures and Option Contracts - -------------------------------- Domestic $16.8 $ 2.4 Foreign 6.0 5.2 Foreign Exchange Contracts - -------------------------- Financial Futures Contracts 2.7 .4 Forward Currency Contracts 19.3 4.8 Equity Index Futures - -------------------- Domestic --- 6.2 Foreign 2.9 1.9 Over-the Counter Contracts: - -------------------------- Forward Currency Contracts 8.3 4.9 ------------------ Total $56.0 $25.8 ================== As of March 31, 1996 and December 31, 1995, there were no swaps outstanding. Notional amounts of these financial instruments are indicative only of the volume of activity and should not be used as a measure of market and credit risk. The various financial instruments held at March 31, 1996 and December 31, 1995 mature through, or matured on, the following dates: March 1996 December 1995 -------------------------------- Interest Rate Futures and Option June 1996 March 1996 Contracts Foreign Exchange Contracts June 1996 March 1996 Equity Index Futures June 1996 March 1996 Over-the Counter Contracts April 4, 1996 January 5, 1996 F-19 The following table summarizes the quarter-end and the average assets and liabilities resulting from unrealized gains and losses on derivative instruments included in the statement of financial condition based on month- end balances (in thousands): Assets Liabilities 1996 Average 1996 Average ------------------- ------------------ Exchange Traded Contracts: - ------------------------- Interest Rate Contracts - ----------------------- Domestic $110 $ 71 $ --- $ 7 Foreign 26 8 --- 2 Foreign Exchange Contracts 55 62 4 2 - -------------------------- Equity Index Futures - -------------------- Domestic --- 3 --- --- Foreign 90 202 --- --- Over-the-Counter Contracts: - -------------------------- Forward Currency Contracts --- --- 19 15 ----------------------------------------- Total $281 $346 $23 $26 ========================================= Net trading gains and losses from strategies that use a variety of derivative financial instruments are recorded in the statements of operations. The following table summarizes the components (in thousands) of trading gains and losses, net of commissions and fees, for the three months ended March 31, 1996 and 1995: 1996 1995 ------------------ Interest Rate Futures and Option Contracts - -------------------------------- Domestic $ 167 $ (219) Foreign 93 (26) Foreign Exchange Contracts 539 1,019 - -------------------------- Equity Index Futures - -------------------- Domestic (117) (65) Foreign 602 871 Over-the-Counter Contracts (72) (72) - -------------------------- Non-Financial Derivative Instruments (6) 64 - ------------------------------------ ------------------- Total $1,206 $1,572 =================== F-20 In general, exchange traded futures and option contracts possess low credit risk as most exchanges act as principal to a futures commission merchant ("FCM") on all commodity transactions. Furthermore, most global exchanges require FCMs to segregate client funds to insure ample customer protection in the event of an FCM's default. The Partnership monitors the creditworthiness of its FCMs and counterparties and, when deemed necessary, reduces its exposure to these FCMs and counterparties. The Partnership's exposure to credit risk associated with the non-performance of these FCMs and counterparties in fulfilling contractual obligations can be directly impacted by volatile financial markets. A substantial portion of the Partnership's open financial futures positions were transacted with major international FCMs. BPL is the Partnership's spot and forward contract counterparty (see Note (6) above). Notwithstanding the risk monitoring and credit review performed by the Partnership with respect to its FCMs and counterparties, including BPL, there always is a risk of non-performance. The Partnership's exposure to credit risk associated with the non- performance of these counterparties in fulfilling contractual obligations can be directly impacted by volatile financial markets. Generally, financial contracts can be closed out at the discretion of the trading advisor. However, an illiquid market could prevent the closeout of positions. F-21 SECOND MANAGEMENT COMPANY, INC. ------------------------------- FINANCIAL STATEMENTS --------------------- AS OF DECEMBER 31, 1995 AND 1994 -------------------------------- TOGETHER WITH AUDITORS' REPORT ------------------------------ F-22 ARTHUR ANDERSEN LLP Report of Independent Public Accountants ---------------------------------------- To the Shareholders of Second Management Company, Inc.: We have audited the accompanying statements of financial condition of Second Management Company, Inc. (a Delaware corporation) as of December 31, 1995 and 1994, and the related statements of operations, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Second Management Company, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP New York, New York February 12, 1996 F-23 SECOND MANAGEMENT COMPANY, INC. STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1995 AND 1994 1995 1994 ----------------------------- ASSETS ------- Cash $ 20,223 $ 9,784 Investment in limited partnership 1,841,229 1,413,530 Receivable from affiliate 2,283,000 2,422,000 Other assets 5,425 5,830 ----------------------------- Total assets $ 4,149,877 $3,851,144 ============================= LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ LIABILITIES: Payable to affiliate $ 4,182 $ 7,568 ----------------------------- Total liabilities 4,182 7,568 ----------------------------- SHAREHOLDERS' EQUITY: Common stock - $0.01 par value, 1,000,000 shares authorized and issued 10,000 10,000 Retained earnings 4,412,111 3,870,966 Less: Treasury stock, at cost (71,588 (276,416) (37,390) and 10,000 shares) ----------------------------- Total shareholders' equity 4,145,695 3,843,576 ----------------------------- Total liabilities and shareholders' equity $4,149,877 $3,851,144 ============================= The accompanying notes are an integral part of these statements. F-24 SECOND MANAGEMENT COMPANY, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 1995 1994 ------------------------ REVENUES: Increase in fair value of limited $ 427,699 $130,637 partnership Interest 208,543 122,208 ------------------------ Total revenues 636,242 252,845 ------------------------ EXPENSES: Professional fees 82,874 85,521 Other expenses 11,459 25,646 ------------------------ Total expenses 94,333 111,167 ------------------------ Net income $541,909 $ 141,678 ======================== The accompanying notes are an integral part of these statements. F-25 SECOND MANAGEMENT COMPANY, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Common Stock in Common Stock Treasury Retained ----------------------------------- ---------------------------------- Shares Amount Shares Amount Earnings -------------- -------------- -------------- -------------- -------------- Balance, January 1, 1994 1,000,000 $ 10,000 -- $ -- $3,729,288 Net income -- -- -- -- 141,678 Treasury stock acquired -- -- 10,000 (37,390) -- -------------- -------------- -------------- -------------- -------------- Balance, December 31, 1994 1,000,000 10,000 10,000 (37,390) 3,870,966 Net income -- -- -- -- 541,909 Treasury stock acquired -- -- 64,886 (251,758) -- Treasury stock reissued -- -- (714) 2,757 21 Options exercised -- -- (2,584) 9,975 (785) -------------- -------------- -------------- -------------- -------------- Balance, December 31, 1995 1,000,000 $ 10,000 71,588 $ (276,416) $4,412,111 ============= ============= ============= ============= =============
Total Shareholders' Equity --------------- Balance, January 1, 1994 $ 3,739,288 Net income 141,678 Treasury stock acquired (37,390) ------------ Balance, December 31, 1994 3,843,576 Net income 541,909 Treasury stock acquired (251,758) Treasury stock reissued 2,778 Options exercised 9,190 --------------- Balance, December 31, 1995 $ 4,145,695 ==============
The accompanying notes are an integral part of these statements. F-26 SECOND MANAGEMENT COMPANY, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 1995 1994 ------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 541,909 $ 141,678 Non-cash item included in net income: Increase in fair value of limited (427,699) (130,637) partnership (Increase) decrease in operating assets: Receivable from affiliate 139,000 (2,422,000) Other assets 405 11,942 ------------------------- Net (increase) decrease in operating 139,405 (2,410,058) assets ------------------------- Increase (decrease) in operating liabilities: Payable to affiliate (3,386) 4,509 ------------------------- Net increase (decrease) in operating (3,386) 4,509 liabilities ------------------------- Net cash provided by (used in) 250,229 (2,394,508) operating activities ------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Redemption of units in limited -- 2,000,000 partnership ------------------------- Net cash provided by investing -- 2,000,000 activities ------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Acquisition of treasury stock (251,758) (37,390) Reissuance of treasury stock 2,778 -- Exercise of options 9,190 -- ------------------------- Net cash used in financing activities (239,790) (37,390) ------------------------- Net increase (decrease) in cash 10,439 (431,898) Cash, beginning of the year 9,784 441,682 ------------------------- Cash, end of the year $ 20,223 $ 9,784 ========================= The accompanying notes are an integral part of these statements. F-27 SECOND MANAGEMENT COMPANY, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 (1) ORGANIZATION AND BUSINESS: -------------------------- Second Management Company, Inc. (the "Company"), a Delaware corporation, was incorporated in June 1986. The Company is registered as a Commodity Pool Operator. The Company serves as the general partner of the Tudor Fund For Employees L.P. ("Employee Fund"). The Employee Fund was formed to engage in speculative trading of commodity interests, including futures and forward contracts and options on futures and forward contracts. Another affiliate of the Company, Tudor Investment Corporation ("TIC"), functions as the Commodity Trading Advisor for the Employee Fund. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------- Investment In Limited Partnership --------------------------------- The investment in the Employee Fund is carried in the accompanying statements of financial condition at fair value based upon the net asset value of the Employee Fund as determined by the Company in its role as general partner. Use of Estimates ---------------- Certain estimates, as determined by management, were used in the preparation of these financial statements. (3) INVESTMENT IN LIMITED PARTNERSHIP: ---------------------------------- As of December 31, 1995 and 1994, the Company owned 643 general partnership units valued at $1,841,229 and $1,413,530 which represents approximately 23% and 21% of the total net assets of the Employee Fund, respectively. The Company participates in the profits and losses of the Employee Fund on a pro-rata (unit for unit) basis with all limited partners. TIC, as the Commodity Trading Advisor for the Employee Fund, receives a 12% incentive fee on new trading profits determined quarterly and a 2% management fee per annum. The Employee Fund is a party to financial instruments with elements of off- balance sheet credit and market risk in excess of the amounts recognized in the statements of financial condition through its trading of financial futures, forwards and options contracts. Risk to the Employee Fund arises from the possible adverse changes in the market value of such interests and the potential inability of counterparties to perform under the terms of their respective contracts. The risk to the Company, with reference to its general partnership interest in the Employee Fund, may exceed its investment in this partnership. In management's opinion, the settlement of these transactions will not have a material adverse effect on the financial condition of the Company. F-28 - 2 - (4) RELATED PARTY TRANSACTIONS: --------------------------- From time to time, the Company has advanced funds to affiliates, including TIC, Tudor Global Trading, Inc., Tudor Arbitrage Partners, L.P., Tudor Proprietary Trading, L.L.C. and Bellwether Futures Corporation, in varying amounts and for various periods at market rates of interest. During the years ended December 31, 1995 and 1994, the Company received $208,543 and $115,671, respectively, of interest income from affiliates. (5) PROFESSIONAL FEES: ------------------ These expenses represent ongoing operational and administrative expenses such as legal, audit and accounting fees. (6) STOCK OPTION PLAN: ------------------ The Company granted 5,625 options, 10,000 options and 51,743 options, on January 1, 1993, August 1, 1993, and January 1, 1995, respectively. These options were granted to certain officers and key employees to purchase identical percentage interests of shares and partnership units of the Company and certain of its affiliates (the "Tudor Group Entities"). These options were exercisable at the fair value of the stock and partnership units at the date of grant. The difference between fair value at grant date and exercise date has been recorded as compensation expense by the Tudor Group Entities to which the participants primarily devote their services. Of the 5,625 options granted on January 1, 1993, 3,812 options were outstanding at December 31, 1994. Of the 10,000 options granted on August 1, 1993, all were outstanding at December 31, 1994. In connection with the reorganization of the Tudor Group Entities which took effect with the commencement of business in 1996 (see Note 8), all outstanding options as of December 13, 1995 (11,228 granted during 1993 and 51,743 granted during 1995) were cancelled and the holders of such options received an amount equal to the difference between the current fair value of the stock or partnership units and the value of such stock or units at the date of grant. That amount has been recorded as compensation expense by the respective Tudor Group Entities to which the participants primarily devote their services. (7) INCOME TAXES: ------------- The Company has elected "S" Corporation tax status pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended. Accordingly, the Company is not liable for federal income tax. The Company is liable for state and local income taxes in certain jurisdictions. Such taxes are included as other expenses in the accompanying statements of operations. F-29 - 3 - (8) SUBSEQUENT EVENT: ----------------- Upon the commencement of business in 1996, certain affiliates of the Company will be reorganized. Certain affiliates will be converted from "S" corporations to newly-formed limited liability companies whose membership interests will be contributed to Tudor Group Holdings LLC ("TGH"), a newly- formed Delaware limited liability company. In April 1996, in conjunction with the reorganization, the shareholders of the Company intend to change the legal form of organization of the Company from an "S" corporation to a limited liability company. The membership interests in TGH will be held by the shareholders of the Company in substantially the same proportions that such shareholders hold shares of the Company at December 31, 1995. Following the reorganization, TGH will hold a 99% membership interest in each of the newly-formed limited liability companies, including Second Management LLC, the successor to the Company. The shareholders of the Company do not expect this reorganization to materially affect the conduct of the Company's business or the Company's financial condition. The individual controlling persons, principals, officers, and employees of the Company are expected to remain the same. F-30 SECOND MANAGEMENT LLC STATEMENT OF FINANCIAL CONDITION APRIL 4, 1996 ASSETS ------ Cash $ 15,532 Investment in limited partnership 2,116,241 Receivable from affiliate 2,330,972 ------------ Total assets $ 4,462,745 ============ LIABILITIES AND MEMBERS' CAPITAL - -------------------------------- LIABILITIES: Accounts payable $ -- ------------ Total liabilities -- ------------ MEMBERS' CAPITAL: Total members' capital 4,462,745 ------------ Total liabilities and $ 4,462,745 members' capital ============ F-31 SECOND MANAGEMENT COMPANY LLC NOTES TO FINANCIAL STATEMENTS APRIL 4, 1996 (Unaudited) (1) ORGANIZATION AND BUSINESS: -------------------------- SECOND MANAGEMENT LLC (the "Company"), a Delaware limited liability company organized April 4, 1996, commenced operations on April 4, 1996 pursuant to the reorganization discussed in Note 4. The company is registered as a Commodity Pool Operator. The company serves as the general partner of the Tudor Fund For Employees L.P. ("The Employee Fund"). The Employee Fund was formed to engage in speculative trading of commodity interests, including futures and forward contracts and options on futures and forward contracts. Another affiliate of the Company, Tudor Investment Corporation ("TIC"), functions as the Commodity Trading Advisor for the Employee Fund. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------- Investment In Limited Partnership --------------------------------- The investment in the Employee Fund is carried in the accompanying statements of financial condition at fair value based upon the net asset value of the Employee Fund as determined by the Company in its role as general partner. Use of Estimates ---------------- Certain estimates, as determined by management, were used in the preparation of these financial statements. (3) INVESTMENT IN LIMITED PARTNERSHIP: ---------------------------------- As of April 4, 1996 the Company owned 643 general partnership units valued at $2,116,241 which represents approximately 20% of the total net assets of the Employee Fund. The Company participates in the profits and losses of the Employee Fund on a pro-rata (unit for unit) basis with all limited partners. TIC, as the Commodity Trading Advisor for the Employee Fund, receives a 12% incentive fee on new trading profits determined quarterly and a 2% management fee per annum. The Employee Fund is a party to financial instruments with elements of off- balance sheet credit and market risk in excess of the amounts recognized in the statements of financial condition through its trading of financial futures, forwards and options contracts. Risk to the Employee Fund arises from the possible adverse changes in the market value of such interests and the potential inability of counterparties to perform under the terms of their respective contracts. The risk to the Company, with reference to its general partnership interest in the Employee Fund, may exceed its investment in this partnership. In management's opinion, the settlement of these transactions will not have a material adverse effect on the financial condition of the Company. F-32 (4) REORGANIZATION: --------------- Prior to the commencement of business on April 4, 1996, the Company's "predecessor", Second Management Company, Inc. ("SMCI"), was merged into the Company. In connection with such merger, the shareholders of SMCI contributed their shares of SMCI to a limited liability company which, following such contribution held, and continues to hold a 99% membership interest in the Company. The membership interests in such limited liability company are held by the former shareholders of SMCI in substantially the same proportions as their former share holdings in SMCI. The Company does not expect its reorganization to materially affect the conduct of the Company's business or the Company's financial condition. The individual controlling persons, principals and officers of the Company are substantially the same as the controlling persons, principals and officers of SMCI. F-33 EXHIBIT A TUDOR FUND FOR EMPLOYEES L.P. SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT DATED AS OF MAY 22, 1996 TABLE OF CONTENTS
PAGE 1. Name; Formation.......................................................... A-1 2. Offices.................................................................. A-2 3. Business................................................................. A-2 4. Term; Dissolution........................................................ A-3 (a) Term............................................................... A-3 (b) Dissolution........................................................ A-3 5. Fiscal Year.............................................................. A-3 6. General Partner's Net Worth.............................................. A-4 7. Capital Contributions.................................................... A-4 8. Allocation of Profits and Losses; Accounting; Related Matters............ A-8 (a) Capital Accounts................................................... A-8 (b) Monthly Allocations................................................ A-8 (c) Allocation of Profit and Loss for Federal Income Tax Purposes...... A-9 (d) Definitions; Accounting............................................ A-11 (e) Expenses and Limitations Thereof................................... A-12 (f) Limited Liability of Limited Partners.............................. A-13 (g) Lender as Partner.................................................. A-15 (h) Return of Limited Partners' Capital Contributions.................. A-15 (i) Distributions...................................................... A-15 (j) General Partner as Limited Partner................................. A-15 9. Management............................................................... A-15 (a) Management of Partnership.......................................... A-15 (b) Trading Policies................................................... A-18 (c) Additional Obligations and Responsibilities of General Partner..... A-19 10. Audits; Reports to Limited Partners...................................... A-22 11. Transfer and Redemption of Units......................................... A-23 (a) Transfer........................................................... A-23 (b) Redemption......................................................... A-25 12. Mandatory Redemption..................................................... A-26 13. Admission of Additional Partners......................................... A-27 14. Special Power of Attorney................................................ A-27 15. Withdrawal of Partners................................................... A-28 (a) Withdrawal of General Partner...................................... A-28 (b) Withdrawal of Limited Partners..................................... A-28 16. No Personal Liability for Return of Capital.............................. A-29
ii 17. Standard of Liability; Indemnification................................... A-29 (a) Standard of Liability.......................................... A-29 (b) Indemnification by Partnership................................. A-29 (c) Affiliate...................................................... A-31 (d) Indemnification by Partners.................................... A-31 18. Amendments; Meetings; Voting............................................. A-31 (a) Amendments and Actions With Consent of General Partner......... A-31 (b) List of Partners; Meetings..................................... A-32 (c) Amendments and Actions Without Consent of General Partner...... A-32 (d) Actions Without Meeting........................................ A-33 (e) Amendments to Certificate of Limited Partnership............... A-33 19. Governing Law............................................................ A-33 20. Miscellaneous............................................................ A-34 (a) Priority Among Limited Partners................................ A-34 (b) Notices........................................................ A-34 (c) Binding Effect................................................. A-34 (d) Captions....................................................... A-34 Annex A -- Request for Redemption................................................... A-36
iii TUDOR FUND FOR EMPLOYEES L.P. SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT This Second Amended and Restated Limited Partnership Agreement (this "Agreement") of TUDOR FUND FOR EMPLOYEES L.P. (the "Partnership") made as of May 22, 1996 by and among Second Management LLC, a Delaware limited liability company (the "General Partner"), and the other parties who have heretofore executed or who shall hereafter execute this Agreement (whether in counterpart, by separate instrument, or otherwise) and who have heretofore been admitted or who shall be hereafter admitted to the Partnership as limited partners in accordance with the provisions hereof, and whose names and addresses have heretofore or shall hereafter, upon such admission, be added to the books and records of the Partnership (collectively, including any Plan Investor Partners (as defined in Section 7), the "Limited Partners"; the General Partner and the Limited Partners may be referred to herein individually as a "Partner", and collectively as the "Partners"); W I T N E S S E T H: WHEREAS, the Partnership has heretofore been formed as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the "Partnership Act") for the purpose of speculative trading in commodity interest contracts (as defined in Section 3) pursuant to a Limited Partnership Agreement dated as of November 22, 1989 as amended and restated as of July 1, 1995 (the "Prior Limited Partnership Agreement"); WHEREAS, the General Partner continues to desire to make an investment vehicle available to (i) persons who are employees of the General Partner, any of its present or future affiliated entities, or their successors or assigns, (ii) such entities themselves, and (iii) such other individuals and entities as the General Partner in its sole discretion may determine; and WHEREAS, the Partners desire to amend and restate the Prior Limited Partnership Agreement in its entirety as set forth herein; NOW, THEREFORE, the parties hereto do hereby agree as follows. 1. NAME; FORMATION. The parties heretofore formed and have operated, and hereby agree to continue, the Partnership as a limited partnership under and pursuant to the Partnership Act. The name of the Partnership shall remain TUDOR FUND FOR EMPLOYEES L.P. or such other name, to the extent permitted by the Partnership Act, as the General Partner shall hereafter designate A-1 in writing to the Limited Partners. The General Partner heretofore executed and filed in the Office of the Secretary of State of the State of Delaware a Certificate of Limited Partnership (the "Certificate of Limited Partnership") in accordance with the Partnership Act, and shall execute, file, record, and publish as appropriate such amendments to this Agreement, the Certificate of Limited Partnership, assumed name certificates, and other documents as shall be necessary or advisable as determined by the General Partner to comply with the law of any jurisdiction. Each Limited Partner shall furnish to the General Partner a power of attorney and such additional information as is required from such Partner to complete such documents, and shall execute and cooperate in the filing, recording, or publishing of such documents at the request of the General Partner. 2. OFFICES. The principal office of the Partnership is One Liberty Plaza, 51st Floor, New York, New York 10006, or such other place as the General Partner may in its sole discretion designate from time to time. The address of the registered office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other registered office or agent or address as the General Partner may in its sole discretion designate from time to time. 3. BUSINESS. The Partnership's business and purpose is to engage in any lawful act or activity for which a limited partnership may be organized under the Partnership Act, including without limitation primarily to trade, buy, sell (including to sell short), spread, swap, acquire, hold, dispose of, and deal in, commodities, currencies, futures contracts, forward contracts, foreign exchange commitments, currency exchanges, money market instruments, debt obligations and other instruments issued or guaranteed by sovereigns, governments, and supranationals and their bodies, agencies, instrumentalities, authorities, and similar issuers, bonds, debentures, notes, bills, commercial paper, repurchase and reverse repurchase agreements, standby purchase and sale agreements, financial instruments, investment contracts, investment agreements, certificates of interest, securities interests, securities of and interests in other corporations, companies, partnerships, trusts, and other entities and vehicles, swaps, swaptions, caps, floors, straddles, and collars, derivative and hybrid transactions and instruments (however designated), options on and in respect of any of the foregoing, and rights and interests in respect of, pertaining to, and in connection with, any of the foregoing, on or off exchanges and markets, in publicly offered and private placement transactions, on spot, current, future, forward, and when-issued start, delivery, settlement, and optional commitment bases, on secured and unsecured bases, and on margin, collateral, and partial and full payment bases (herein referred to collectively as "commodity interest contracts"). The objective of the A-2 Partnership's business is and shall be appreciation of its assets through speculative trading of commodity interest contracts. 4. TERM; DISSOLUTION. (a) TERM. The term of the Partnership commenced on November 22, 1989 upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware pursuant to the Partnership Act, and shall end upon the first to occur of the following: (i) December 31, 2010; (ii) the receipt by the General Partner of a notice setting forth an election to dissolve the Partnership at a specified time by Limited Partners owning more than 50% of the Units of Limited Partnership Interest in the Partnership ("Units of Limited Partnership Interest" or "Units") then owned by Limited Partners, which notice shall be delivered to the General Partner at least 90 days prior to the effective date of such dissolution; (iii) the withdrawal, insolvency, termination, dissolution, or liquidation of the General Partner and of any successor entity thereof, unless the business of the Partnership shall be continued by any new, remaining, or successor general partner(s) in accordance with Sections 15(a) and 18; (iv) the Partners terminate the Partnership in accordance with Section 18; (v) a decline in the Net Asset Value of a Unit (as defined in Section 8(d)(ii)) as of the end of any calendar month to less than $500; (vi) a decline in the Partnership's aggregate Net Assets (as defined in Section 8(d)(i)) as of the end of any calendar month to less than $125,000; (vii) a determination by the General Partner in its sole discretion either that the Partnership's assets in relation to its operating expenses make it unreasonable or imprudent to continue the business of the Partnership, or that the General Partner no longer desires to make available the Partnership to, or to operate the Partnership for, the persons permitted to become Limited Partners pursuant to this Agreement; (viii) upon the enactment of any law or the adoption of any rule, regulation, policy, or guideline by any regulatory authority having jurisdiction over the Partnership which shall make it unlawful, unreasonable, or imprudent in the sole discretion of the General Partner for the principal business of the Partnership to be continued; or (ix) the occurrence of any event requiring termination of the Partnership. (b) DISSOLUTION. Upon the occurrence of an event causing the termination of the Partnership, the Partnership shall terminate and be dissolved. Dissolution, payment of creditors, and distribution of the Partnership's Net Assets shall be effected as soon as practicable in accordance with the Partnership Act, except that the General Partner and each Limited Partner (and any assignee) shall share in the Net Assets of the Partnership pro rata in accordance with such Partner's respective capital account less any amount owing by such Partner (or assignee) to the Partnership. Nothing contained in this Agreement shall impair, restrict, or limit the rights and powers of the Partners under the Partnership Act or the law of any other jurisdiction in which the Partnership shall be conducting business to reform and reconstitute themselves as a limited partnership either under terms identical to those set forth herein or any other terms which they shall deem appropriate following the dissolution of the Partnership. A-3 5. FISCAL YEAR. The fiscal year of the Partnership begins on January 1st of each year and ends on the following December 31st of such year. 6. GENERAL PARTNER'S NET WORTH. So long as it shall remain the sole general partner of the Partnership, the General Partner shall maintain at all times its "Net Worth" at an amount not less than 10% of the total contributions to the Partnership by all Partners. For the purposes of this Section 6, Net Worth shall be calculated in accordance with United States generally accepted accounting principles applied on a consistent basis, except as specified otherwise in this Section 6, with all current assets based on their then current market values. Interests owned by the General Partner in the Partnership, notes and accounts receivable from and payable to any partnership in which the General Partner has an interest, interests owned by the General Partner in any other partnership, secured or unsecured notes of creditworthy obligors (including notes receivable from the General Partner's "affiliates", as such term is defined in Regulation S-X of the rules and regulations of the Securities and Exchange Commission (the "SEC")), and letters of credit shall be included as assets in calculating Net Worth, and liabilities subordinated to the claims of general creditors shall be included in calculating Net Worth. The General Partner shall not be a general partner of any limited partnership other than the Partnership unless, at all times when it shall be the sole general partner of the Partnership and the general partner of any such other limited partnership, its Net Worth shall be at least equal to the Net Worth required by the preceding paragraph. The requirements of the preceding two paragraphs may be modified by the General Partner at its sole option and without notice to or consent of the Limited Partners, provided that the General Partner shall first obtain a written opinion of legal counsel that such proposed modification shall not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, shall not adversely affect the status of the Limited Partners as limited partners under the Partnership Act, and shall not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder. 7. CAPITAL CONTRIBUTIONS. The General Partner heretofore contributed $1,000 in cash to the capital of the Partnership, and the Partnership issued to the General Partner one Unit of General Partnership Interest in the Partnership ("Unit of General Partnership Interest"). The net asset value of a Unit of General Partnership Interest has at all times been and shall at all times be equivalent to the Net Asset Value of a Unit of Limited Partnership Interest. At the Initial Closing (as defined below in this Section 7), the General Partner contributed to the Partnership such additional amount of cash as was necessary to make the General Partner's aggregate capital contribution equal to the greater of (a) $200,000 or (b) the sum of (i) the lesser of $100,000 or 3% of the first $10,000,000 in aggregate capital contributions to the Partnership by all A-4 Partners and (ii) 1% of the aggregate capital contributions to the Partnership by all Partners in excess of $10,000,000. In return for such additional capital contribution, the Partnership issued to the General Partner additional Units of General Partnership Interest, each of which had an initial net asset value equivalent to the initial Net Asset Value of a Unit of Limited Partnership Interest. As may be required as additional Limited Partners are admitted to the Partnership at Periodic Closings (as defined below in this Section 7) or otherwise, the General Partner shall at all times maintain its interest in the Partnership at no less than the amount required above. However, the General Partner may maintain its interest in the Partnership at less than the amount required above so long as it shall first obtain a written opinion of legal counsel that such proposed action shall not adversely affect the classification of the Partnership as a partnership for federal income tax purposes, shall not adversely affect the status of the Limited Partners as limited partners under the Partnership Act, and shall not violate any applicable state securities or Blue Sky law or any rules, regulations, guidelines, or statements of policy promulgated or applied thereunder. Notwithstanding the foregoing, the General Partner, in its sole discretion, may withdraw any excess above its required interest in the Partnership without notice to or approval by the Limited Partners. In addition, the General Partner, in its sole discretion, may contribute any greater amounts to the Partnership for which the Partnership shall issue to the General Partner additional Units of General Partnership Interest based upon the Net Asset Value of a Unit of Limited Partnership Interest at the time of such contribution. Interests in the Partnership, other than the Units of General Partnership Interest issuable to the General Partner, are Units of Limited Partnership Interest, or Units. The initial Limited Partner heretofore contributed $1,000 in cash to the capital of the Partnership, and the Partnership issued to the initial Limited Partner one Unit. At the Initial Closing, the initial Limited Partner redeemed his one Unit and received $1,000 therefor (without interest), withdrew from the Partnership, and had no further rights or obligations as a Limited Partner except to the extent he has otherwise subscribed for Units. The remaining Partners consented to the withdrawal of the initial Limited Partner. The General Partner, on behalf of the Partnership, has heretofore entered and may in the future enter into a selling agreement (a "Selling Agreement") with one or more brokers, dealers, or banks, whether or not affiliated with the General Partner or any of its Affiliates (as defined in Section 17(c)) (each a "Selling Agent"), as described in the Prospectus (as defined below in this Section 7). Pursuant to a Selling Agreement, a Selling Agent may select such additional selling agents ("Additional Selling Agents") as the Selling Agent in its sole discretion may determine. In accordance with the terms of a Selling Agreement and the Prospectus, the Partnership, through a Selling Agent and any Additional Selling Agents, shall offer Units and fractions of Units (to the fourth decimal place) for sale solely and exclusively to (i) persons who are employees of the General Partner, Tudor Investment Corporation, a Delaware corporation and an Affiliate of the General Partner ("TIC"), any of their present and future affiliated entities, and their successors and assigns, (ii) the General Partner, TIC, any of their present and future affiliated entities, and their successors and assigns, and (iii) such other individuals and entities as the General Partner in its sole discretion may determine, all as provided in this Agreement and in the Prospectus. A-5 At an initial closing held on July 2, 1990 (the "Initial Closing"), the Partnership issued and sold 421 Units at a price equal to $1,000 per Unit to each subscriber whose subscription was accepted by the General Partner ($421,000 in the aggregate). The Partnership, through the Selling Agents and any Additional Selling Agents, continues (in the sole discretion of the General Partner) to offer for sale Units and fractions of Units (to the fourth decimal place) at prices per Unit, in such minimum amounts, for such periods of time, and on such terms and conditions as the General Partner determines in its sole discretion. The continuing offering of Units shall continue until the maximum number of registered Units (including any newly-registered Units or any Units offered and sold pursuant to exemptions from the registration or qualification requirements of applicable securities laws) shall have been sold, unless the General Partner in its sole discretion shall sooner withdraw or otherwise discontinue the continuing offering. The Partnership generally issues and sells Units at closings ("Periodic Closings") held as of the first day of each calendar quarter. Notwithstanding the foregoing, the General Partner may hold Periodic Closings at such other times as it shall determine in its sole discretion. The initial Periodic Closing during the continuing offering was held as of August 1, 1990. At each Periodic Closing, the Partnership issues and sells Units to each subscriber whose subscription is accepted by the General Partner at a price per Unit determined by the General Partner in its sole discretion; provided, however, that the sale price per Unit shall not at any time be less than 100% of the Net Asset Value of a Unit as of the date of the applicable Periodic Closing at which such Unit is sold. At any time and from time to time, Units may be subscribed for, in the sole discretion of the General Partner, by corporate pension and profit sharing plans, 401(k) plans, Keogh plans for self-employed individuals (including partners), simplified employee pension plans, individual retirement accounts, and other employee benefit plans, whether or not maintained in the United States and whether or not subject to the Internal Revenue Code of 1986 as amended (the "Code") or the Employee Retirement Income Security Act of 1974 as amended ("Plan Investors"), including without limitation Plan Investors owned, sponsored by, or affiliated with the General Partner, TIC, any of their present or future affiliated entities, or their successors or assigns. The General Partner shall only accept subscriptions for Units from Plan Investors to the extent that the value of each such subscription, when aggregated with the capital accounts and subscriptions for Units of all other Plan Investors, shall be less than 25% of the aggregate value of all outstanding Units after giving effect to such subscriptions, and if such subscriptions shall be otherwise timely submitted with good funds and in the proper form as described in this Agreement, the Prospectus, and any subscription documentation. Plan Investors whose subscriptions are accepted by the General Partner shall become Limited Partners and "Plan Investor Partners" upon their admission to the Partnership. At any time and from time to time, Units may be subscribed for by the General Partner, its present and future affiliated entities, and its successors and assigns. Subscriptions for Units by such persons or any other person shall not preclude them from receiving compensation from the Partnership for services rendered by them in their respective capacities as other than Limited Partners. A-6 All subscriptions for Units shall be irrevocable. The General Partner may in its sole discretion reject any subscription in whole or in part at any time prior to the acceptance thereof. No subscriber for Units shall become a Limited Partner until the General Partner shall accept such subscriber's subscription at a Periodic Closing, shall execute this Agreement on behalf of such subscriber pursuant to the power of attorney in Section 14, and shall make an entry in the books and records of the Partnership reflecting that such subscriber has been admitted as a Limited Partner. Accepted subscribers shall be deemed Limited Partners at such time as their admission shall be reflected in the books and records of the Partnership. In connection with the Partnership's offering of Units as described in the "Prospectus" (which term shall mean the Partnership's prospectus and disclosure document and amendments and supplements thereto, including those constituting a part of the Partnership's registration statements under the Securities Act of 1933 as amended (the "Securities Act"), relating to the offering of Units or any other or subsequent prospectus and disclosure document used from time to time in the offering of Units, the General Partner, on behalf of the Partnership, shall: (a) cause to be filed (i) one or more registration statements and such amendments thereto as the General Partner shall deem advisable or as may be required by applicable law, rules, or regulations with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. (the "NASD") for the registration and public offering of Units in the United States of America and other jurisdictions, and (ii) one or more Prospectuses included in such registration statements and amendments and supplements thereto with the Commodity Futures Trading Commission (the "CFTC") and the National Futures Association (the "NFA"); (b) qualify Units for sale under the securities or Blue Sky laws of such states of the United States of America or other jurisdictions as the General Partner shall in its sole discretion deem advisable; (c) make other arrangements for the offering and sale of Units as the General Partner shall in its sole discretion deem necessary or appropriate, including but not limited to engaging Selling Agents and Additional Selling Agents for Units on such terms as the General Partner may determine in its sole discretion and agree upon with such agents, and effecting the offering and sale of Units pursuant to exemptions from the registration or qualification requirements of applicable securities laws; and (d) take such action with respect to the matters described in clauses (a), (b), and (c) of this paragraph as the General Partner shall deem advisable or necessary. All Units subscribed for shall be issued subject to the collection of good funds. If at any time good funds representing payment for Units shall not be made available to the Partnership because a subscriber shall have provided a bad check or draft, other uncollectible item, or otherwise, the General Partner shall cancel the Units issued to such subscriber represented by such item, and the subscriber's name shall be removed as a Limited Partner from the books and records of the Partnership. Any losses or profits sustained by the Partnership in connection with the Partnership's business allocable to such canceled Units shall be deemed an increase or decrease in Net Assets and allocated among the remaining Partners as described in Section 8. Each Limited Partner shall reimburse the Partnership for any expense and loss (including any trading loss) incurred in connection with the issuance and cancellation of any Units issued to such Partner. A-7 Capital contributions to the Partnership shall be made upon execution, acknowledgment, and delivery of documents in form and substance satisfactory to the General Partner in its sole discretion. No additional contributions of capital shall be required of any Limited Partner during the term of the Partnership. The aggregate of all capital contributions shall be available to the Partnership to carry on its business, and no interest shall be paid by the Partnership on any such contribution. The General Partner is authorized, in its sole discretion at any time and from time to time, to terminate and discontinue any offering of Units, in whole or in part or in respect of any particular jurisdiction. 8. ALLOCATION OF PROFITS AND LOSSES; ACCOUNTING; RELATED MATTERS. (a) CAPITAL ACCOUNTS. A capital account shall be established for each Partner. The initial balance of each Partner's capital account shall be the amount of his initial capital contribution to the Partnership. (b) MONTHLY ALLOCATIONS. As of the close of business (as determined by the General Partner in its sole discretion) on the last day of each calendar month during each fiscal year of the Partnership, the following determinations and allocations shall be made: (i) the Partnership's Net Assets, before accrual of management fees and incentive fees payable to any Affiliate of the General Partner since the next previous determination of Net Assets, shall be determined ("Adjusted Net Assets"); (ii) any increase or decrease in Adjusted Net Assets as compared to the next previous determination of Net Assets shall then be credited or charged to the capital accounts of the Partners in the ratio that the balance of each Partner's capital account bears to the balance of all Partners' capital accounts; (iii) any accrued management fees payable to any Affiliate of the General Partner and any accrued incentive fees payable to any Affiliate of the General Partner shall then be charged to the capital accounts of the Partners other than Plan Investor Partners in the ratio that the balance of each such Partner's capital account bears to the balance of all Partners' capital accounts other than Plan Investor Partners' capital accounts; (iv) the number of Units held by each Plan Investor Partner shall then be restated to equate the per Unit value of a Plan Investor Partner's capital account with the per Unit value of the non-Plan Investor Partners' capital accounts, by increasing the number of Units held by a Plan Investor Partner by a number of Units equal to (aa) the product of (1) the number of Units held by all Partners other than the Plan Investor Partners and (2) the ratio of the balance of such Plan Investor Partner's capital account to the aggregate balance of all non- A-8 Plan Investor Partners' capital accounts, divided by (bb) the number of Units then held by such Plan Investor Partner; and (v) the amount of any distribution to a Partner, any amount paid to a Partner on redemption of Units, and any amount paid to the General Partner upon withdrawal of its interest in the Partnership shall then be charged to that Partner's capital account. (c) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of the end of each calendar month of the Partnership, the Partnership's recognized profit and loss shall be allocated among the Partners pursuant to the following sub-paragraphs for United States federal income tax purposes (with any allocation of recognized gains or recognized losses consisting of pro rata shares of each item of capital or ordinary gain or loss). (i) Any management fees payable to any Affiliate of the General Partner and any incentive fees payable to any Affiliate of the General Partner shall be allocated pro rata among the Units of Partners other than the Plan Investor Partners based on such Units outstanding as of the beginning of the month in which such items accrued. (ii) With the exception of items allocated pursuant to subparagraph (i) above, items of ordinary income (such as interest) and ordinary expense shall be allocated pro rata among the Units of Partners based on such Units outstanding as of the beginning of the month in which the items of ordinary income and ordinary expense accrued. (iii) Net recognized capital gain or loss from the Partnership's trading activities shall be allocated as follows. (aa) For the purpose of allocating the Partnership's net realized capital gain and loss among the Partners, there shall be established an allocation account with respect to each outstanding Unit. The initial balance of each allocation account shall be the amount paid by the Partner for the Unit. The initial balance of the allocation account of any Unit created pursuant to the Unit restatement provision in Section 8(b)(iv) shall be equal to a pro rata portion of the aggregate allocation accounts of the other Units owned by the relevant Plan Investor Partner immediately prior to such Unit restatement, and the allocation accounts of such pre-existing Units held by such Plan Investor Partner shall be correspondingly reduced pro rata. Allocation accounts shall be adjusted as of the end of each month as follows: (1) each allocation account shall be increased by the amount of income and gain which shall have been allocated to the Partner who holds the Unit pursuant to subparagraph (c)(ii) above and subparagraph (bb) below; A-9 (2) each allocation account shall be decreased by the amount of expense and loss which shall have been allocated to the Partner who holds the Unit pursuant to subparagraphs (c)(i) and (c)(ii) above and subparagraph (dd) below and by the amount of any distribution which shall have been received by the Partner with respect to the Unit (other than on redemption of the Unit); and (3) when a Unit shall be redeemed, the allocation account with respect to such Unit shall be eliminated. (bb) Net recognized capital gain realized on or prior to the date a Partner redeems a Unit shall be allocated to such redeeming Partner up to the excess, if any, of the amount received upon redemption of the Unit over the allocation account attributable to the redeemed Unit. In the event the aggregate amount of net capital gain available to be allocated pursuant to this subparagraph (bb) shall be less than the aggregate amount of capital gain required to be so allocated, (1) the aggregate amount of available capital gain shall be allocated among all such Partners in the ratio which each such Partner's excess bears to the aggregate excess of all such Partners, and (2) each Partner who has not been allocated the full amount of net recognized capital gain required to be allocated pursuant to the first sentence of this subparagraph (bb) shall be allocated, after any allocations required by the first sentence of this subparagraph (bb) in respect of Partners who redeem Units on subsequent redemption dates, net capital gain realized after such Partner's date of redemption up to the amount of any such deficiency. (cc) Net recognized capital gain remaining after the allocation thereof pursuant to subparagraph (bb) above shall be allocated next among all Partners whose capital accounts shall be in excess of their Units' allocation accounts (after the adjustments in subparagraph (bb) above) in the ratio that each such Partner's excess shall bear to all such Partners' excesses. In the event that gain to be allocated pursuant to this subparagraph (cc) shall be greater than the excess of all such Partners' capital accounts over all such allocation accounts, the excess gain shall be allocated among all Partners in the ratio that each Partner's capital account shall bear to all Partners' capital accounts. (dd) Net recognized capital loss realized on or prior to the date a Partner redeems a Unit shall be allocated to such redeeming Partner up to the excess, if any, of the allocation account attributable to the redeemed Unit over the amount which shall have been received upon redemption of the Unit. In the event the aggregate amount of net capital loss available to be allocated pursuant to this subparagraph (dd) shall be A-10 less than the aggregate amount of net capital loss required to be so allocated, (1) the aggregate amount of available capital loss shall be allocated among all such Partners in the ratio which each such Partner's excess bears to all such Partners' excesses, and (2) each Partner who has not previously been allocated the full amount of net recognized capital loss required to be allocated pursuant to the first sentence of this subparagraph (dd) shall be allocated, after any allocations required by the first sentence of this subparagraph (dd) in respect of Partners who redeem Units on subsequent redemption dates, net capital loss realized after such Partner's date of redemption up to the amount of any such deficiency. (ee) Net recognized capital loss remaining after the allocation thereof pursuant to subparagraph (dd) above shall be allocated next among all Partners whose Units' allocation accounts shall be in excess of their capital accounts (after the adjustments in subparagraph (dd) above) in the ratio that each such Partner's excess shall bear to all such Partners' excesses. In the event that loss to be allocated pursuant to this subparagraph (ee) shall be greater than the excess of all such allocation accounts over all such Partners' capital accounts, the excess loss shall be allocated among all Partners in the ratio that each Partner's capital account shall bear to all Partners' capital accounts. (iv) The tax allocations prescribed by this Section 8(c) shall be made to each holder of a Unit, whether or not the holder is a substituted Limited Partner. In the event that a Unit shall have been transferred pursuant to Section 11(a), the allocations prescribed by this Section 8(c) shall be made with respect to such Unit without regard to the transfer, except that in the month of transfer the allocations prescribed by this Section 8(c) shall be divided between the transferor and the transferee based on the number of calendar days each held the transferred Unit during such month. For purposes of this Section 8(c), tax allocations shall be made to the General Partner's Units of General Partnership Interest on a Unit of Limited Partnership Interest- equivalent basis. (v) The allocation of profit and loss for federal income tax purposes set forth in this Section 8(c) is intended to allocate taxable profits and losses among Partners generally in the ratio and to the extent that net profit and net loss shall be allocated to such Partners under Section 8(b), so as to eliminate to the extent possible any disparity between a Partner's capital account and his allocation account, consistent with the principles set forth in Section 704 of the Code and the regulations promulgated thereunder. (d) DEFINITIONS; ACCOUNTING. (i) The Partnership's "Net Assets" shall mean the total assets of the Partnership (including but not limited to all cash and cash equivalents (valued at cost), accrued interest and amortization of original issue discount, and the market value of all A-11 open commodity interest contract positions and all other assets of the Partnership) less the total liabilities of the Partnership (including but not limited to legal, accounting, and auditing fees, organizational and offering expenses, brokerage commissions and fees and other transaction costs, management fees and incentive fees payable to trading advisors, and extraordinary expenses, whether incurred or accrued), determined in accordance with the principles specified in this Section 8(d)(i) or, where no principle is specified, in accordance with United States generally accepted accounting principles consistently applied under the accrual basis of accounting. The market value of a commodity interest contract traded on a United States exchange or market shall mean the settlement price on the exchange or market on which such contract is traded by the Partnership on the day with respect to which Net Assets shall be determined; provided, however, that if a commodity interest contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange or market upon which such contract was traded or otherwise, the settlement price on the first subsequent day on which such contract could have been liquidated shall be the market value of such contract for such day. The market value of a forward contract, a futures contract traded on a foreign exchange or market, a swap contract, or other off-exchange contract, instrument, or transaction shall mean its market value as determined by the General Partner in its sole discretion on a basis consistently applied. (ii) The "Net Asset Value" of a Unit shall mean the Net Assets allocated to capital accounts represented by Units of Limited Partnership Interest divided by the number of such Units outstanding on the date of calculation; and the "Net Asset Value" of a Unit of General Partnership Interest shall mean the Net Assets allocated to capital accounts represented by Units of General Partnership Interest divided by the number of such Units of General Partnership Interest outstanding at the time of calculation. (e) EXPENSES AND LIMITATIONS THEREOF. The General Partner, out of its own funds, heretofore paid all of the costs incurred in connection with the organization of the Partnership and the initial offering of Units. Such costs included all expenses incurred during the initial offering in connection with and directly and indirectly relating to the formation, qualification, and registration of the Partnership and the Units, the preparation of any registration statements and Prospectuses relating to the Partnership and the Units, and the offering, distribution, and processing of the Units under applicable federal, state, and foreign law, including but not limited to legal, accounting, and auditing fees, printing costs, filing fees, escrow fees, sales and marketing expenses, and other related expenses. The General Partner also heretofore paid and shall continue to pay the costs of printing and mailing registration statements, Prospectuses, and reports for solicitation purposes, and the costs of preparing such registration statements and Prospectuses. The Partnership heretofore paid and shall continue to pay its ordinary operating expenses, including expenses for services provided by third parties (whether or not affiliated with the General Partner or any of its Affiliates) selected by the General Partner. Such expenses shall include without limitation management fees and incentive fees, legal, A-12 accounting, auditing, escrow, recordkeeping, administration, computer, research, and clerical fees and expenses, expenses incurred in preparing reports and tax information to Limited Partners and regulatory authorities, expenses of printing and mailing registration statements, Prospectuses, and reports to Limited Partners (but not for solicitation purposes), expenses for specialized administrative services, other printing and duplication expenses, other mailing costs, and filing fees. The Partnership shall also be obligated to pay any extraordinary expenses it may incur. The General Partner shall not be reimbursed by the Partnership for any costs incurred by it relating to office space, equipment, and staff necessary for the Partnership's operations and administration of the sale and redemption of Units. The Partnership shall also pay any taxes and all expenses incurred in connection with its trading activities, including but not limited to all margins, option premiums, brokerage, floor, exchange, clearing, clearinghouse, principal, and NFA commissions and fees, other transaction costs and expenses, delivery, insurance, and storage expenses, costs of transmission equipment for trading activities, and related expenses. Appropriate reserves may, in the sole discretion of the General Partner, be created, accrued, and charged against the Partnership's assets for contingent liabilities, if any, as of the date any such contingent liability becomes known to the General Partner. If the Partnership shall be deemed to be an entity separately subject to federal, state, local, or foreign income tax (whether or not such tax shall be payable or shall have been paid by the Partnership or the General Partner, although the General Partner shall not be obligated to do so), each Limited Partner (or assignee, if any) shall be liable for and shall pay to the Partnership or the General Partner any income taxes due and payable or paid to such jurisdiction, within ten days after the General Partner's request therefor, in an amount equal to the ratio by which the number of Units held by each Limited Partner (or assignee) shall bear to the number of Units held by all Limited Partners as of the close of business (as determined by the General Partner in its sole discretion) on the last day of the period for which such tax shall have been assessed. Alternatively, if the Partnership and/or the General Partner shall have paid any such tax out of its/their own funds (although the General Partner shall not be obligated to do so), upon a distribution of funds to a Limited Partner (or assignee) or a redemption of Units by a Limited Partner (or assignee), all amounts of such taxes may be deducted from the proceeds from such distribution or redemption and reimbursed to the Partnership and/or the General Partner. (f) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when issued to a Partner, shall be fully paid and nonassessable. A Limited Partner's capital contribution shall be subject to the risks of the Partnership's business. However, except as provided otherwise in this Agreement, the General Partner shall be liable for all debts, losses, and other obligations of the Partnership to the extent that the Partnership's assets (which shall include amounts contributed by Limited Partners and paid out in distributions, redemptions, or otherwise to them together with interest thereon, but shall not include any right of contribution from the General Partner except to the extent previously made by it in accordance with this Agreement) shall be insufficient to discharge such debts, losses, and other obligations. A-13 Except as provided otherwise in this Agreement, no Limited Partner shall be liable for the Partnership's debts, losses, or other obligations in excess of his unredeemed capital contribution and undistributed profits, if any; provided, however, that if the Partnership shall be unable to pay its debts, losses, and other obligations, a Limited Partner may be required to repay to the Partnership amounts which shall have been paid to him in compliance with the Partnership Act, other applicable laws, rules, and regulations, and this Agreement and amounts which shall have been paid to him in violation of the Partnership Act, other applicable law, rule, or regulation, or this Agreement by way of redemption, distribution, or otherwise, together with interest thereon which shall represent a return of capital and which shall be necessary to discharge the Partnership's liability to creditors who shall have extended credit to the Partnership during the period in which the capital contribution shall have been held by the Partnership. The Partnership shall make a claim against a Limited Partner with respect to amounts of his capital distributed to him, received by him upon redemption of Units, or otherwise paid to him in compliance with the Partnership Act, other applicable laws, rules, and regulations, and this Agreement only within one year following the date that such payments shall have been made to him or on his behalf (or to the extent provided otherwise under the Partnership Act or other applicable law, rule, or regulation) and only if the assets of the Partnership (which shall include amounts contributed by Limited Partners and paid out in distributions, redemptions, or otherwise to them together with interest thereon, but shall not include any right of contribution from the General Partner except to the extent previously made by it in accordance with this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. The Partnership shall make a claim against a Limited Partner with respect to amounts of his capital distributed to him, received by him upon redemption of Units, or otherwise paid to him in violation of the Partnership Act, other applicable law, rule, or regulation, or this Agreement only within six years following the date that such payments shall have been made to him (or to the extent provided otherwise under the Partnership Act or other applicable law, rule, or regulation) and only if the assets of the Partnership (which shall include amounts contributed by Limited Partners and paid out in distributions, redemptions, or otherwise to them together with interest thereon, but shall not include any right of contribution of the General Partner except to the extent previously made by it in accordance with this Agreement) shall be insufficient to discharge the liabilities of the Partnership which shall have arisen prior to the payment of such amounts. In addition to the foregoing, Limited Partners may incur liability, for which there shall be no limitation thereon: (i) if a Limited Partner fails to provide good funds as payment for his Units and such Partner's Units shall be canceled by the Partnership and losses or expenses shall be incurred as a result thereof as provided in Section 7; (ii) if the Partnership shall be deemed an entity separately subject to federal, state, local, or foreign taxes, with Partners bearing such tax liability pro rata in accordance with the respective capital accounts of the Partners as provided in Section 8(e); (iii) if the Partnership shall be required to withhold tax on certain income of the Partnership allocable to a Partner (or assignee thereof) or the Partnership as provided in Section 9(c); (iv) if a Limited Partner is required to indemnify the Partnership in accordance with Section 17(d); or (v) if the subscription documentation A-14 delivered by a Limited Partner in connection with his purchase of Units shall contain any misstatements or omissions. (g) LENDER AS PARTNER. No creditor who shall make a loan to the Partnership may have or acquire, at any time as a result of making the loan, any direct or indirect interest in the profits, capital, or property of the Partnership, other than as a secured creditor or other than as a result of the exercise of the rights thereof. (h) RETURN OF LIMITED PARTNERS' CAPITAL CONTRIBUTIONS. Except to the extent that a Limited Partner shall have the right to withdraw capital through redemption of Units in accordance with Section 11(b), no Limited Partner shall have any right to demand the return of his capital contribution and any profits added thereto except upon termination and dissolution of the Partnership. No Partner shall be paid interest on any capital contribution to the Partnership or on such Partner's capital account. In no event shall a Limited Partner be entitled to demand or receive from the Partnership property other than cash. No Partner shall have the right to bring an action for partition against the Partnership. (i) DISTRIBUTIONS. The General Partner shall have sole discretion in determining the amount and frequency of distributions (other than on voluntary redemption of Units), if any, the Partnership shall make to its Partners; provided, however, that no Partner shall receive a distribution to the extent that, after giving effect to such distribution, all liabilities of the Partnership (other than liabilities to Partners on account of their Partnership interests) shall exceed the fair market value of the Partnership's assets. All distributions shall be pro rata in accordance with the respective capital accounts of the Partners. If, pursuant to applicable law, the Partnership shall have been required to pay or withhold tax on certain income of the Partnership allocable to a Limited Partner (or assignee thereof) and the Partnership and/or the General Partner shall have paid out of its/their own funds such tax in accordance with Sections 8(e) or 9(c) (although the General Partner shall not be obligated to do so), upon a distribution to such Limited Partner (or assignee) all amounts of such taxes may be deducted from the amount of such distribution and reimbursed to the Partnership and/or the General Partner. (j) GENERAL PARTNER AS LIMITED PARTNER. The General Partner shall also be a Limited Partner to the extent that the General Partner purchases Units of Limited Partnership Interest or purchases or becomes a transferee of all or any part of the Units held by a Limited Partner, and to such extent shall be treated in all respects as a Limited Partner and the consent of the Limited Partners to such transfer to a General Partner shall not be required. 9. MANAGEMENT. (a) MANAGEMENT OF PARTNERSHIP. Except as provided otherwise in this Agreement, the General Partner, to the exclusion of the Limited Partners, shall conduct and manage the business of the Partnership, including without limitation the investment of the Partnership's assets and the negotiation, execution, delivery, and performance of agreements A-15 necessary or desirable to carry out the purposes, business, and objectives of the Partnership and otherwise effectuate the provisions of this Agreement. No Limited Partner, in its/his capacity as such, shall have the power to transact business for, represent, act for, sign for, or bind the General Partner or the Partnership. Except as provided otherwise in this Agreement, no Limited Partner, in its/his capacity as such, shall be entitled to any salary, draw, or other compensation from the Partnership on account of any investment in the Partnership. Each Limited Partner shall furnish to the General Partner such information as may be determined by the General Partner to be required or appropriate for the Partnership to open and maintain accounts with brokerage firms for the purpose of the Partnership's trading activities. In addition to and not in limitation of any rights and powers conferred by law or by this Agreement and except as limited, restricted, or prohibited by this Agreement, the General Partner shall have and may exercise, for and on behalf of the Partnership, and the Limited Partners, all powers and rights necessary, proper, convenient, and advisable to effectuate and carry out the purposes, business, and objectives of the Partnership, and shall have and possess the same rights and powers as a general partner in a partnership without limited partners formed under the law of the State of Delaware. The General Partner shall have fiduciary responsibility for the safekeeping of all of the funds and assets of the Partnership, whether or not in the General Partner's immediate possession or control. Except as provided otherwise in this Agreement, the General Partner shall neither employ nor permit another person to employ the Partnership's funds or assets in any manner other than for the benefit of the Partnership. The General Partner, for and on behalf of the Partnership, may retain one or more trading advisors (which may include officers, employees, and Affiliates of the General Partner or of its Affiliates, or the General Partner itself) to make trading decisions for the Partnership, and may delegate complete trading discretion to such advisor or advisors; provided, however, that the General Partner may override any trading instructions which it in its sole discretion shall determine to be in violation of any trading policy of the Partnership or as or to the extent necessary to fund distributions or redemptions, to effect the allocation or reallocation of the Partnership's assets among trading advisors if more than one trading advisor shall be retained by the General Partner, or to pay the Partnership's expenses; and provided further that the General Partner may make trading decisions at any time at which a trading advisor for the Partnership shall become incapacitated or unavailable or some other emergency shall arise as a result of which such advisor shall be unable or unwilling to act or no trading advisor shall then be retained by the Partnership and the General Partner shall not have yet retained a successor trading advisor. Notwithstanding the foregoing, the General Partner may consult with and receive recommendations from its Affiliates and their employees regarding the allocation and reallocation of assets among and the retention and termination of trading advisors for the Partnership; provided, however, that the General Partner in its sole discretion and judgment shall be responsible for making all final determinations regarding such matters. A-16 The General Partner, on behalf of the Partnership, shall be authorized and directed: (i) to enter into the advisory agreement with TIC described in the Prospectus and to cause the Partnership to pay TIC the fees described in the Prospectus and in such advisory agreement; (ii) to modify (including changing the form and amount of compensation and other arrangements and terms) or terminate such advisory agreement in its sole discretion in accordance with the terms of such agreement, and to employ from time to time other trading advisors for the Partnership (which may include officers, employees, and Affiliates of the General Partner or of its Affiliates, or the General Partner itself) pursuant to advisory agreements having such terms and conditions and providing for such form and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership and consistent with applicable laws, rules, and regulations, which terms may include provision for the payment of a fixed management fee and/or an incentive fee to new or replacement trading advisors, and any such incentive fee may be based upon trading profits which shall be earned by such trading advisors irrespective of whether such profits shall exceed trading losses which shall have been previously incurred or shall be concurrently incurred by other trading advisors or by the Partnership as a whole; (iii) to enter into a customer agreement with Bellwether Partners LLC, a Delaware limited liability company and an Affiliate of the General Partner ("BPL"), as described in the Prospectus; (iv) to enter into customer agreements with such futures commission merchants, introducing brokers, clearing brokers, floor brokers, foreign exchange brokers and dealers, broker-dealers, and brokerage firms as described in the Prospectus; (v) to cause the Partnership to pay BPL and such other brokers, dealers, and firms the commissions, fees, charges, mark-ups, and other transaction costs as described in the Prospectus and in the agreements with such persons or as agreed upon from time to time between the General Partner and BPL and such other brokers, dealers, and firms; (vi) to modify (including changing the form and amount of compensation and other arrangements and terms) and terminate such customer agreements in the sole discretion of the General Partner in accordance with the terms of such agreements; (vii) to employ from time to time other futures commission merchants, clearing brokers, introducing brokers, floor brokers, foreign exchange brokers and dealers, broker-dealers, and brokerage firms (which may include Affiliates of the General Partner or of its Affiliates, or the General Partner itself) pursuant to agreements having such terms and conditions and providing for such term and amount of compensation as the General Partner in its sole discretion shall deem to be in the best interests of the Partnership; and (viii) in furtherance of the Partnership's trading activities, purposes, business, and objectives, to provide guarantees, indemnities, margin, collateral, undertakings, credit support and enhancement, and similar assurances to banks, financial institutions, counterparties, brokers, dealers, customers, and other persons (including but not limited to BPL, other Affiliates of the General Partner, principals, stockholders, directors, officers, or employees of the General Partner or any of its Affiliates, or partnerships, corporations, companies, trusts, or other entities for which the General Partner or any of its Affiliates acts as general partner, operator, sponsor, or advisor or otherwise manages or controls ("Interested Persons")) with regard to obligations incurred by futures commission merchants, clearing brokers, introducing brokers, floor brokers, foreign exchange brokers and dealers, broker-dealers, and brokerage firms employed by the Partnership or its counterparties or agents or employed by other persons (including but not limited to Interested Persons), and to enter into related agreements A-17 (including but not limited to contribution, indemnity, margin, collateral, credit support and enhancement, and other similar agreements with Interested Persons), it being understood and agreed that, pursuant to such guarantees, arrangements, and agreements, the Partnership may make and take actual physical delivery of the items underlying commodity interest contracts, may be subject to risks of defaults and failures and other risks, and may be liable (primarily, secondarily, or contingently) for the obligations of other persons (including but not limited to Interested Persons), provided in each such case that the General Partner shall first determine in its sole discretion that such guarantees, arrangements, and agreements may result in better trade execution or pricing or increased confidentiality with respect to the Partnership's trading activities or is otherwise beneficial to the Partnership. The General Partner shall review from time to time, and at least once a year, the commission rates and other transaction fees charged to the Partnership. Based upon such review, comparisons to the commission rates and fees charged by other major futures commission merchants, introducing brokers, clearing brokers, floor brokers, foreign exchange brokers and dealers, broker- dealers, and brokerage firms for similar services rendered to accounts the size and type of the partnership's account, the General Partner's knowledge of the reasonableness of commission rates generally, the trading volume of the Partnership, and the circumstances of the Partnership, the General Partner shall ensure that the rates and fees being charged to the Partnership are reasonable and competitive in relation to rates and fees charged by other brokers and dealers for similar services to entities comparable in size and trading activity to the Partnership. (b) TRADING POLICIES. The General Partner shall require the Partnership's trading advisors to follow, and shall monitor their compliance with, such trading policies as the General Partner may determine in its sole discretion from time to time, as well as the following trading policies. (i) The Partnership shall not borrow or lend money to any Partner or other person, except that the foregoing shall not prohibit: (aa) depositing margin and collateral with respect to the initiation and maintenance of commodity interest contract positions; (bb) obtaining and utilizing lines of credit and settlement and delivery lines for the trading of forward contracts, currency contracts, swaps, and related contracts and entering into guarantees, arrangements, and agreements in connection therewith; or (cc) guaranteeing obligations of any person or entering into any other arrangement or agreement contemplated by clause (viii) of the fifth paragraph of Section 9(a). (ii) The Partnership shall not permit "churning" of its assets. (iii) The Partnership shall not employ the trading technique commonly known as "pyramiding", in which the speculator uses unrealized profits on existing positions in a given commodity interest contract due to favorable price movement as margin specifically to buy or sell additional positions in the same or a related commodity interest contract. However, open trade equity may be taken into account when determining the size of positions to be taken in all commodity interest contracts, A-18 and the Partnership may add to existing commodity interest contract positions in its portfolio provided that such action shall be consistent with the foregoing restriction. The General Partner shall not approve any material change in the foregoing three trading policies without obtaining prior written approval of Limited Partners owning more than 50% of the Units then owned by Limited Partners. (c) ADDITIONAL OBLIGATIONS AND RESPONSIBILITIES OF GENERAL PARTNER. The General Partner shall take such other actions as it may deem necessary or desirable in its sole discretion to manage the business of the Partnership, including but not limited to: (i) entering into, executing, delivering, and maintaining contracts and agreements, including without limitation account opening agreements and documents, applications, subscriptions, investment letters, investment agreements, management agreements, advisory agreements, powers of attorney, trading and investment authorizations, appointments of agents, purchase agreements, sale agreements, brokerage and clearing agreements, margin agreements, escrow agreements, custody agreements, solicitation agreements, swap agreements, collateral, pledge, and security agreements, financing statements, assignments, guarantees, indemnities, contribution agreements, keep-well agreements, credit support and enhancement agreements, incumbency certificates, confirmations, underwriting and selling agreements, consulting agreements, letters of liquidation, arbitration agreements, hedging certifications and agreements, risk disclosure statements, give-up agreements, disclosure documents, settlement agreements, court, arbitration, and regulatory authority agreements, applications, certifications, documents, and instruments, authorizations to close accounts, authorizations to transfer funds, securities, commodities, currencies, and other property, and any and all other instruments; (ii) doing and performing all such things as shall be in furtherance of the Partnership's purposes or necessary or appropriate for the conduct of the Partnership's business, including without limitation opening, maintaining, and closing brokerage accounts, clearing accounts, mutual fund accounts, bank accounts, margin, collateral, and security accounts, escrow accounts, custodial accounts, and other accounts; (iii) transferring the care and custody of securities, commodities, currencies, and funds to banks, brokers, dealers, clearing agencies, custodians, and other depositories and agents pursuant to bank, brokerage, clearing, safekeeping, custody, escrow, and other arrangements; (iv) making withdrawals, transfers, payments, and additions of funds, securities, commodities, currencies, and other property and instruments from and to said accounts; (v) collecting and receiving confirmation statements, statements of account, reports, and other communications from brokers, dealers, counterparties, banks, agents, mutual funds, custodians, and agents; (vi) making, executing, certifying, signing, endorsing, pledging, hypothecating, and delivering checks, drafts, notes, acceptances, bills of exchange, deposits, bills of lading, warehouse receipts, letters of credit, lines of credit, and negotiable instruments; (vii) depositing, withdrawing, paying, retaining, and distributing the Partnership's assets in any manner consistent with this Agreement; (viii) investing and directing the investment and reinvestment of assets of the Partnership; (ix) paying and authorizing the payment of distributions to Partners and expenses of the Partnership; and (x) preparing and filing in a timely manner all reports, filings, and registrations which shall be required from time to time by applicable legal, governmental, and regulatory authorities. A-19 The Partnership's assets are and shall be deposited with such banks, futures commission merchants, clearing brokers, foreign exchange brokers and dealers, broker-dealers, brokerage firms, custodians, and/or other depositories as the General Partner in its sole discretion may determine from time to time, and such assets shall be used for the Partnership's trading. The General Partner shall endeavor to place as much of the Partnership's assets as is practicable in governmental debt securities and other interest-bearing securities, investments, and accounts for the account of the Partnership or otherwise arrange for interest and other amounts to be credited to such assets. The Partnership shall receive all interest income and other amounts earned on such securities, investments, and accounts. The General Partner shall make any and all elections on behalf of the Partnership under the Code and any other applicable federal, state, local, or foreign tax law as the General Partner shall determine to be in the best interests of the Partnership. The General Partner shall prepare or cause to be prepared and shall file on or before the due date (or any extension thereof) any federal, state, local, or foreign tax returns which shall be required to be filed by the Partnership. The General Partner shall cause the Partnership to pay any taxes payable by the Partnership; provided, however, that the General Partner shall not be required to cause the Partnership to pay any tax so long as the General Partner or the Partnership shall in good faith and by appropriate legal proceedings be contesting the validity, applicability, or amount of such tax without materially endangering any rights or interests of the Partnership. The General Partner shall be authorized to perform all duties imposed by Sections 6221 through 6232 of the Code on the General Partner as "tax matters partner" of the Partnership, including but not limited to: (i) conducting all audits and other administrative proceedings with respect to Partnership tax items; (ii) extending the statute of limitations for all Limited Partners with respect to Partnership tax items; (iii) filing petitions with appropriate federal courts for review of final Partnership administrative adjustments; and (iv) entering into a settlement with the Internal Revenue Service on behalf of and binding upon those Limited Partners having less than a 1% interest in the Partnership, unless a Limited Partner shall have notified the Internal Revenue Service and the General Partner that the General Partner shall not act on such Partner's behalf. The General Partner shall be authorized to retain and compensate attorneys, accountants, and auditors to assist the General Partner in carrying out its obligations as tax matters partner. If, pursuant to applicable law, the Partnership shall be required to withhold tax on certain income of the Partnership allocable to a Partner (or assignee thereof), whether or not such tax shall be payable or shall have been paid by the Partnership or the General Partner (although the General Partner shall not be obligated to do so), each Limited Partner (or assignee, if any) shall be liable for and shall pay to the Partnership or the General Partner such amount of tax, within ten days after the General Partner's request therefor. Alternatively, if the Partnership and/or the General Partner shall have paid any such tax out of its/their own funds (although the General Partner shall not be obligated to do so), upon a distribution of funds to such Partner (or assignee) or a redemption of Units by such Partner (or assignee), all amounts of such taxes may be deducted from the proceeds from such distribution or redemption and reimbursed to the Partnership and/or the General Partner. A-20 The General Partner shall keep at the principal office of the Partnership such books and records relating to the business of the Partnership (including subscription documentation and records necessary to substantiate that Units were sold to subscribers for whom such securities were suitable at the time of purchase) as the General Partner deems necessary or advisable in its sole discretion or as shall be required by applicable regulatory authorities. To the extent required by CFTC regulations and for any purpose related to a Limited Partner's interest as a limited partner in the Partnership, such books and records shall be available to a Limited Partner or his authorized attorney or agent for inspection and copying during normal business hours of the Partnership, and upon request the General Partner shall send copies of the same to any Limited Partner upon payment by him of reasonable reproduction and distribution costs. A Limited Partner shall give the General Partner at least 24 hours' prior written notice for such inspection and copying by such Partner or his authorized attorney or agent. Any subscription documentation shall be retained by the Partnership for not less than six years. The General Partner shall submit to any state securities or Blue Sky authority any information required to be filed with such authority, including without limitation reports and statements required to be distributed to Limited Partners. Except as provided or permitted otherwise in this Agreement or with the approval of the General Partner and in accordance with applicable laws, rules, and regulations, no person shall receive, directly or indirectly, any advisory, management, or incentive fee for investment advice furnished to the Partnership who shall also share or participate in brokerage, floor, exchange, clearing, clearinghouse, or principal commissions or fees paid by the Partnership, and no broker or dealer for the Partnership shall pay, directly or indirectly, rebates or give-ups to the General Partner or any other trading advisor for the Partnership. Such prohibitions shall not be circumvented by any reciprocal business arrangements. Assets of the Partnership shall not be commingled with assets of any other person. The Partnership's deposit of margin, collateral, and assets with banks, futures commission merchants, clearing brokers, foreign exchange brokers or dealers, broker-dealers, brokerage firms, custodians, escrow agents, or other depositories and the segregation of any such amounts by such persons in accordance with CFTC regulations, and the Partnership's entry into, and performance under, any guarantee, arrangement, or other agreement contemplated by clause (viii) of the fifth paragraph of Section 9(a) shall not constitute commingling. The General Partner shall devote such time and resources to the Partnership's business and affairs as it in its sole discretion shall deem necessary or advisable to effectively manage the Partnership. Subject to Section 6, any Partner or affiliate of any Partner may engage in or possess any interest in other business ventures of any kind, nature, or description, independently or with others, whether such ventures are competitive with the Partnership or otherwise. Neither the Partnership nor any Partners shall have any rights or obligations by virtue of this Agreement or the partnership relationship created hereby in or to such other ventures or the income or profits or losses derived therefrom, and the pursuit of such ventures, even if competitive with the business of the Partnership, shall not be deemed wrongful or A-21 improper, and no Partner shall be required to refrain from any other venture or disgorge any profits derived from any other venture. The General Partner may, consistent with applicable laws, rules, and regulations, engage and compensate, on behalf of the Partnership and from the Partnership's funds, such persons and entities (including attorneys, accountants, and auditors, persons and entities affiliated with the General Partner, and officers, employees, and Affiliates of the General Partner) as the General Partner in its sole discretion shall deem necessary or advisable for the conduct and operation of the business of the Partnership. The General Partner in its sole discretion shall prosecute, defend, settle, or compromise actions or claims at law or in equity at the Partnership's expense as may be necessary or proper to enforce or protect the Partnership's interests. The General Partner shall satisfy any judgment, decree, or decision of any court or governmental or regulatory authority or any settlement of any suit or claim prior to judgment or final decision thereon, first out of any insurance proceeds available therefor, next out of the Partnership's assets, and thereafter out of the General Partner's assets. Persons dealing with the General Partner shall not be required to determine its authority to make any undertaking on behalf of the Partnership, nor to determine any fact or circumstances bearing upon the existence of its authority. 10. AUDITS; REPORTS TO LIMITED PARTNERS. The Partnership's books shall be audited annually by an independent public accounting firm selected by the General Partner in its sole discretion. The General Partner shall use its best efforts to cause each Partner to receive: (a) within 90 days after the close of each fiscal year of the Partnership a certified annual report containing audited financial statements (including a statement of income and a statement of financial condition) of the Partnership for the fiscal year last ended, prepared in accordance with generally accepted accounting principles applied on a consistent basis and accompanied by a report of the accounting firm which audited such statements, and such other information as the CFTC and the NFA from time to time shall require in annual reports; (b) within 90 days after the close of each fiscal year of the Partnership such tax information relating to the Partnership as shall be necessary for such Partner to complete such Partner's federal income tax return; (c) within 30 days after the close of each calendar month, such financial and other information with respect to the Partnership as the CFTC and the NFA from time to time shall require in monthly reports (including without limitation a statement showing the individual and aggregate amounts of fees, compensation, brokerage commissions and fees, and other expenses and costs paid by the Partnership); and (d) at such times as shall be necessary or advisable in the General Partner's sole discretion, such other information as the CFTC and the NFA from time to time shall require under the Commodity Exchange Act as amended to be given to participants in commodity pools. If any of the following events occurs, notice of such event shall be mailed to each Limited Partner within seven business days after the occurrence of such event: (i) any A-22 amendment to this Agreement which shall have been made in accordance with Section 18; (ii) a decrease in the Net Asset Value of a Unit to or below 50% of the Net Asset Value for the fiscal year-end most recently reported to Limited Partners; (iii) any change in general partners; or (iv) any change in the Partnership's fiscal year. Such notice shall describe any voting rights of the Limited Partners as set forth in Section 18. The approximate Net Asset Value of a Unit shall be determined daily by the General Partner, and the most recent approximate Net Asset Value shall be promptly supplied in writing to any Limited Partner after the General Partner shall have received a written request therefor from such Partner. 11. TRANSFER AND REDEMPTION OF UNITS. (a) TRANSFER. A Limited Partner may transfer, assign, pledge, or encumber his Units only as provided in this Section 11(a). A Limited Partner may transfer, assign, pledge, or encumber his Units solely and exclusively to or for the benefit of (i) another person who is an employee of the General Partner, TIC, any of their present or future affiliated entities, or their successors or assigns, (ii) the General Partner, TIC, any of their present or future affiliated entities, or their successors or assigns, or (iii) such other person or entity as the General Partner in its sole discretion may determine. A Limited Partner may not make a partial transfer, assignment, pledge, or encumbrance of his Units which would reduce the Net Asset Value of the Units retained by such Partner (after giving effect to such transfer, assignment, pledge, or encumbrance) to less than the amount of the minimum investment required by the Partnership of new Limited Partners at the time of such transfer, assignment, pledge, or encumbrance, and any proposed partial transfer, assignment, pledge, or encumbrance, if permitted under this Agreement, shall be honored only to the extent it complies with such limitation. No transferee, assignee, pledgee, or secured creditor of Units may become a substituted Limited Partner unless the General Partner first consents to such substitution in writing, which consent the General Partner may withhold in its sole discretion. Notwithstanding the foregoing, the General Partner may in its sole discretion waive any of the foregoing restrictions and limitations. Any transfer, assignment, pledge, or encumbrance of Units which shall be permitted hereunder shall be effective as of the close of business (as determined by the General Partner its sole discretion) on the last day of the calendar month in which such transaction shall have occurred; provided, however, that the Partnership need not recognize any transfer, assignment, pledge, or encumbrance until the General Partner shall have received at its principal office at least 30 days' prior written notice of such proposed transaction from the transferring Limited Partner. Such notice shall be signed by the transferring Limited Partner and shall set forth the name, residence address, and social security or taxpayer identification number of the proposed transferee, assignee, pledgee, or secured creditor, the number of Units that shall be proposed to be transferred, assigned, pledged, or encumbered, and a certification that the proposed transferee, assignee, pledgee, or secured creditor is a person permitted to own and hold Units as provided in the first paragraph of this Section 11(a). The transferring Limited Partner's signature shall be guaranteed by a commercial bank which is a member of A-23 the Federal Deposit Insurance Corporation, a trust company, or a member of either a United States registered national securities exchange or the NASD, other than a sole proprietor. The guarantees shall be signed by an authorized signatory of the bank, trust company, or member firm, and "Signature Guaranteed" shall appear with the signature. Signature guarantees by savings banks, savings and loan associations, and notaries public shall not be accepted. Signature guarantees may be waived by the General Partner in its sole discretion. The General Partner may request further documentation from entities, executors, administrators, trustees, or guardians. Prior to the General Partner's actual receipt at its principal office of the foregoing notice from a Limited Partner, the General Partner shall be entitled to recognize the exclusive right of the person registered in the Partnership's books and records as the owner of Units, and shall not be liable for any actions taken by it in reliance upon the Partnership's books and records (including transmitting reports, tax information, and notices as provided under Section 10, reporting tax information to governmental and regulatory authorities, and making distributions). No transfer, assignment, pledge or encumbrance of Units shall be permitted unless the General Partner shall be satisfied that such transaction: (i) shall not involve a transfer, assignment, pledge, or encumbrance to or for the benefit of a minor or incompetent, or a person who shall be insolvent after such transaction, or a person who is not permitted to own and hold Units as provided in the first paragraph of this Section 11(a); (ii) shall not violate this Section 11(a); (iii) shall not violate the Partnership Act; (iv) shall not violate the Securities Act, any applicable state securities or Blue Sky laws, or any applicable foreign laws; (v) shall not adversely affect the classification of the Partnership as a partnership for federal income tax purposes; or (vi) shall not adversely affect the status of Limited Partners as limited partners under the Partnership Act. Any such purported or attempted transfer, assignment, pledge, or encumbrance in violation of the preceding provisions shall be null, void, and ineffectual, and need not be recognized by the Partnership. A Limited Partner who shall transfer, assign, pledge, or encumber his Units shall remain liable to the Partnership as provided under the Partnership Act, regardless of whether his transferee, assignee, pledgee, or creditor shall become a substituted Limited Partner. Any transferee, assignee, pledgee, or creditor of Units who shall not have been admitted to the Partnership as a substituted Limited Partner shall not have any of the rights of a Limited Partner, except that such person shall receive that share of capital and profits and shall have that right of redemption to which his transferor, assignor, pledgor, or debtor shall have been entitled, and shall remain subject to the other terms of this Agreement binding upon Limited Partners. A Limited Partner shall bear all costs (including attorneys', accountants', and other fees) related to a transfer, assignment, pledge, or encumbrance of his Units. If a transferee, assignee, pledgee, or creditor shall become a substituted Limited Partner in accordance with this Section 11(a), the General Partner shall be authorized to execute, file, record, and publish, for and on behalf of the Partnership and each Partner, such amendments to this Agreement and the Certificate of Limited Partnership as may be necessary or desirable to reflect such substitution. No transferee, assignee, pledgee, or creditor shall become a Limited Partner until the General Partner shall execute this Agreement on behalf of A-24 such person pursuant to the power of attorney in Section 14 and shall make an entry in the books and records of the Partnership reflecting that such person has been admitted as a Limited Partner. Such person shall be deemed a Limited Partner at such time as such admission shall be reflected in the books and records of the Partnership. (b) REDEMPTION. Except as provided otherwise below in this Section 11(b), a Limited Partner (or any assignee thereof) may withdraw, effective as of the last day of any calendar quarter, all or a portion of such Partner's unredeemed capital contribution and undistributed profits, if any, by requiring the Partnership to redeem all or a portion of such Partner's Units at 100% of the Net Asset Value thereof, reduced as hereinafter described (such withdrawal being herein referred to as "Redemption"); provided, however, that (i) a Limited Partner may only redeem Units (or fractions thereof) in $1,000 increments, except that other amounts of Units may be redeemed if a Limited Partner is redeeming his entire interest in the Partnership, and (ii) a Limited Partner may not make a partial Redemption of his Units which would reduce the Net Asset Value of the Units retained by such Partner (after giving effect to such Redemption) to less than the amount of the minimum investment required of new Limited Partners by the Partnership at the time of such Redemption, and any request for partial redemption shall be honored only to the extent it complies with such limitation. Notwithstanding the foregoing, the General Partner may in its sole discretion waive any of the foregoing restrictions and limitations. Redemption of a Limited Partner's Units shall be effective as of the close of business (as determined by the General Partner in its sole discretion) on the last day of the calendar quarter ending after a Request for Redemption in proper form has been received by the General Partner ("Redemption Date"), provided that all liabilities (contingent or otherwise) of the Partnership, except any liability to Partners on account of their capital contributions, shall have been paid or there shall remain assets of the Partnership sufficient to pay them. As used herein, a "Request for Redemption" shall mean a letter in the form specified by the General Partner, sent by a Limited Partner (or any assignee thereof) and received by the General Partner at least five business days prior to the date on which Redemption is to be effective. If the General Partner shall receive a Request for Redemption on a date less than five business days prior to the date on which Redemption is to be effective, unless the General Partner in its sole discretion shall waive the untimeliness of such Request, such Redemption shall be effective as of the close of business (as determined by the General Partner in its sole discretion) on the last day of the calendar quarter that immediately follows the calendar quarter in which the General Partner received such untimely Request. A Request for Redemption is annexed hereto as ANNEX A. Additional Requests for Redemption may be obtained by written request to the General Partner. A Request for Redemption shall be endorsed by each Partner requesting such redemption, or by such Partner's assignee. Upon Redemption, a Limited Partner (or any assignee thereof) shall receive for each Unit redeemed an amount equal to 100% of the Net Asset Value of a Unit as of the Redemption Date, less any amount which shall be owed by such Partner (and his assignee, if any) to the Partnership or the General Partner as provided below in this paragraph or any amount which shall be owed by such Partner (and his assignee, if any) to the Partnership in A-25 accordance with Section 17(d). If, pursuant to applicable law, the Partnership shall have been required to pay or withhold tax on certain income of the Partnership allocable to a redeeming Limited Partner (or any assignee thereof), and the Partnership and/or the General Partner shall have paid out of its/their own funds such tax in accordance with Sections 8(e) or 9(c) (although the General Partner shall not be obligated to do so), upon Redemption of Units by such Limited Partner (or assignee), all amounts of such taxes may be deducted from the Net Asset Value of such Units and reimbursed to the Partnership and/or the General Partner. The right to obtain Redemption shall be contingent upon (i) the Partnership having assets sufficient to discharge its liabilities on the Redemption Date, (ii) the timely receipt by the General Partner of a Request for Redemption as described herein, and (iii) the other terms and conditions set forth in this Section 11(b). The General Partner shall endeavor to pay Redemptions within 20 business days after the Redemption Date, except that under certain circumstances (including but not limited to the inability on the part of the Partnership to liquidate commodity interest contract positions or the default or delay in payments which shall be due the Partnership from banks, brokers, dealers, or other persons), the Partnership may delay payment to Partners requesting Redemption of Units of the proportionate part of the Net Asset Value of the Units represented by the sums which shall be the subject of such default or delay. The General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and the Certificate of Limited Partnership as may be necessary to reflect any Redemption. 12. MANDATORY REDEMPTION. The General Partner may, in its sole discretion at any time and from time to time, require a Limited Partner (or his assignee if any) to withdraw entirely from the Partnership or to withdraw a portion of such Limited Partner's unredeemed capital contribution and undistributed profits, if any, by giving notice in writing to the Limited Partner (or assignee) thus designated. The Limited Partner (or assignee) thus designated shall redeem all or a portion of his Units from the Partnership as specified in such notice as of the last day of the calendar month specified in such notice, which notice shall be delivered to the Limited Partner (or assignee) thus designated at least five business days prior to such month-end. Such Limited Partner (or assignee) shall be deemed to have redeemed all or a portion of his Units, as the case may be, as of the end of such month without further action on the part of the Limited Partner (or assignee). The General Partner is authorized to cancel the appropriate number of Units issued to the Limited Partner (or assignee) in respect of such redemption and pay to the Limited Partner (or assignee) an amount equal to the Net Asset Value of such Units less any amounts specified in Section 11(b). Without limiting the foregoing or the circumstances under which the General Partner may require withdrawal of a Limited Partner, the General Partner intends generally to require the withdrawal of a Limited Partner: (a) who ceases to be an employee or Affiliate of the General Partner, TIC, any of their present or future affiliated entities, or their successors A-26 or assigns; (b) if the value of Units held by Plan Investor Partners equals or exceeds 25% of the aggregate value of all Units then outstanding; or (c) if Units may be deemed to constitute assets of Plan Investor Partners. The General Partner is authorized to execute, file, record, and publish, for and on behalf of the Partnership and each Partner, such amendments to this Agreement and the Certificate of Limited Partnership as may be necessary to reflect any required withdrawal of a Limited Partner. 13. ADMISSION OF ADDITIONAL PARTNERS. At any time and from time to time in its sole discretion, the General Partner may admit additional Limited Partners, each of which newly-admitted Limited Partners shall contribute cash to the capital of the Partnership for each Unit acquired in the amount determined in accordance with Section 7 (which amount shall not be less than 100% of the Net Asset Value of the Unit acquired). At any time and from time to time in its sole discretion, the General Partner may admit any transferee, assignee, pledgee, or secured creditor of Units as a substituted Limited Partner in accordance with Section 11(a). Additional general partners shall not be admitted to the Partnership except as provided in Section 18; provided, however, that at any time and from time to time in its sole discretion, the General Partner may admit additional general partners that are affiliated with the General Partner, TIC, any of their present or future affiliated entities, or their successors or assigns. No Limited Partner shall have any preemptive, preferential or other rights with respect to the issuance of any additional Units. The General Partner is authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to this Agreement and to the Certificate of Limited Partnership as may be necessary to reflect the admission or substitution of a Partner. 14. SPECIAL POWER OF ATTORNEY. Each Limited Partner, by the execution of this Agreement, hereby irrevocably constitutes and appoints the General Partner and any successor general partner, with full power of substitution, as such Partner's true and lawful agent and attorney-in-fact, in his name, place, and stead, to do all things necessary: (a) to admit a person as a Limited Partner and to admit other persons as additional or substituted Limited Partners so long as such admission or substitution shall be in accordance with this Agreement; (b) to file, prosecute, defend, settle, or compromise any and all actions at law or in equity for or on behalf of the Partnership in connection with any claim, demand, or liability asserted or threatened by or against the Partnership; and (c) to execute, acknowledge, swear to, deliver, file, record, and publish: (i) this Agreement, the Certificate of Limited Partnership, and amendments thereto; (ii) instruments which the General Partner shall deem necessary or appropriate to reflect any amendment, change, or modification of this Agreement or the Certificate of Limited Partnership made in accordance with this Agreement; (iii) certificates of assumed name; and (d) instruments which the General Partner shall deem necessary or appropriate to qualify or A-27 maintain the qualifications of the Partnership to do business as a foreign limited partnership in other jurisdictions. This Power of Attorney shall be irrevocable and deemed to be a power coupled with an interest, and shall survive the incapacity, insolvency, disability, legal incompetency, death, dissolution, liquidation, or termination of a Limited Partner. Each Limited Partner shall be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to this Power of Attorney. Each Limited Partner hereby waives any and all defenses which may be available to contest, negate, or disaffirm the action of the General Partner and any successor thereto taken in good faith under this Power of Attorney. Each Limited Partner shall execute a special power of attorney on a document separate from this Agreement, generally contained in subscription documentation. In the event of any conflict between this Agreement and any instruments executed, delivered, or filed by the General Partner and any successor thereto pursuant to this Power of Attorney, this Agreement shall control. The General Partner may exercise this Power of Attorney by listing all of the Limited Partners executing any agreement, certificate, instrument, or document with the single signature of the General Partner as attorney-in-fact for all such Limited Partners. 15. WITHDRAWAL OF PARTNERS. (a) WITHDRAWAL OF GENERAL PARTNER. The General Partner shall not withdraw from the Partnership unless it shall have given the Limited Partners at least 90 days' prior written notice of its intention to withdraw. Subject to Sections 4 and 18, upon the withdrawal, insolvency, dissolution, liquidation, or termination of the General Partner, the Partnership shall terminate and dissolve unless a remaining or new general partner or partners shall have been elected to continue the business of the Partnership, which any remaining or new general partner(s) shall have the right to do. (b) WITHDRAWAL OF LIMITED PARTNERS. The withdrawal, insolvency, disability, legal incompetency, death, liquidation, termination, or dissolution of a Limited Partner shall not terminate or dissolve the Partnership, and such Limited Partner and his estate, custodian, or legal representative shall have no right to withdraw or value such Limited Partner's interest in the Partnership except as provided in Section 11. Each Limited Partner (and any assignee or representative thereof) agrees that, in the event of his death, he waives on behalf of himself and his estate, and directs the legal representatives of his estate and any person interested therein to waive, the furnishing of any inventory, accounting, or appraisal of the assets of the Partnership and any right to an audit or examination of the books and records of the Partnership. A-28 16. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL. Except as provided otherwise in this Agreement, the General Partner shall not be personally liable for the return or repayment of all or any portion of the capital or profits of any Partner (or assignee), it being agreed by all Partners that any such return or repayment of capital or profits made pursuant to this Agreement shall be made solely from the assets of the Partnership (which shall include amounts contributed by Limited Partners and paid out in distributions, redemptions, or otherwise together with interest thereon, but shall not include any right of contribution from the General Partner except to the extent previously made by it pursuant to this Agreement). 17. STANDARD OF LIABILITY; INDEMNIFICATION. (a) STANDARD OF LIABILITY. Neither the General Partner nor any of its Affiliates (as defined in Section 17(c)) shall be liable, responsible, or accountable in damages or otherwise to the Partnership or any Partner for any loss, liability, damage, cost, or expense incurred by the Partnership or such Partner by reason of any act, omission, activity, or conduct by the General Partner or any of its Affiliates (either on behalf of the Partnership or in the furtherance of the interests of the Partnership) in good faith, in a manner reasonably believed by such person to be within the scope of the authority granted to such person by this Agreement or by law or by the consent of the Limited Partners, and in the best interests of the Partnership, provided that the General Partner's or such Affiliate's act, omission, activity, or conduct did not constitute negligence, misconduct, or breach of fiduciary duty. (b) INDEMNIFICATION BY PARTNERSHIP. The Partnership, out of its assets to the fullest extent permitted by applicable law, shall indemnify, defend, and hold harmless the General Partner and its Affiliates from and against any loss, liability, damage, cost, and expense (including attorneys' and accountants' fees and expenses incurred in defense of any demands, claims and lawsuits) actually and reasonably incurred by the General Partner or Affiliate arising from acts, omissions, activities, or conduct concerning the business or activities undertaken by or on behalf of the Partnership, including without limitation any demands, claims, or lawsuits initiated by a Limited Partner or assignee thereof, provided that a court of competent jurisdiction upon entry of final judgment shall find (or, if no final judgment shall be entered, independent legal counsel, who shall be other than counsel to the Partnership or the General Partner or Affiliate, shall in writing opine) that such loss, liability, damage, cost, or expense did not arise out of an act, omission, activity, or conduct of the General Partner or Affiliate which constituted misconduct, negligence, or breach of fiduciary duty and such act, omission, activity, or conduct was done in good faith, in the reasonable belief that it was within the scope of the authority granted to the General Partner or Affiliate by this Agreement or by law or by the consent of the Limited Partners, and was in the best interests of the Partnership. Notwithstanding the foregoing, no indemnification of the General Partner or its Affiliates by the Partnership shall be permitted for any loss, liability, damage, cost, or expense resulting from liabilities incurred for violation of federal or state securities laws. The General Partner and its Affiliates shall be indemnified for settlements and related expenses of lawsuits alleging securities law violations and for expenses incurred in successfully defending A-29 such lawsuits, provided that a court, after having been apprised as to the current position of the SEC and any other applicable state securities or Blue Sky regulatory authority regarding indemnification for violations of securities laws, either (i) approves the settlement and finds that indemnification of the settlement and related costs should be made, or (ii) approves indemnification of litigation costs if a successful defense is made. Notwithstanding the foregoing, in any action or proceeding brought by a Limited Partner in the right of the Partnership to which the General Partner or any of its Affiliates is a party defendant, any such person or entity shall be indemnified only to the extent and subject to the conditions specified in the Partnership Act. Expenses incurred in connection with the preparation and presentation of a defense to any claim, action, suit, or proceeding of the character described above shall be paid by the Partnership from time to time in advance prior to final disposition thereof upon receipt of an undertaking by or on behalf of the General Partner or Affiliate thereof, as applicable, that such amount shall be repaid by the General Partner or Affiliate to the Partnership if it shall be ultimately determined that the General Partner or Affiliate shall not be entitled to indemnification under this Section 17(b), provided that either (i) the General Partner or Affiliate provides appropriate security for such undertaking, (ii) the General Partner or Affiliate is insured against losses arising out of any such advance payments, or (iii) independent legal counsel, who shall be other than counsel to the Partnership or the General Partner or Affiliate, shall in writing opine that, based upon a review of readily available facts (as opposed to a full trial-type inquiry), there is reason to believe that the General Partner or Affiliate shall be found entitled to indemnification hereunder. Notwithstanding the foregoing, no such advances shall be made to the General Partner or its Affiliates when an action shall have been initiated by a Limited Partner. Nothing contained in this Section 17(b) shall increase the liability of any Limited Partner to the Partnership beyond the amount of his unredeemed capital contribution, undistributed profits if any, and any distributions and amounts received upon redemption of Units together with interest thereon, as provided in Section 8(f). All rights to indemnification and payment of attorneys' and accountants' fees and expenses shall not be affected by the termination of the Partnership or the withdrawal, insolvency, dissolution, liquidation, or termination of the General Partner. The Partnership shall not incur the cost of that portion of any liability insurance which insures the General Partner and its Affiliates for any liability as to which the General Partner and its Affiliates are prohibited from being indemnified hereunder; provided, however, that nothing contained herein shall preclude the Partnership from purchasing and paying for such types of insurance, including extended coverage liability and casualty and workers' compensation, as would be customary for any person owning comparable assets and engaged in similar business, or from naming the General Partner and its Affiliates as additional named insured parties thereunder, provided that such addition does not add to the amount of the premiums payable by the Partnership. A-30 Nothing contained herein shall constitute a waiver by any Limited Partner of any right which he may have against any party under federal or state securities laws. (c) AFFILIATE. As used in this Agreement, except as provided otherwise herein, the term "Affiliate" of the General Partner shall mean: (i) any natural person, partnership, corporation, company, association, or other legal entity directly or indirectly owning, controlling, or holding with power to vote 10% or more of the outstanding voting securities of the General Partner; (ii) any natural person, partnership, corporation, company, association, or other legal entity 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the General Partner; (iii) any natural person, partnership, corporation, company, association, or other legal entity directly or indirectly controlling, controlled by, or under common control with the General Partner; or (iv) any officer or director of the General Partner. Notwithstanding the foregoing, "Affiliate" for the purpose of this Section 17 shall include only those persons acting on behalf of the General Partner within the scope of the authority of the General Partner as provided in this Agreement. (d) INDEMNIFICATION BY PARTNERS. In the event that the Partnership shall be made a party to any claim, demand, dispute, or litigation or otherwise shall incur any loss, liability, damage, cost, or expense as a result of or in connection with any Partner's (or assignee's) obligations or liabilities unrelated to the Partnership's business, such Partner (or assignees cumulatively) shall indemnify, defend, hold harmless, and reimburse the Partnership for such loss, liability, damage, cost, and expense to which the Partnership shall become subject (including attorneys' and accountants' fees). 18. AMENDMENTS; MEETINGS; VOTING. (a) AMENDMENTS AND ACTIONS WITH CONSENT OF GENERAL PARTNER. If, at any time during the term of the Partnership, the General Partner shall deem it necessary or desirable to amend this Agreement, such amendment shall be effective only if such amendment shall be approved (in person or by proxy and embodied in an instrument signed personally or by an attorney-in-fact) by the General Partner and by Limited Partners owning more than 50% of the Units then owned by Limited Partners, and only if such amendment shall be made in accordance with and to the extent permissible under the Partnership Act. Approval by Limited Partners may be obtained by the General Partner after written notice to Limited Partners requiring them to respond in the negative within a specified time or be deemed to have provided their approval. Any amendment to this Agreement which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Partners and all outstanding Units of Limited Partnership Interest and Units of General Partnership Interest. Notwithstanding the foregoing, the General Partner shall be authorized to amend this Agreement, without the consent of any Limited Partner, in order: (i) to change the name of the Partnership; (ii) to clarify any ambiguity; (iii) to supplement or clarify any inconsistent provisions; (iv) to effect the intent of the allocation provisions to the maximum A-31 extent possible in the event of a change in the Code or the interpretations thereof affecting such allocations; (v) to attempt to ensure that the Partnership is not taxed as an association taxable as a corporation for federal income tax purposes; (vi) to attempt to ensure that the Partnership is not classified as a "publicly traded partnership" for federal income tax purposes; (vii) to make any other amendment that is not adverse to the Limited Partners; or (viii) to make any amendment that the General Partner deems advisable or considers necessary to comply with any applicable law, rule, regulation, policy, guideline or interpretation, provided that such amendment is not adverse to the Limited Partners. Any amendment to this Agreement shall be adhered to and have the same force and effect from and after its effective date as if the same shall have been originally embodied in and formed a part of this Agreement. Notwithstanding the foregoing, without the consent of all Partners, no such amendment to this Agreement shall change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner is entitled. (b) LIST OF PARTNERS; MEETINGS. Any Limited Partner, upon written request addressed to the General Partner and at such Limited Partner's expense, shall be entitled to obtain from the General Partner a list of the names and addresses of record of all Limited Partners and the number of Units owned by each, provided that such request shall be made in order to allow such Limited Partner to communicate with other Limited Partners concerning the business of the Partnership. The General Partner in its discretion may require a Limited Partner requesting a list of Limited Partners to furnish to the General Partner an affidavit that the Limited Partner's request shall not be desired for a purpose which is in the interest of a business or object other than the business of the Partnership. Upon the General Partner's receipt of a written request that a meeting of the Partnership be called to vote upon any matter upon which the Limited Partners may vote pursuant to this Agreement (which request shall be signed by Limited Partners owning at least 10% of the Units then owned by Limited Partners), the General Partner, by written notice to each Limited Partner of record mailed within 15 days after receipt of such request, shall call a meeting of the Partnership. Such meeting shall be held at least 30, but not more than 60, days after the mailing of such notice, and such notice shall specify the date, a reasonable place and time, and the purpose of such meeting. (c) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF GENERAL PARTNER. Upon the affirmative vote (in person or by proxy) of Limited Partners owning more than 50% of the Units then owned by Limited Partners (excluding any Units owned by the General Partner), the following actions may be taken by the Partnership: (i) this Agreement may be amended in accordance with and to the extent permissible under the Partnership Act, provided, however, that, without the consent of all Partners, no such amendment shall change or alter the provisions of this proviso, reduce the capital account of any Partner, or modify the percentage of profits, losses, or distributions to which any Partner shall be entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may be removed and a new general partner or partners may be elected to replace the General Partner; (iv) a new general partner or partners may be elected prior to the withdrawal of the General A-32 Partner from the Partnership; (v) any contracts with the General Partner or any of its Affiliates may be terminated without penalty on 60 days' prior written notice; and (vi) the sale of all or substantially all of the assets of the Partnership may be approved; provided, however, that none of the foregoing actions shall be taken unless legal counsel approved by Limited Partners owning more than 50% of the Units then owned by Limited Partners shall render a written opinion to the effect that the action to be taken shall not adversely affect the status of the Limited Partners as limited partners under the Partnership Act or the classification of the Partnership as a "partnership" under the federal income tax laws and is permitted under the Partnership Act (or, in lieu of such an opinion, a court of competent jurisdiction shall render a final order to such effects). The term "final order" shall mean an order that is not subject to any further court proceedings for appeal, review, or modification. Any action which shall have been approved by the percentage of outstanding Units prescribed above shall be deemed to have been approved by all Partners and all outstanding Units of Limited Partnership Interests and Units of General Partnership Interest. Any amendment to this Agreement shall be adhered to and have the same force and effect from and after its effective date as if the same shall have been originally embodied in and formed a part of this Agreement. (d) ACTIONS WITHOUT MEETING. Notwithstanding contrary provisions of this Section 18 covering notices to, meetings of, and voting by Limited Partners, any action required or permitted to be taken by Limited Partners at a meeting or otherwise may be taken by Limited Partners without a meeting, without prior notice, and without a vote if a consent in writing setting forth the action so taken shall be signed by Limited Partners owning Units having not fewer than the minimum number of votes that would be necessary to authorize or take such action at a meeting of Limited Partners at which all outstanding Units shall have been present and voted. Notice of the taking of action by Limited Partners without a meeting by less than unanimous written consent of Limited Partners shall be given to those Limited Partners who shall not have consented in writing without seven business days after the occurrence thereof. (e) AMENDMENTS TO CERTIFICATE OF LIMITED PARTNERSHIP. If an amendment to this Agreement shall be made pursuant to this Section 18, the General Partner shall be authorized to execute, file, record, and publish, on behalf of the Partnership and each Partner, such amendments to the Certificate of Limited Partnership as shall be necessary or desirable to reflect such amendment. 19. GOVERNING LAW. THE VALIDITY, CONSTRUCTION, AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY AND IN ACCORDANCE WITH THE SUBSTANTIVE LAW OF THE STATE OF DELAWARE (EXCLUDING THE LAW THEREOF WHICH REQUIRES THE APPLICATION OF OR REFERENCE TO THE LAW OF ANY OTHER JURISDICTION). A-33 20. MISCELLANEOUS. (a) PRIORITY AMONG LIMITED PARTNERS. Except as provided otherwise in this Agreement, no Limited Partner shall be entitled to any priority or preference over any other Limited Partner in regard to the affairs of the Partnership. (b) NOTICES. All notices under this Agreement (other than Requests for Redemption of Units, notices of assignment, transfer, pledge, or encumbrance of Units, and reports and notices by the General Partner to the Limited Partners) shall be in writing and shall be effective upon personal delivery or (if sent by mail, postage prepaid, addressed to the last known address of the party to whom such notice is to be given) upon the deposit of such notice in the United States mail. Requests for Redemption of Units and notices of assignment, transfer, pledge, or encumbrance of Units shall be effective upon timely receipt by the General Partner at its principal office. Reports and notices by the General Partner to the Limited Partners shall be in writing and shall be sent by first-class United States mail to the last known address of each Limited Partner. (c) BINDING EFFECT. This Agreement shall inure to the benefit of, and be binding upon, all of the Partners, their successors, assigns as permitted herein, custodians, estates, heirs, and legal representatives. For purposes of determining the rights of any Partner or assignee hereunder, the General Partner may rely upon the Partnership's books and records as to whom are Partners and assignees, and all Partners and assignees agree that their rights shall be determined and they shall be bound thereby, including but not limited to all rights which they may have under Section 18. (d) CAPTIONS. Captions in no way define, limit, extend, or describe the scope of this Agreement nor the effect of any of its provisions. A-34 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. General Partner: SECOND MANAGEMENT LLC By: __________________________________ Mark F. Dalton President and Chief Operating Officer Existing Limited Partners: By: SECOND MANAGEMENT LLC General Partner, as Authorized Agent and Attorney-in-Fact By: _______________________________ Mark F. Dalton President and Chief Operating Officer Additional Limited Partners: By: SECOND MANAGEMENT LLC General Partner, as Authorized Agent and Attorney-in-Fact By: _______________________________ Mark F. Dalton President and Chief Operating Officer A-35 ANNEX A TUDOR FUND FOR EMPLOYEES L.P. REQUEST FOR REDEMPTION ________________, 19__ (Today's date) Submitted for Redemption Effective the Calendar Quarter Ending __________, 19__ TUDOR FUND FOR EMPLOYEES L.P. c/o Second Management LLC, General Partner One Liberty Plaza, 51st Floor New York, New York 10006 Ladies and Gentlemen: I hereby request Redemption (as defined in and subject to the terms and conditions of the First Amended and Restated Limited Partnership Agreement of Tudor Fund For Employees L.P. (the "Partnership")) of (i) if a partial redemption, the equivalent number of Units of Limited Partnership Interest in the Partnership representing $____________ [insert dollar amount in $1,000 increments], or (2) if a full redemption, __________ Units [insert number of Units held] of Limited Partnership Interest in the Partnership, less any amounts specified below and in Section 11(b) of the First Amended and Restated Limited Partnership Agreement of the Partnership. Redemption will be effective as of the close of business (as determined by the General Partner in its sole discretion) on the last day of the calendar quarter ending after this Request for Redemption has been received by the General Partner, provided that this request for Redemption is received by the General Partner at its principal office at least five business days prior to the date on which this Redemption is to be effective. I understand that: (i) I may redeem Units only in $1,000 increments, except that other amounts of Units may be redeemed if I am redeeming my entire interest in the Partnership; and (ii) I may not make a partial Redemption of Units which would reduce the Net Asset Value of the Units retained by me (after giving effect to this Redemption) to less than $1,000, and any request for partial redemption will be honored only to the extent it complies with such limitation. I (either in my individual capacity or as an authorized representative of an entity if applicable) hereby represent and warrant that I am the true, lawful, and beneficial owner of the Units (or fractions thereof) to which this Request for Redemption relates, with full power and authority to request Redemption of such Units. Such Units are not subject to any pledge or otherwise encumbered in any fashion. A-36 Please remit Redemption proceeds as follows (Check one): _____ By check payable to the Limited Partner mailed to the following address: _____________________________________________________________________ _____________________________________________________________________ OR _____ By wire transfer* to the Limited Partner's bank account as follows: * It is the General Partner's policy to transfer Redemption proceeds by wire only for amounts of $3,000 or more. Bank Name: City and State: ABA Number: For the Account of: Account Number: Early payment based on the estimated quarter-end Net Asset Value per Unit (check one): _____ Is required by the Limited Partner _____ Is not required by the Limited Partner --- SIGNATURE MUST BE IDENTICAL TO NAME IN WHICH UNITS OF LIMITED PARTNERSHIP INTEREST ARE REGISTERED Name of Partner: ______________________________ Account Number: ______________________________ For execution by an individual partner For execution by an entity X X ______________________________ _________________________________ Signature of Limited Partner Signature of authorized officer, partner, trustee, or custodian THIS REQUEST FOR REDEMPTION MUST BE EXECUTED BEFORE A NOTARY PUBLIC AND RECEIVED BY THE GENERAL PARTNER AT ITS PRINCIPAL OFFICE AT LEAST FIVE FULL BUSINESS DAYS PRIOR TO THE DATE ON WHICH REDEMPTION IS TO BE EFFECTIVE. A-37 THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC FOR USE BY INDIVIDUAL STATE OF ) :ss.: COUNTY OF ) On the _______ day of ______________, 19__, before me personally appeared _________________________________________________________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at ______________________________________________________________________________ [Full residence address]; that he/she is the person described in and who executed the foregoing instrument; and he/she duly acknowledged to me that he/she executed the same. ------------------------------------------- Notary Public My commission expires on ___________________ FOR USE BY TRUSTEE STATE OF ) :ss.: COUNTY OF ) On the _______ day of ______________, 19__, before me personally appeared _____________________________________________________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at ______________________________________________________________________________ [Full residence address]; that he/she is the person described in and who executed the foregoing instrument, and he/she duly acknowledged to me that he/she executed the same as trustee on behalf of __________________________________________________________________ [Name of individual or entity]. ------------------------------------------- Notary Public My commission expires on ___________________ A-38 EXHIBIT B TUDOR FUND FOR EMPLOYEES L.P. SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY (FOR USE ONLY BY INDIVIDUALS) These securities may only be purchased and held by persons who are employees of Second Management LLC (the "General Partner"), any of its present or future affiliated entities, or their successors or assigns, or by the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k) Plan"). INSTRUCTIONS - PLEASE READ CAREFULLY 1. Carefully read this document to make sure that you understand it thoroughly and that it is the appropriate Subscription Agreement for you to use. 2. Using a typewriter or printing in ink, fill in the blanks as directed under the captions "Subscriber" and "Subscription", and include the appropriate signature and date under the caption "Signature". 3. Reread this document to make sure that you understand it and that all necessary blanks are filled in, and return it to Cargill Investor Services, Inc. (the "Selling Agent"), at One World Financial Center, Tower A, 200 Liberty Street, 22nd Floor, New York, New York 10281, Attention: John D. Carlin, Vice President. ________________________________________________________________________________ SUBSCRIBER (MUST BE COMPLETED IN FULL) (a) Full Name (Do Not Use Initials): ---------------------------------------------------------------------- First Middle Last (b) Social Security Number:_______________________________ (c) Residence Address (P.O. Box Alone Not Acceptable): ---------------------------------------------------------------------- Street ---------------------------------------------------------------------- City State Zip Code B-1 (d) Home Telephone Number (____) __________________________ (e) Have you previously subscribed for Units? Yes___ No___ ________________________________________________________________________________ SUBSCRIPTION (MUST BE COMPLETED IN FULL) Pursuant to the accompanying Prospectus dated June __, 1996 (the "Prospectus"), subscriptions are solicited for Units of Limited Partnership Interest ("Units") in Tudor Fund For Employees L.P. (the "Partnership"), including fractions of Units (to the fourth decimal place), on a continuing basis (the "Continuing Offering") for sale at periodic closings held as of January 1, April 1, July 1, and October 1 of each year or at such other times as the General Partner determines in its sole discretion ("Periodic Closings"), at an offering price per Unit equal to 100% of the Net Asset Value (as defined in the Prospectus) of a Unit as of the opening of business on the date of the Periodic Closing at which such Unit is sold. The minimum subscription is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. A subscriber may subscribe for amounts in excess of the foregoing minimum in increments of $1,000. All subscriptions for Units are irrevocable. The General Partner in its sole discretion may reject any subscription in whole or in part at any time prior to acceptance. In order to subscribe for Units, a subscriber must deliver to the Selling Agent: (1) a fully completed, dated, and signed Subscription Agreement and Power of Attorney; and (2) either (a) a check payable to "UNITED STATES TRUST COMPANY OF NEW YORK, AS ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", or (b) a wire transfer of Federal Funds to "CHASE MANHATTAN BANK, NEW YORK, NEW YORK, ABA NO. 021000021, FOR CREDIT TO UNITED STATES TRUST COMPANY OF NEW YORK, ACCOUNT NO. 920-1-073195, TUDOR FUND FOR EMPLOYEES L.P., ACCOUNT NO. 098-791-00 REFERENCE: [SUBSCRIBER'S NAME], ATTN: CYNTHIA CHANEY", in either case representing the full purchase price for such subscription. The Escrow Agent requires 2 full business days to clear checks drawn on New York City banks, 5 full business days to clear checks drawn on all other banks, and 1 full business day to clear wire transfers of funds. The undersigned subscriber hereby irrevocably subscribes for $_______________ of Units for the Periodic Closing to be held as of the first day of _____________, 199__ (insert date). B-2 ________________________________________________________________________________ REPRESENTATIONS AND WARRANTIES The undersigned subscriber hereby represents and warrants to, and agrees with, the General Partner and the Partnership as follows. (1) The address as set forth above under the caption "Subscriber" is the subscriber's true, correct, and complete residence address, and the subscriber has no present intention of becoming a resident of any other state or country. The information provided above under that caption is true, correct, and complete as of the date of this Subscription Agreement, and if there should be any change in such information prior to the acceptance of the subscriber's subscription for Units at a Periodic Closing, the subscriber will immediately furnish such revised or corrected information to the General Partner. (2) The subscriber is over 21 years old, is legally competent, and is permitted by applicable law to execute and deliver this Subscription Agreement and to purchase Units. (3) As of the date of this Subscription Agreement, the amount of the subscriber's subscription for Units, made directly by the subscriber in his/her individual capacity and/or indirectly by the subscriber through the TIC 401(k) Plan, when added to the amount of all other subscriptions made by the subscriber (directly or indirectly) for Units, is and will be 25% or less of the subscriber's net worth or, if married, the subscriber's joint net worth with spouse (exclusive of home, furnishings, and automobiles). (4) The subscriber understands that, during the Continuing Offering, the number of whole Units and fractions of Units which will be issued to a subscriber will be determined by dividing the subscription amount tendered by the subscriber by the Net Asset Value of a Unit as of the date of the applicable Periodic Closing at which the subscription is accepted. The subscriber understands that the Net Asset Value of a Unit may increase or decrease substantially between the date of a subscription and the date of the Periodic Closing at which the subscription is accepted; consequently, the subscriber may receive at a Periodic Closing more or fewer Units and/or fractions of Units than would be received if the Periodic Closing were held on the date of the subscription. (5) The subscriber can afford to bear the risks of an investment in the Partnership, including the risk of losing the entire investment. (6) The subscriber's subscription is made with the subscriber's own funds for the subscriber's own account, and not as B-3 trustee, custodian, nominee, or agent for, or partner with, any other person. (7) The subscriber understands that there exist significant actual and potential conflicts of interest in the structure and operation of the Partnership, all as described in the Prospectus. (8) The subscriber understands that Tudor Investment Corporation ("TIC"), an affiliate of the General Partner, serves as the trading advisor for the Partnership and, except as described otherwise in the Prospectus, receives management and incentive fees for such services, and that Bellwether Partners LLC, an affiliate of the General Partner and TIC, serves as counterparty to and agent for the Partnership in the trading of spot and forward contracts and over- the-counter options, all as described in the Prospectus. (9) The subscriber understands that neither the Partnership nor any investor will pay any selling commissions to the Selling Agent in connection with subscriptions for Units. However, the General Partner (out of its own funds) will reimburse the Selling Agent for certain of its out-of-pocket administrative expenses and may otherwise compensate the Selling Agent for its selling efforts, to the extent permitted by applicable law. (10) The subscriber understands that the performance and financial information included in the Prospectus and in any supplement to the Prospectus referred to below under the caption "Receipt of Documentation" should be read only in conjunction with the notes and accompanying text, and that such information should not be interpreted to mean that the Partnership, the General Partner, or TIC will have similar results in the future or will realize any profits whatsoever. (11) The subscriber understands that Units cannot be redeemed or transferred, assigned, pledged, or encumbered except as set forth in the Second Amended and Restated Limited Partnership Agreement of the Partnership as amended to date, annexed as EXHIBIT A to the Prospectus (the "Limited Partnership Agreement"). (12) The subscriber is currently an employee of the General Partner or of an entity affiliated with the General Partner. Upon the termination of the subscriber's employment for any reason whatsoever (including voluntary termination) with the General Partner, or any of its affiliated entities, or their successors or assigns, the subscriber's Units purchased hereby will be subject to mandatory redemption upon 5 business days' written notice from the General Partner, all as described in the Prospectus and the Limited Partnership Agreement. BY MAKING THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, SUBSCRIBERS SHOULD BE AWARE THAT THEY HAVE NOT WAIVED ANY RIGHTS OF B-4 ACTION WHICH THEY MAY HAVE UNDER APPLICABLE FEDERAL SECURITIES LAW. FEDERAL SECURITIES LAW PROVIDES THAT ANY SUCH WAIVER WOULD BE UNENFORCEABLE. SUBSCRIBERS SHOULD BE AWARE, HOWEVER, THAT THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN MAY BE ASSERTED IN THE DEFENSE OF THE PARTNERSHIP OR OTHERS IN ANY SUBSEQUENT LITIGATION OR OTHER PROCEEDING. ________________________________________________________________________________ ACCEPTANCE OF LIMITED PARTNERSHIP AGREEMENT The undersigned subscriber hereby agrees that, as of the date that the subscriber is admitted to the Partnership as a Limited Partner, the subscriber will be bound by the terms of the Limited Partnership Agreement, as amended to date and from time to time hereafter in accordance with the terms thereof, as if the subscriber's signature was actually subscribed thereto. ________________________________________________________________________________ POWER OF ATTORNEY The undersigned subscriber irrevocably constitutes and appoints the General Partner and any successor general partner, with the power of substitution, as the subscriber's true and lawful agent and attorney-in-fact, in the subscriber's name, place, and stead, to do all things necessary: (1) to admit the subscriber as a limited partner of the Partnership and to admit others as additional or substituted limited partners to the Partnership so long as such admission is in accordance with the terms of the Limited Partnership Agreement or any amendment thereto; (2) to file, prosecute, defend, settle, or compromise any and all actions at law or in equity for or on behalf of the Partnership in connection with any claim, demand, or liability asserted or threatened by or against the Partnership; and (3) to execute, acknowledge, swear to, deliver, file, record, and publish on the subscriber's behalf (a) the Limited Partnership Agreement, the Certificate of Limited Partnership of the Partnership, as amended to date and from time to time hereafter (the "Certificate of Limited Partnership"), (b) instruments which the General Partner shall deem necessary or appropriate to reflect any amendment, change, or modification of the Limited Partnership Agreement or the Certificate of Limited Partnership made in accordance with the terms of the Limited Partnership Agreement, (c) certificates of assumed name, and (d) instruments which the General Partner shall deem necessary or appropriate to qualify or maintain the qualifications of the Partnership to conduct business as a foreign limited partnership in other jurisdictions. This Power of Attorney shall be irrevocable and deemed to be a power coupled with an interest, and shall survive the incapacity, insolvency, disability, legal incompetency, death, dissolution, liquidation, or termination of the subscriber. The subscriber shall be bound by any representation made by the General Partner and by any successor thereto acting in good B-5 faith pursuant to this Power of Attorney. The subscriber hereby waives any and all defenses which may be available to contest, negate, or disaffirm the action of the General Partner and any successor thereto taken in good faith under this Power of Attorney. The General Partner may exercise this Power of Attorney by listing all of the Limited Partners executing any agreement, certificate, instrument, or document with the single signature of the General Partner as attorney-in-fact for all such Limited Partners. ________________________________________________________________________________ RECEIPT OF DOCUMENTATION The regulations of the Commodity Futures Trading Commission require that the undersigned subscriber be given a copy of the Partnership's Prospectus as well as certain additional documentation if available. Such additional documentation includes: (1) a supplement to the Prospectus, which may be given to the subscriber at any time that additional information is being provided to subscribers, and which must be given to the subscriber if the Prospectus or any supplement thereto is dated more than six months prior to the date that the subscriber first receives the Prospectus or supplement; (2) the most current monthly account statement for the Partnership, which must be distributed within 30 calendar days after the end of each calendar month; and (3) the most current annual report for the Partnership, which must be distributed within 90 calendar days after the end of the Partnership's fiscal year (December 31st). The subscriber hereby acknowledges receipt of the Partnership's Prospectus and the additional documentation referred to above, if any. ________________________________________________________________________________ SIGNATURE X - ----------------------------------------- ------------------------ (Signature of Subscriber) Date B-6 ________________________________________________________________________________ NON-UNITED STATES INVESTORS ONLY Under penalties of perjury, by signature above the subscriber hereby certifies that the subscriber is not a citizen or resident of the United States. --- ________________________________________________________________________________ Account Executive Use Only (Must Be Completed In Full And, Except For Signature, Must Be Typed Or Printed In Ink By Account Executive) The undersigned AE hereby certifies that: (1) the AE has informed the person named above under the caption "Subscriber" of all pertinent facts relating to the liquidity and marketability of the Units as set forth in the Prospectus; and (2) the AE has reasonable grounds to believe (on the basis of information obtained from the person named above under the caption "Subscriber" concerning such person's investment objectives, other investments, financial situation and needs, and any other information known by the AE) that (a) such person is or will be in a financial position appropriate to enable such person to realize to a significant extent the benefits described in the Prospectus, (b) such person has a fair market net worth sufficient to sustain the risks inherent in the Partnership (including loss of investment and lack of liquidity), and (c) the Partnership is otherwise a suitable investment for such person. (a) AE's Signature:________________________________________ (b) Full Name of AE:_______________________________________ (c) Full Name of AE's Firm: Cargill Investor Services, Inc. (d) Account Code of Subscriber:____________________________ THE AE MUST ENSURE THAT THE DOCUMENTATION REFERRED TO ABOVE UNDER THE CAPTION "RECEIPT OR DOCUMENTATION" HAS BEEN FURNISHED TO THE PERSON NAMED ABOVE UNDER THE CAPTION "SUBSCRIBER". THE AE ALSO MUST ENSURE THAT ALL INFORMATION REQUIRED TO BE PROVIDED UNDER THIS CAPTION AND UNDER THE CAPTIONS "SUBSCRIBER", "SUBSCRIPTION", AND "SIGNATURE" HAS BEEN COMPLETED IN FULL AND IS LEGIBLE. AN INCOMPLETE OR ILLEGIBLE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY WILL BE REJECTED AND THE SUBSCRIBER WILL NOT BE ALLOWED TO BECOME A LIMITED PARTNER. B-7 THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC FOR USE ONLY BY INDIVIDUALS STATE OF ) ) ss.: COUNTY OF ) On this _____ day of _______________, 19__, before me personally appeared __________________________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at _____________________________ __________________________ [include full residence address]; that he/she is the person described in and who executed the foregoing instrument; and he/she duly acknowledged to me that he/she executed the same. ----------------------------------- Notary Public My commission expires on __________ B-8 EXHIBIT C TUDOR FUND FOR EMPLOYEES L.P. SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY (FOR USE ONLY BY THE TUDOR INVESTMENT CORPORATION 401(k) SAVINGS AND PROFIT-SHARING PLAN) This Subscription Agreement and Power of Attorney shall only be used by, and must be executed by, one of the trustees (each a "Trustee") of the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k) Plan"). In addition, each plan participant of the TIC 401(k) Plan on whose behalf this Subscription Agreement and Power of Attorney is being submitted (each a "Plan Participant") must execute the form of Representations and Agreements by Plan Participants annexed to the Prospectus as Exhibit D. All other subscribers must use the form of Subscription Agreement and Power of Attorney for individuals annexed to the Prospectus as Exhibit B. INSTRUCTIONS - PLEASE READ CAREFULLY 1. Carefully read this document to make sure that you understand it thoroughly and that it is the appropriate Subscription Agreement for you to use. 2. Using a typewriter or printing in ink, fill in the blanks as directed under the caption "Subscription", and include the appropriate signature and date under the caption "Signature". 3. Reread this document to make sure that you understand it and that all necessary blanks are filled in, and return it to Cargill Investor Services, Inc. (the "Selling Agent"), at One World Financial Center, Tower A, 200 Liberty Street, 22nd Floor, New York, New York 10281, Attention: John D. Carlin, Vice President. "Subscriber" means the trust under the TIC 401(k) Plan acting through one or more of its Trustees. C-1 ________________________________________________________________________________ SUBSCRIBER (MUST BE COMPLETED IN FULL) 1. (a) Full Name of Trust: Tudor Investment Corporation 401(k) ----------------------------------- Savings and Profit-Sharing Plan. ------------------------------------------------------- (b) Taxpayer I.D. Number: 13-3841088 --------------------------------- 2. (a) Full Names of Trustees: Filomena Di Sisto and ------------------------------ Patrick A. Keenan. ------------------------------------------------------- (b) Principal Business Address (P.O. Box Alone Not Acceptable): One Liberty Plaza, 51st Floor _______________________________________________________ Street New York New York 10006 _______________________________________________________ City State Zip Code _______________________________________________________________________________ SUBSCRIPTION (MUST BE COMPLETED IN FULL) Pursuant to the accompanying Prospectus dated June __, 1996 (the "Prospectus"), subscriptions are solicited for Units of Limited Partnership Interest ("Units") in Tudor Fund For Employees L.P. (the "Partnership"), including fractions of Units (to the fourth decimal place), on a continuing basis (the "Continuing Offering") for sale at periodic closings held as of January 1, April 1, July 1, and October 1 of each year or at such other times as Second Management LLC (the "General Partner") determines in its sole discretion (the "Periodic Closings"), at an offering price per Unit equal to 100% of the Net Asset Value (as defined in the Prospectus) of a Unit as of the opening of business on the date of the Periodic Closing at which such Unit is sold. The minimum subscription is $1,000, and whole Units and fractions of Units (to the fourth decimal place) may be subscribed for. A subscriber may subscribe for amounts in excess of the foregoing minimum in increments of $1,000. All subscriptions for Units are irrevocable. The General Partner in its sole discretion may reject any subscription in whole or in part at any time prior to acceptance. In order to subscribe for Units, a subscriber must deliver to the Selling Agent: (1) a fully completed, dated, and signed Subscription Agreement and Power of Attorney; and (2) either (a) a check payable to "UNITED STATES TRUST COMPANY OF NEW YORK, AS C-2 ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", or (b) a wire transfer of Federal Funds to "CHASE MANHATTAN BANK, NEW YORK, NEW YORK, ABA NO. 021000021, FOR CREDIT TO UNITED STATES TRUST COMPANY OF NEW YORK, ACCOUNT NO. 920-1-073195, TUDOR FUND FOR EMPLOYEES L.P., ACCOUNT NO. 098-791-00, REFERENCE: TUDOR INVESTMENT CORPORATION 401(K) SAVINGS AND PROFIT-SHARING PLAN, ATTN: CYNTHIA CHANEY", in either case representing the full purchase price for such subscription. The Escrow Agent requires 2 full business days to clear checks drawn on New York City banks, 5 full business days to clear checks drawn on all other banks, and 1 full business day to clear wire transfers of funds. Acceptance of a subscription by the TIC 401(k) Plan is in no respect a representation by the Partnership or the General Partner that this investment meets all relevant legal requirements with respect to investments by the TIC 401(k) Plan, or that this investment is appropriate for the TIC 401(k) Plan or any Plan Participant. The undersigned subscriber hereby irrevocably subscribes for $_______________ of Units for the Periodic Closing to be held as of the first day of _____________, 199__ (insert date). ________________________________________________________________________________ REPRESENTATIONS AND WARRANTIES The undersigned Trustee on behalf of the TIC 401(k) Plan hereby represents and warrants to, and agrees with, the General Partner and the Partnership as follows. (1) The undersigned Trustee understands that, during the Continuing Offering, the number of whole Units and fractions of Units which will be issued to the TIC 401(k) Plan will be determined by dividing the subscription amount tendered by the subscriber by the Net Asset Value of a Unit as of the date of the applicable Periodic Closing at which the subscription is accepted. The undersigned Trustee understands that the Net Asset Value of a Unit may increase or decrease substantially between the date of a subscription and the date of the Periodic Closing at which the subscription is accepted; consequently, the TIC 401(k) Plan may receive at a Periodic Closing more or fewer Units and/or fractions of Units than would be received if the Periodic Closing were held on the date of the subscription. (2) The undersigned Trustee understands that there exist significant actual and potential conflicts of interest in the structure and operation of the Partnership, all as described in the Prospectus. C-3 (3) The undersigned Trustee understands that Tudor Investment Corporation ("TIC"), an affiliate of the General Partner, acts as the trading advisor for the Partnership and, except as described otherwise in the Prospectus, receives management and incentive fees for such services, and that Bellwether Partners LLC, an affiliate of the General Partner and TIC, acts as a counterparty to and agent for the Partnership in the trading of spot and forward contracts and over-the-counter options, all as described in the Prospectus. (4) The undersigned Trustee understands that neither the Partnership nor any investor will pay any selling commissions to the Selling Agent in connection with subscriptions for Units. However, the General Partner (out of its own funds) will reimburse the Selling Agent for certain of its out-of-pocket administrative expenses and may otherwise compensate the Selling Agent for its selling efforts, to the extent permitted by applicable law. (5) The undersigned Trustee understands that the performance and financial information included in the Prospectus and in any supplement to the Prospectus referred to below under the caption "Receipt of Documentation" should be read only in conjunction with the notes and accompanying text, and that such information should not be interpreted to mean that the Partnership, the General Partner, or TIC will have similar results in the future or will realize any profits whatsoever. (6) The undersigned Trustee understands that Units cannot be redeemed or transferred, assigned, pledged, or encumbered except as set forth in the Second Amended and Restated Limited Partnership Agreement of the Partnership as amended to date, annexed as EXHIBIT A to the Prospectus (the "Limited Partnership Agreement"). BY MAKING THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, THE UNDERSIGNED TRUSTEE SHOULD BE AWARE THAT NEITHER HE/SHE NOR THE TIC 401(K) PLAN HAS WAIVED ANY RIGHTS OF ACTION WHICH EITHER MAY HAVE UNDER APPLICABLE FEDERAL SECURITIES LAW. FEDERAL SECURITIES LAW PROVIDES THAT ANY SUCH WAIVER WOULD BE UNENFORCEABLE. THE UNDERSIGNED TRUSTEE SHOULD BE AWARE, HOWEVER, THAT THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN MAY BE ASSERTED IN THE DEFENSE OF THE PARTNERSHIP OR OTHERS IN ANY SUBSEQUENT LITIGATION OR OTHER PROCEEDING. C-4 ________________________________________________________________________________ ACCEPTANCE OF LIMITED PARTNERSHIP AGREEMENT The undersigned Trustee hereby agrees that, as of the date that the trust account is admitted to the Partnership as a Limited Partner, the Trustees and the TIC 401(k) Plan will be bound by the terms of the Limited Partnership Agreement, as amended to date and from time to time hereafter in accordance with the terms thereof, as if a Trustee's signature was actually subscribed thereto. ________________________________________________________________________________ POWER OF ATTORNEY The undersigned Trustee irrevocably constitutes and appoints the General Partner and any successor general partner, with the power of substitution, as its true and lawful agent and attorney-in-fact, in each of the undersigned's name, place, and stead, to do all things necessary: (1) to admit the TIC 401(k) Plan as a limited partner of the Partnership and to admit others as additional or substituted limited partners to the Partnership so long as such admission is in accordance with the terms of the Limited Partnership Agreement or any amendment thereto; (2) to file, prosecute, defend, settle, or compromise any and all actions at law or in equity for or on behalf of the Partnership in connection with any claim, demand, or liability asserted or threatened by or against the Partnership; and (3) and to execute, acknowledge, swear to, deliver, file, record, and publish on the subscriber's behalf (a) the Limited Partnership Agreement, the Certificate of Limited Partnership of the Partnership, as amended to date and from time to time hereafter (the "Certificate of Limited Partnership"), (b) instruments which the General Partner shall deem necessary or appropriate to reflect any amendment, change, or modification of the Limited Partnership Agreement or the Certificate of Limited Partnership made in accordance with the terms of the Limited Partnership Agreement, (c) certificates of assumed name, and (d) instruments which the General Partner shall deem necessary or appropriate to qualify or maintain the qualification of the Partnership to conduct business as a foreign limited partnership in other jurisdictions. This Power of Attorney shall be irrevocable and deemed to be a power coupled with an interest, and shall survive the incapacity, disability, legal incompetency, or death of a Trustee or the insolvency, dissolution, liquidation, or termination of the TIC 401(k) Plan. C-5 The Trustees and the TIC 401(k) Plan shall be bound by any representation made by the General Partner and by any successor thereto acting in good faith pursuant to this Power of Attorney. The Trustees and the TIC 401(k) Plan hereby waive any and all defenses which may be available to contest, negate, or disaffirm the action of the General Partner and any successor thereto taken in good faith under this Power of Attorney. The General Partner may exercise this Power of Attorney by listing all of the Limited Partners executing any agreement, certificate, instrument, or document with the single signature of the General Partner as attorney-in-fact for all such Limited Partners. C-6 ________________________________________________________________________________ RECEIPT OF DOCUMENTATION The regulations of the Commodity Futures Trading Commission require that the undersigned be given a copy of the Partnership's Prospectus as well as certain additional documentation if available. Such additional documentation includes: (1) a supplement to the Prospectus, which may be given to the undersigned at any time that additional information is being provided to subscribers, and which must be given to the undersigned if the Prospectus or any supplement thereto is dated more than six months prior to the date that the undersigned first receives the Prospectus or supplement; (2) the most current monthly account statement for the Partnership, which must be distributed within 30 calendar days after the end of each calendar month; and (3) the most current annual report for the Partnership, which must be distributed within 90 calendar days after the end of the Partnership's fiscal year (December 31st). The undersigned Trustee hereby acknowledges receipt of the Partnership's Prospectus and the additional documentation referred to above, if any. ________________________________________________________________________________ SIGNATURE The undersigned Trustee hereby certifies and warrants the he/she has full power and authority from and on behalf of the TIC 401(k) Plan to complete, execute, and deliver this Subscription Agreement and Power of Attorney on its behalf, and to make the statements, representations, and warranties made herein, and that an investment in the Partnership is not prohibited by law or by the governing documents of the TIC 401(k) Plan, and is legally permissible. Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan - ------------------------------------------------------------------- (Type or Print Name of Trust Account) By: ____________________________________________________________ (Type or Print Name of Trustee) ____________________________________________________________ (Signature of Trustee) Date C-7 ACCOUNT EXECUTIVE USE ONLY (MUST BE COMPLETED IN FULL AND, EXCEPT FOR SIGNATURE, MUST BE TYPED OR PRINTED IN INK BY ACCOUNT EXECUTIVE) The undersigned AE hereby certifies that: (1) the AE has informed the person named above under the caption "Subscriber" of all pertinent facts relating to the liquidity and marketability of the Units as set forth in the Prospectus; and (2) the AE has reasonable grounds to believe (on the basis of information obtained from the person named above under the caption "Subscriber" concerning such person's investment objectives, other investments, financial situation and needs, and any other information known by the AE) that (a) such person is or will be in a financial position appropriate to enable such person to realize to a significant extent the benefits described in the Prospectus, (b) such person has a fair market net worth sufficient to sustain the risks inherent in the Partnership (including loss of investment and lack of liquidity), and (c) the Partnership is otherwise a suitable investment for such person. (a) AE's Signature: _______________________________________ (b) Full Name of AE: ______________________________________ (c) Full Name of AE's Firm: Cargill Investor Services, Inc. (d) Account Code of Subscriber: ___________________________ THE AE MUST ENSURE THAT THE DOCUMENTATION REFERRED TO ABOVE UNDER THE CAPTION "RECEIPT OR DOCUMENTATION" HAS BEEN FURNISHED TO THE PERSON NAMED ABOVE UNDER THE CAPTION "SUBSCRIBER". THE AE ALSO MUST ENSURE THAT ALL INFORMATION REQUIRED TO BE PROVIDED UNDER THIS CAPTION AND UNDER THE CAPTIONS "SUBSCRIBER", "SUBSCRIPTION", AND "SIGNATURE" HAS BEEN COMPLETED IN FULL AND IS LEGIBLE. AN INCOMPLETE OR ILLEGIBLE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY WILL BE REJECTED AND THE SUBSCRIBER WILL NOT BE ALLOWED TO BECOME A LIMITED PARTNER. C-8 THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC FOR USE BY TRUSTEES STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this _____ day of _______________, 19__, before me personally appeared __________________________________, to me known, who, being by me duly sworn, did depose and say that he/she resides at _____________________________ __________________________ [include full residence address]; that he/she is the Trustee described in and who executed the foregoing instrument for and on behalf of the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan; he/she duly acknowledged to me that he/she executed the same; and he/she executed the same by order of and pursuant to authority in the trust instrument of such trust account. ----------------------------------- Notary Public My commission expires C-9 EXHIBIT D REPRESENTATIONS AND AGREEMENTS BY PLAN PARTICIPANTS In connection with the election by the undersigned plan participant ("Plan Participant") of the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k) Plan") to make an investment of contributions by the TIC 401(k) Plan on behalf of the Plan Participant in Tudor Fund For Employees L.P. (the "Partnership"), the Plan Participant hereby represents and warrants to, and agrees with, the trustees of the TIC 401(k) Plan (the "Trustees"), the Partnership, and Second Management LLC (the "General Partner") as follows. (1) As of the date hereof and at all times during the calendar year to which the current Plan Participant's investment election form applies, the amount of the Plan's investment on behalf of the Plan Participant in Units of Limited Partnership Interest in the Partnership ("Units"), taking into account all investments in Units that will be made by the Plan on behalf of the Plan Participant during such calendar year, when added to the amount of all other investments in Units made by the Plan on behalf of the Plan Participant or by the Plan Participant directly and in his/her individual capacity, is and will be 25% or less of the Plan Participant's net worth or, if married, the Plan Participant's joint net worth with spouse (exclusive of home, furnishings, and automobiles). The Plan Participant can afford to bear the risks of an investment in the Partnership, including the risk of losing the entire investment. (2) The Plan Participant has received and thoroughly read the Prospectus dated June __, 1996 (the "Prospectus") relating to the Partnership and Units. (3) The Plan Participant understands that there exist significant actual and potential conflicts of interest in the structure and operation of the Partnership, all as described in the Prospectus. (4) The Plan Participant understands that the performance and financial information included in the Prospectus and in any supplement to the Prospectus provided to the Plan Participant should be read only in conjunction with the notes and accompanying text, and that such information should not be interpreted to mean that the Partnership, the General Partner, or Tudor Investment Corporation, the trading advisor for the Partnership, will have similar results in the future or will realize any profits whatsoever. (5) The Plan Participant understands that, upon termination of the Plan Participant's employment for any reason whatsoever (including voluntary termination) with the General Partner, or any of its affiliated entities, or their successors or assigns, any investment in the Partnership of the Plan Participant under D-1 the TIC 401(k) Plan will be subject to mandatory reallocation to other investment elections under the TIC 401(k) Plan (as specified by the Plan Participant) or, if no other investment election is specified, the Merrill Lynch Retirement Preservation Trust. X - ------------------------------------------ ------------------------- (Signature of Plan Participant) Date D-2 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.* Printing................................... $ 40,000 Legal fees and expenses.................... 100,000 Accounting fees and expenses............... 46,500 Escrow Agent fees.......................... 3,500 Blue Sky fees and expenses, including legal fees..................... 5,000 Miscellaneous.............................. 5,000 -------- Total................................... $200,000 -------- ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 17 of the Second Amended and Restated Limited Partnership Agreement (a form of which is filed herewith as Exhibit 3.01(c) hereto) provides for indemnification of Second Management LLC (the General Partner of the Registrant) and its affiliates by the Registrant, and for indemnification of the Registrant by the Partners in certain circumstances. Section 8 of the Management Agreement (a form of which was previously filed as Exhibit 10.03, now Exhibit 10.03(a) hereto) provides for the indemnification of Tudor Investment Corporation (the Trading Advisor for the Registrant) and its stockholders, directors, officers, principals, employees, and their respective successors and assigns in certain circumstances. Section 7 of the Selling Agreement (a form of which was previously filed as Exhibit 1.01(b) hereto) provides for indemnification of the Registrant by Cargill Investor Services, Inc. (the Selling Agent for the Registrant) in certain circumstances, and for indemnification of the Selling Agent by the Registrant and the General Partner in certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On November 22, 1989, Mark F. Dalton, President and Chief Operating Officer of the General Partner, purchased one Unit of Limited Partnership Interest of the Registrant for $1,000 to permit it to be organized as a limited partnership under the Delaware Revised Uniform - ------------------------- * The amounts represent an estimate of the specified expenses in connection with the issuance and distribution of the securities covered by this Post- Effective Amendment No. 6 during the next 12 months, and do not represent cumulative expenses to date or any future expenses in respect of the Registrant or any securities previously issued, or which may in the future be issued, by the Registrant. II-1 Limited Partnership Act. This sale was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of that Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS. (a) EXHIBITS Exhibit Description of Number Document ------- -------------- 1.01(a) Form of Selling Agreement among Seventh Management, Inc., Second Management Company, Inc. (succeeded by Second Management LLC), and the Registrant (not in effect). 1.01(b) Form of Selling Agreement among Cargill Investor Services, Inc., Second Management Company, Inc. (succeeded by Second Management LLC), and the Registrant. 3.01(a) Form of Limited Partnership Agreement of the Registrant. 3.01(b) Form of First Amended and Restated Limited Partnership Agreement of the Registrant. 3.01(c)** Form of Second Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the Prospectus). 3.02(a) Certificate of Limited Partnership of the Registrant. 3.02(b)** Amendment to the Certificate of Limited Partnership of the Registrant. 5.01** Opinion letter of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 8.01** Opinion letter of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. II-2 Exhibit Description of Number Document ------- -------------- 10.01(a) Forms of Customer Agreement between the Registrant and each of (i) Morgan Stanley & Co., Incorporated, (ii) Prudential Securities Incorporated, and (iii) Shearson Lehman Brothers Inc. (not in effect). 10.01(b) Forms of Customer Agreement between the Registrant and each of (i) Daiwa Securities America, Inc., and (ii) Goldman, Sachs & Co. 10.01(c) Forms of Customer Agreement between the Registrant and each of (i) Cargill Investor Services, Inc., and (ii) J.P. Morgan Futures, Inc. 10.01(d) Form of Customer Agreement between the Registrant and Salomon Brothers Inc. 10.01(e) Forms of Customer Agreement between the Registrant and each of (i) BZW Futures, and (ii) Merrill Lynch Futures Inc. 10.01(f)** Forms of Customer Agreement between the Registrant and each of (i) Morgan Stanley & Co. International Limited, (ii) E. D. & F. Man International Inc., (iii) Lehman Brothers Inc., (iv) CS First Boston, and (v) Bear Stearns Securities Corp. 10.02(a) Form of Customer Foreign Exchange Agreement between the Registrant and Bellwether Partners Inc. (succeeded by Bellwether Partners LLC). 10.02(b) Form of Amendment to Customer Foreign Exchange Agreement between the Registrant and Bellwether Partners Inc. (succeeded by Bellwether Partners LLC). 10.02(c) Form of Customer Foreign Exchange Agreement between the Registrant and Commodities Corporation (U.S.A.) N.V. 10.02(d) Form of Guarantee by the Registrant in favor of counterparty of Bellwether Partners Inc. (succeeded by Bellwether Partners LLC) (not in effect). - -------------------------- ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. II-3 Exhibit Description of Number Document ------- -------------- 10.02(e) Form of Contribution Agreement among the Registrant, Bellwether Partners Inc. (succeeded by Bellwether Partners LLC), Tudor Futures Fund, The American Eagle Fund I L.P., Tudor BVI Futures, Ltd., Tudor G-5 Ltd., Tudor G-5 Unit Trust, and Galloway Partners, L.P. (not in effect). 10.03(a) Form of Management Agreement among the Registrant, Second Management Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation. 10.03(b) Form of Amendment to Management Agreement among the Registrant, Second Management Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation. 10.04(a)** Form of Subscription Agreement and Power of Attorney to be executed by purchasers of Units who are individuals (included as Exhibit B to the Prospectus). 10.04(b)** Form of Subscription Agreement and Power of Attorney to be executed by participants in the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit C to the Prospectus). 10.04(c)** Form of Representations and Agreements Letter to be executed by participants in the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit D to the Prospectus). 10.05(a) Form of Escrow Agreement among the Registrant, Seventh Management, Inc., and United States Trust Company of New York. 10.05(b) Form of Amendment to Escrow Agreement among the Registrant, Cargill Investor Services, Inc., and United States Trust Company of New York. - ------------------------ ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. II-4 23.01** Consent of Independent Public Accountants for each of (i) the Registrant, and (ii) Second Management Company, Inc. (b) FINANCIAL STATEMENTS** Included in the Prospectus: Tudor Fund for Employees L.P. (the Registrant) Report of Independent Public Accountants Audited Statements of Financial Condition Notes to Audited Statements of Financial Condition Unaudited Statement of Financial Condition Notes to Unaudited Statement of Financial Condition Second Management Company, Inc. (the General Partner) Report of Independent Public Accountants Audited Statements of Financial Condition Notes to Audited Statements of Financial Condition Second Management LLC (the General Partner) Unaudited Statement of Financial Condition Notes to Unaudited Statement of Financial Condition ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (c) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. - -------------------------- **Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. II-5 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Post-Effective Amendment No. 6 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 30th day of May, 1996. TUDOR FUND FOR EMPLOYEES L.P. By: SECOND MANAGEMENT LLC General Partner By: /s/ Mark F. Dalton ___________________________ Mark F. Dalton President and Chief Operating Officer Pursuant to the requirements of the Securities Act of 1933, this Post- Effective Amendment No. 6 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. Signature Title(s) Date - --------- -------- ---- Second Management LLC General Partner May 30, 1996 By: /s/ Mark F. Dalton __________________________ Mark F. Dalton President and Chief Operating Officer /s/ Paul Tudor Jones, II Management Committee Member and May 30, 1996 ___________________________ Chairman and Chief Executive Paul Tudor Jones, II Officer of the General Partner /s/ Mark F. Dalton Management Committee Member and May 30, 1996 ___________________________ President and Chief Operating Mark F. Dalton Officer of the General Partner /s/ Patrick A. Keenan Management Committee Member, May 30, 1996 ___________________________ Vice President, and Chief Patrick A. Keenan Financial Officer of the General Partner /s/ Andrew S. Paul Management Committee Member, May 30, 1996 ___________________________ Vice President, General Andrew S. Paul Counsel, and Secretary of the General Partner /s/ Mark A. Heffernan Management Committee Member of May 30, 1996 ___________________________ the General Partner Mark A. Heffernan II-7 EXHIBIT INDEX Exhibit Description of Number Document ------- -------------- 1.01(a) Form of Selling Agreement among Seventh Management, Inc., Second Management Company, Inc. (succeeded by Second Management LLC), and the Registrant (not in effect). 1.01(b) Form of Selling Agreement among Cargill Investor Services, Inc., Second Management Company, Inc. (succeeded by Second Management LLC), and the Registrant. 3.01(a) Form of Limited Partnership Agreement of the Registrant. 3.01(b) Form of First Amended and Restated Limited Partnership Agreement of the Registrant. 3.01(c) ** Form of Second Amended and Restated Limited Partnership Agreement of the Registrant (included as Exhibit A to the Prospectus). 3.02(a) Certificate of Limited Partnership of the Registrant. 3.02(b)** Amendment to the Certificate of Limited Partnership of the Registrant. 5.01** Opinion letter of Cadwalader, Wickersham & Taft to the Registrant regarding the legality of Units (including consent). 8.01** Opinion letter of Cadwalader, Wickersham & Taft to the Registrant regarding certain federal income tax matters (including consent). ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. Exhibit Description of Number Document ------- -------------- 10.01(a) Forms of Customer Agreement between the Registrant and each of (i) Morgan Stanley & Co., Incorporated, (ii) Prudential Securities Incorporated, and (iii) Shearson Lehman Brothers Inc. (not in effect). 10.01(b) Forms of Customer Agreement between the Registrant and each of (i) Daiwa Securities America, Inc., and (ii) Goldman, Sachs & Co. 10.01(c) Forms of Customer Agreement between the Registrant and each of (i) Cargill Investor Services, Inc., and (ii) J.P. Morgan Futures, Inc. 10.01(d) Form of Customer Agreement between the Registrant and Salomon Brothers Inc. 10.01(e) Forms of Customer Agreement between the Registrant and each of (i) BZW Futures, and (ii) Merrill Lynch Futures Inc. 10.01(f) ** Forms of Customer Agreement between the Registrant and each of (i) Morgan Stanley & Co. International Limited, (ii) E. D. & F. Man International Inc., (iii) Lehman Brothers Inc., (iv) CS First Boston, and (v) Bear Stearns Securities Corp. 10.02(a) Form of Customer Foreign Exchange Agreement between the Registrant and Bellwether Partners Inc. (succeeded by Bellwether Partners LLC). 10.02(b) Form of Amendment to Customer Foreign Exchange Agreement between the Registrant and Bellwether Partners Inc. (succeeded by Bellwether Partners LLC). 10.02(c) Form of Customer Foreign Exchange Agreement between the Registrant and Commodities Corporation (U.S.A.) N.V. 10.02(d) Form of Guarantee by the Registrant in favor of counterparty of Bellwether Partners Inc. (succeeded by Bellwether Partners LLC) (not in effect). - -------------------------- ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. Exhibit Description of Number Document ------- -------------- 10.02(e) Form of Contribution Agreement among the Registrant, Bellwether Partners Inc. (succeeded by Bellwether Partners LLC), Tudor Futures Fund, The American Eagle Fund I L.P., Tudor BVI Futures, Ltd., Tudor G-5 Ltd., Tudor G-5 Unit Trust, and Galloway Partners, L.P. (not in effect). 10.03(a) Form of Management Agreement among the Registrant, Second Management Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation. 10.03(b) Form of Amendment to Management Agreement among the Registrant, Second Management Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation. 10.04(a)** Form of Subscription Agreement and Power of Attorney to be executed by purchasers of Units who are individuals (included as Exhibit B to the Prospectus). 10.04(b)** Form of Subscription Agreement and Power of Attorney to be executed by participants in the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit C to the Prospectus). 10.04(c)** Form of Representations and Agreements Letter to be executed by participants in the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit D to the Prospectus). 10.05(a) Form of Escrow Agreement among the Registrant, Seventh Management, Inc., and United States Trust Company of New York. 10.05(b) Form of Amendment to Escrow Agreement among the Registrant, Cargill Investor Services, Inc., and United States Trust Company of New York. 23.01** Consent of Independent Public Accountants for each of (i) the Registrant, and (ii) Second Management Company, Inc. - ------------------------ ** Filed herewith. If not filed herewith, Exhibit was previously filed and has not been amended in any material respect. EX-3.02(B) 2 AMENDED CERTIFICATE OF LIMITED PARTNERSHIP EXHIBIT 3.02(b) AMENDMENT TO THE CERTIFICATE OF LIMITED PARTNERSHIP OF TUDOR FUND FOR EMPLOYEES L.P. The undersigned, desiring to amend Section 4 of the Certificate of Limited Partnership (the "Certificate") of Tudor Fund For Employees L.P. (the "Partnership"), pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act, Title 6 Delaware Code, Subtitle II, Chapter 17, 17-101 et seq. (the "Act"), does hereby certify, pursuant to Section 17-202 of the Act, that the Certificate shall, and hereby is, amended as follows. 4. General Partner. The name and business and mailing address of the general partner of the Partnership is: Second Management LLC, One Liberty Plaza, 51st Floor, New York, New York 10006. This Amendment was duly executed in accordance with, and is being filed pursuant to, Section 17-202 of the Act. IN WITNESS WHEREOF, the undersigned, has executed this Amendment on the 14th day of May, 1996. TUDOR FUND FOR EMPLOYEES L.P. -1- By: SECOND MANAGEMENT LLC General Partner By:______________________________ Andrew S. Paul Vice President -2- EX-5.01 3 LEGAL OPINION OF CADWALADER, WICKERSHAM EXHIBIT 5.01 May 30, 1996 Tudor Fund For Employees L.P. c/o Second Management LLC General Partner One Liberty Plaza 51st Floor New York, New York 10006 Dear Sirs: We have acted as your counsel in connection with the organization of Tudor Fund For Employees L.P., a Delaware limited partnership (the "Registrant"), and the preparation and filing with the Securities and Exchange Commission of Post-Effective Amendment No. 6 to the Registration Statement on Form S-1, SEC File No. 33-33982 (the "Registration Statement"), relating to the registration under the Securities Act of 1933 as amended of Units of Limited Partnership Interest in the Registrant (the "Units"). In such connection, we have assisted in the preparation of the Second Amended and Restated Limited Partnership Agreement of the Registrant (the "Limited Partnership Agreement") and in the preparation and filing with the Secretary of State of the State of Delaware of the Amended Certificate of Limited Partnership of the Registrant. In rendering the opinions set forth herein, we have examined such documents, records, and applicable law as we have deemed necessary or appropriate for purposes of rendering such opinions. Based upon the foregoing, we are of the opinion that, upon (1) the sale of the Units described in the Registration Statement in the manner and on the terms and conditions set forth therein and (2) the identification of the purchasers of Units as limited partners in the books and records of the Registrant, the Units will be validly issued, fully-paid, and non-assessable. We are also of the opinion that a limited partner's liability for the losses and obligations of the Registrant solely by reason of such person being a limited partner of the Registrant will not exceed such limited partner's unredeemed capital contributions, undistributed profits (if any), and distribution and redemption amounts received (if any) with interest thereon, all as described in the Limited Partnership Agreement. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the references made to us in the Prospectus constituting a part of the Tudor Fund For Employees L.P. May 30, 1996 Registration Statement under the captions "Principal Risk Factors", "Purchases by Employee Benefit Plans--ERISA Considerations", "Federal Income Tax Aspects", "State and Local Income Tax Aspects", and "Legal Matters". Very truly yours, EX-8.01 4 TAX OPINION OF CADWALADER, WICKERSHAM EXHIBIT 8.01 May 30, 1996 Tudor Fund For Employees L.P. c/o Second Management LLC General Partner One Liberty Plaza 51st Floor New York, New York 10006 Dear Sirs: We have acted as your counsel in connection with the preparation and filing with the Securities and Exchange Commission of Post-Effective Amendment No. 6 to the Registration Statement on Form S-1, SEC File No. 33-33982 (the "Registration Statement"), relating to the registration under the Securities Act of 1933 as amended of Units of Limited Partnership Interest ("Units") in Tudor Fund For Employees L.P. (the "Partnership"), a limited partnership organized under the Delaware Revised Uniform Limited Partnership Act. We have examined such documents and records and have reviewed such questions of law and fact as we have deemed necessary for purposes of delivering this opinion letter. Based upon the foregoing, we hereby confirm our opinion, under the heading "Federal Income Tax Aspects" in the Prospectus constituting a part of the Registration Statement that the Partnership will be taxed as a partnership for United States federal income tax purposes. We also confirm that the text in the Prospectus set forth under the headings "Principal Risk Factors", "Purchases by Employee Benefit Plans--ERISA Considerations", "Federal Income Tax Aspects", and "State and Local Income Tax Aspects" correctly describes the material tax consequences to United States taxpayers who are individuals of acquiring, owning, and disposing of Units. We hereby consent to the filing of this letter as an exhibit to the Registration Statement. Very truly yours, EX-10.01(F) 5 FORMS OF CUSTOMER AGREEMENT EXHIBIT 10.01 (f) MORGAN STANLEY INTERNATIONAL MORGAN STANLEY SECURITIES LIMITED TERMS AND CONDITIONS OF DEALING IN FINANCIAL AND COMMODITY FUTURES AND OPTIONS 1. DEFINITIONS (A) In these terms and conditions, the following words and phrases shall bear the following meanings: "this Agreement" means the agreement comprising these terms and conditions and any covering letter hereto and any additional documents accompanying these terms and conditions, each as from time to time amended and/or supplemented; "Asset" means currencies, securities, investments, deposits or financial instruments (including futures or option contracts) or physical assets; "Broker" means such member of an Exchange and/or Clearing House as is instructed by MSI to enter into a futures or option contract on an Exchange and/or clear the same; "Charges" means the sums payable to MSI in respect of fees charged under this Agreement; "Clearing House" means any clearing house providing settlement or clearing or similar services for, or as part of, an Exchange; "Client" means the person with whom MSI has entered into this Agreement; "Client Contract" means a futures or option contract between MSI and the Client which is matched by a Contract and is identical in its terms except as to parties; "Client Money" means all initial and variation Margin, option premiums and all other sums received from or due to the Client pursuant to this Agreement which is "Client Money" as defined by Regulation 2.1 of the Regulations; "close out" means the entering into of a Contract equal and opposite to a Contract previously entered into (and each matching a Client Contract) so as to create a level position in relation to the Assets underlying the Contracts, or 1 in relation to the Contracts themselves and fix the amount of profit or loss arising from such Contracts (and with respect to the corresponding Client Contract); and the terms "closed out Contract" and "closing out" shall be construed accordingly; "Connected Company" means a subsidiary or holding company (in each case construed in accordance with Section 736 of the Companies Act 1985 or any statutory modification or re-enactment thereof) of MSI or a subsidiary of any such holding company; "Contract" means a futures or option contract entered into by MSI on an Exchange or, where sub-Clause 2(B) applies, with or through a Broker; "Contracted-out Client Money" means all initial and variation Margin, option premiums and all other sums received from or due to, the Client pursuant to this Agreement, which sums are not to be treated as "Client Money" as defined by Regulation 2.1 of the Regulations; "Exchange" means any exchange, market or association of dealers in any part of the world on which Assets and/or futures or option contracts are bought and sold; "a futures or option contract" means a contract, for future delivery and/or settlement, to (1) buy or sell an Asset and/or (2) pay or receive a sum of money by reference to an index or formula; "LOCH" means London Options Clearing House Limited; "London Traded Options" means traded options dealt in on The International Stock Exchange; "Margin" means the amount of cash (including premiums) as may from time to time be demanded by MSI from the Client for the purpose of protecting MSI against any loss or risk of loss on present, future or contemplated Contracts and/or Client Contracts; "Margin Account" means an account with such bank or banks as MSI may from time to time determine designed in such a way as to identify the contents of such account as being client monies; "MSI" means Morgan Stanley International and/or, as the context requires, MSSL, each contracting for itself and, in relation to sub-Clause 2(H), (I), (K) 8(I), (J), (N), (S) and (T), as trustee for the relevant Connected Companies, directors, officers and/or employees; 2 "MSSL" means Morgan Stanley Securities Limited; "Open Contract" means a Contract which has not been closed out and which has not yet matured; "the Regulations" means The Financial Services (Clients' Money) Regulations 1987; "Securities" means such securities, investments and financial instruments as the Client may, with the agreement of MSI, deposit with, or transfer to, MSI by way of Margin; "Taxes" means taxes, duties, imposts and fiscal charges of any nature, whether of the United Kingdom or elsewhere in the world and whenever imposed, including value added taxes and stamp and other documentary taxes; "The International Stock Exchange" means The International Stock Exchange of the United Kingdom and the Republic of Ireland; "Transaction" means the entering into of a Contract, closing out or effecting delivery and/or settlement of a Contract (which term shall include exercise or allocation of an option Contract); "TSA" means The Securities Association. (B) Words importing the singular shall, where the context permits, include the plural and vice versa. The expression "person" shall include any firm, partnership, association of persons and body corporate and any such persons acting jointly and the personal representatives or successors in title of any such person. Where the Client comprises two or more persons the liabilities and obligations hereunder shall be joint and several. References to "writing" shall include telex, cable, facsimile transmission and telegram. References to statutory provisions and regulations shall include any modification or re-enactment or re-making thereof. (C) Headings are for convenience only and shall not affect the interpretation hereof. 2. DEALING (A) MSI shall be entitled, but not bound, to act on a request from the Client to carry out a Transaction (whether directly or through a Broker). Transactions may, where so permitted under the Rules of TSA, be carried out either on, or in accordance with, the rules of an Exchange which is not a recognised or designated investment Exchange. Transactions will not relate to off-Exchange 3 futures and options contracts unless the Client has entered into a supplemental agreement for such business. (B) MSI may designate a Broker to execute and/or clear futures or option contracts subject to such conditions as MSI may impose. MSI may designate a Broker outside the United Kingdom who has agreed with MSI that: (1) Client Money received by the Broker in relation to a margined Transaction will be held in segregated bank account; and (2) MSI's customer account with it will be credited with Client Money or collateral provided to the Broker by MSI in respect of margined Transactions to the value of that Client Money or collateral. (C) If MSI carries out a Transaction on the request of the Client or pursuant to Clause 5 below: (1) a corresponding Client Contract shall come into existence on the purchase or sale of a Contract or, as the case may be, exercise and allocation of an option Contract in respect of which the underlying Asset is a futures Contract and cease to exist on closing out or on settlement and/or delivery of the Contract; and (2) the Client shall have the obligations in relation to the Transaction and the corresponding Client Contract as are herein mentioned. (D) As soon as practicable after it has carried out a Transaction MSI shall confirm details of that Transaction to the Client. MSI shall provide to the Client at agreed intervals a statement of the Client's overall trading (and Margin) positions with MSI at the then available current market price. (E) If MSI shall decline to carry out a Transaction it shall promptly notify the Client accordingly. MSI shall have no liability for any expense, loss or damage incurred by the Client by reason of any omission so to notify the Client otherwise than as a result of the bad faith or wilful default of MSI and in no event shall MSI have any liability for any consequential or special damage, whether arising from bad faith, wilful default, or otherwise. (F) In respect of every Client Contract, MSI shall have made or placed an equivalent Contract on the floor of the relevant market for execution or shall, where sub-Clause 2(B) applies, have entered into an equivalent Contract with or through a Broker and MSI shall thus have an interest in the Transaction. (G) Any contract which MSI acquires as a result of the instructions of the Client will, unless the position has been closed out, result in the Client becoming 4 liable to MSI in relation to the corresponding Client Contract for actual delivery of its underlying Asset or payment of the relevant price under, and subject to, the rules of the relevant Exchange and/or Clearing House. (H) The relationship between MSI and the Client is as described in this Agreement. Neither that relationship nor the services MSI provides nor any other matter will give rise to any fiduciary or equitable duties on the part of MSI or of any Connected Company which would prevent or hinder MSI or any Connected Company doing business for or with the Client, acting as both principal or agent, doing business with Connected Companies and other investors or generally acting as provided in this Agreement. MSI and any Connected Company may (without disclosing the same to the Client) carry out any Transaction for the Client (whether or not pursuant to a Discretionary Trading Authorisation) or give advice or make recommendations without being liable to account to the Client for any profit or gain accruing to MSI or any Connected Company while MSI or any Connected Company has a relationship, arrangement or interest that is material in relation to the Transaction, advice or recommendation concerned. Such relationship, arrangement or interest may include by way of example (but without limitation): (1) trading or dealing in futures or option contracts or in any Asset (or any other asset which does or may form part of such Asset) underlying any Contract or Client Contract; (2) acting or having acted or seeking to act as a financial adviser or lending banker to the issuer (or any of its associated companies) of the Assets the subject of a Transaction; (3) sponsoring or having sponsored or underwriting or having underwritten or otherwise participating or having participated in the Assets the subject of a Transaction; (4) receiving or having received payments or other benefits for giving business to the Broker with which the Client's order is placed; (5) being or having been an associated company of the issuer (or any of its associated companies) of the Assets the subject of a Transaction; and/or (6) advising or having advised a company in connection with a take-over bid, merger or acquisition by or for it or an associated company. MSI may, in its absolute discretion, decline to carry out a Transaction or to give advice or to make a recommendation to the Client where MSI has an interest in respect thereof which will or may conflict with that of the Client. 5 (I) Neither MSI nor any Connected Company shall be under any duty to disclose to the Client any act, matter or thing which comes to the notice of MSI or any Connected Company or any employee, director or agent of MSI or any Connected Company in the course of MSI or any Connected Company rendering similar services to others or in the course of carrying on any other business whether or not such disclosure would be a breach of duty or confidence to any other person. (J) At its discretion, MSI may aggregate a Client's order with an order of a person unconnected with MSI and/or an order of MSI and/or an order of a person connected with MSI. Such aggregation may operate on some occasions to the Client's advantage and on other occasions to his disadvantage. (K) MSI, its Connected Companies and each of their directors, officers or employees may act upon and use research reports and recommendation (or any conclusions which they may express or the research or analysis on which they may be based) which they have received or of which they may have knowledge before the same are provided (if at all) to the Client and shall not be under any obligation when carrying out Transactions with or for the Client to take account of any such research reports or recommendations. 3. CLEARING (A) MSI shall not be liable to the Client (in respect of the relevant Client Contract, any matching Contract or otherwise) if the relevant Exchange, Clearing House and/or Broker has ceased for any reason (including netting off MSI's positions with it) to recognise the existence of any Contract or fails to perform or close out any Contract, but the fact that the relevant Exchange, Clearing House and/or Broker has so ceased or failed shall not affect the Client's obligations and liabilities hereunder in respect of Contracts which it has instructed MSI to open and which have not been closed out or in respect of other obligations or liabilities of the Client arising therefrom. (B) If the relevant Exchange and/or Clearing House and/or Broker requires any alteration in the terms or conditions of any Contract matching a Client Contract (including the Assets subject to it), MSI may without referring to the Client take all actions as may, in MSI's absolute discretion, be necessary, desirable or expedient to comply therewith or as a result thereof or to avoid or mitigate loss thereunder and all such actions shall be binding upon the Client and such alteration deemed incorporated into the corresponding Client Contract. (C) The Client shall, forthwith upon request by MSI, take such action and supply to MSI in relation to the corresponding Client Contract such information in 6 relation to the delivery and/or settlement, and/or, if a purchased option Contract, exercise or allocation, of any Contract which has not been closed out as MSI may request. (D) Notwithstanding sub-Clause (C) above, the Client shall promptly take all action necessary (including the supply of information) to enable due settlement and/or delivery by MSI in accordance with the rules and regulations of the relevant Exchange and/or Clearing House and/or requirements of any Broker, of any Contract which it has instructed MSI to open and which has not been closed out, at the time such Contract falls due under its terms to be performed (including, where applicable, on any nominated delivery day). (E) (1) Unless MSI shall in its absolute discretion determine otherwise, equal and opposite Contracts and Client Contracts (closing out being determined on a "first in, first out" basis, except where MSI exercises its discretion as aforesaid) will automatically fix the amount of profit or loss in relation to each other. (2) Subject to sub-Clause 2(A) and to the rules and regulations of the relevant Exchange and/or Clearing House and/or requirements of the relevant Broker and subject to any further requirements notified by MSI to the Client, the Client may at any time before the date for performance of a Client Contract request MSI to close out the matching Contract or, if a purchased option Contract, exercise the same. If such closing out or exercise results in a sum of money being due to MSI and/or to the relevant Exchange, Clearing House and/or Broker, MSI shall notify the Client of that amount, which shall be payable forthwith by the Client to MSI. (F) MSI shall (subject to, and only upon compliance by the Client with, its obligations under sub-Clauses 3(C), (D) and E(2) and subject to sub- Clauses 3(A), 3(B), 4(C) and 5(B)), upon receipt of any sums and/or Assets (including documents of title thereto) payable or receivable pursuant to a Transaction, deliver such sums and/or Assets to the Client in respect of the corresponding Client Contract, subject to the deduction of any Charges or Taxes. (G) In respect of an option Contract matching a Client Contract: (1) the Client, if a buyer, shall pay to MSI on demand any premium payable under the rules of the relevant Exchange and/or Clearing House ("the premium") which sum shall be paid by MSI into the Margin Account as Margin; and (2) MSI shall, on receipt from the relevant Exchange, Clearing House and/or Broker, pay into the Margin Account as Margin, for the account of the 7 Client, any premium payable under the rules of the relevant Exchange and/or Clearing House, provided that the Client may be required to pay further Margin in respect of the relevant Contract and corresponding Client Contract. (H) Where the relevant Clearing House and/or Broker does not allocate long Open Contracts at maturity direct to a specific account of MSI or to short Client Contracts, or vice versa, MSI shall have complete discretion to allocate the same at random or in a way which seems to it to be most equitable as between clients, and if dealings on MSI's own account are involved at the same time, allocation will be to all clients first (on the above basis) with MSI receiving no allocation until all relevant Client Contracts have been satisfied. 4. THE MARGIN TRUST ACCOUNT (A) In respect of all present, future or contemplated Contracts and Client Contracts, the Client shall pay to MSI upon demand such sums by way of Margin as MSI may in its absolute discretion from time to time require. (B) MSI shall as soon as practicable pay or credit (1) all Client Money to a Margin Account with such Approved Bank (as defined in the Financial Regulations of TSA and which may be MSI or a Connected Company) as MSI may from time to time determine and (2) all Contracted-out Client Money to a Margin Account with such bank as MSI may from time to time determine (which may be MSI or a Connected Company), in each case denominated in the currency of the relevant Contract or, if agreed by MSI and the Client, denominated in another currency. The Client shall bear all risk and cost in respect of any conversion of currency in a Margin Account, and any such conversion shall be made by MSI at such market rate or rates as MSI, in its absolute discretion, deems appropriate. (C) MSI shall (subject, in the case of Client Money to the terms of the trust declared under Regulation 2.2(1) of the Regulations from the effective date thereof) hold all Client Money and all Contracted-out Client Money in a Margin Account on trust in the following order of priority: (1) for MSI to the extent of all sums due or which may become due to MSI or payable by MSI on behalf of the Client under or pursuant to this Agreement and, thereafter, (2) for the Client to the extent of any surplus which is, following the payment of all sums due to or payable by MSI under sub-Clause (1) above, due to the Client. 8 (D) MSI is empowered to withdraw Client Money and Contracted-out Client Money held in a Margin Account for the purpose set out in Rule 100.05b of the Financial Regulations of TSA and, in addition, for the purposes of paying to any Broker and/or Clearing House and/or Exchange and/or other parties all margins, premiums and other sums on futures and option contracts demanded or due from MSI in respect of its clients and for the purposes of Clause 4(H) and, in relation to Contracted-out Client Money, for any other purposes which MSI considers appropriate. (E) No interest shall be paid in respect of Client Money or Contracted-out Client Money. In respect of Client Money this differs from the provisions of Regulation 2.3 of the Regulations from the effective date thereof. (F) Subject, in the case of Client Money, to the terms of Regulation 2.2 of the Regulations, any loss incurred on any Asset or on default by any Exchange, Clearing House and/or Broker in respect of Margin paid by MSI shall be borne by all clients of MSI at the date of such loss pari passu in proportion to their respective entitlement to monies in the relevant Margin Account as such date, and MSI shall not be liable for any loss suffered by the Client as a result of the default by any bank with whom MSI maintains a Margin Account. (G) MSI is authorised to hold Client Money in a Margin Account with an approved Bank outside the United Kingdom (or, in the case of Contracted- out Client Money, any bank outside the United Kingdom) selected by MSI in its absolute discretion. Where such Approved Bank refuses to give MSI acknowledgement of the notice required to be given to it under regulation 100.03 of the Financial Regulations of TSA (notice that monies are trust monies), such Client Money may not be protected as effectively as if it were held in a client bank account in the United Kingdom. (H) MSI shall, in its discretion as to the terms thereof and any rate of return earned thereon, have power to invest, realise such investment and/or reinvest any sums standing to the credit of a Margin Account in any Asset it thinks fit, and whether or not with, through or in a Connected Company and whether or not by leaving the same on deposit with any Clearing House and/or any Broker. The limitations on the type of or method of investment contained in the Trustee Investments Act 1961 shall not apply. (I) (1) Sums due to MSI from the Client by way of Margin pursuant to Clause 4(a) may, in the absolute discretion of MSI, be satisfied by way of deposit or transfer of Securities and the provisions of this sub- clause 4(1) shall apply to such Securities. 9 (2) The Client, as beneficial owner and as continuing security for all its liabilities and obligations under this Agreement, hereby charges, free of any adverse interest whatsoever: (a) by way of first fixed equitable charge, all Securities the certificates or documents of title to which it has deposited or may hereafter deposit with MSI (or as MSI may direct) by way of Margin ("Deposited Securities"); and (b) by way of first fixed legal charge, all Securities title to which it has transferred or may hereafter transfer to MSI or as MSI may direct) by way of margin ("Transferred Securities"). (3) Certificates or documents of title to any Securities may be held (a) by or on behalf of MSI or any of its associated companies (which where required by the Rules of TSA, are listed in the relevant Schedule to the covering letter hereto) (being Connected Companies), (b) by any of the persons listed in the Schedule hereto (in each case as such Schedules may be amended from time to time by MSI on giving notice to the Client) or (c) by any other person permitted under the Rules of TSA. (4) The Client shall, upon request by MSI, forthwith execute all such transfers and other documents as may be necessary to enable MSI or its nominee (which may be any of the persons specified in sub-Clauses 4(I)(2) or (3) above) to be registered as the owner of, or otherwise obtain legal title to, Deposited Securities. (5) MSI shall hold all Securities for the purposes of sub-Clause 4(C) and (D) and Clause 5 and for such purposes may, without prior notice, free of any interest of the Client therein: (a) deposit, charge or pledge the same with or to the order of any Exchange, Clearing House and/or Broker and on terms that (1) such Exchange or Clearing House may deal with the same in accordance with their rules, (2) the Broker may deal with the same in accordance with such rules and/or any agreement made with MSI and (3) such Exchange, Clearing House and/or Broker may enforce such deposit, charge or pledge in satisfaction of all or any obligations of MSI to such Exchange, Clearing House and/or Broker; and (b) register, sell, realise, charge, borrow against or otherwise deal with the same upon such terms (including as to the consideration received therefor) as it may in its absolute discretion think fit (without being responsible for any loss or diminution in price) and 10 any consideration received therefor shall be placed upon receipt to the credit of the Margin Account. If Securities are denominated in a different currency from that in which any relevant cost, damages, loss, liability or expense is denominated, MSI may convert any amount realised at such rate as it may reasonably consider appropriate at the relevant time. (6) The Client undertakes neither to create nor to have outstanding any security interest whatsoever on or over any of the Securities (except for the security created hereby). (7) Subject to MSI being satisfied that all costs, damages, losses, liabilities and expenses incurred pursuant to this Agreement have been satisfied, discharged or otherwise released, MSI may re-transfer or, as the case may be, re-deliver any certificates or documents of title relating to any relevant Securities to the Client at any time and shall do so upon request. (8) Pending such re-transfer or re-delivery MSI shall place any monies paid to MSI by way of income in respect of Securities, net of any Taxes payable by MSI (whether by withholding or otherwise) in respect of such income to the credit of the Margin Account and the Client may direct MSI as to the exercise of any voting or other rights attached to or conferred on any Securities which are required to be exercised by MSI. References in this paragraph to MSI shall include references to any person specified in sub-Clauses 4(I)(2) or (3) above. (9) Subject to sub-Clause 4(I) and Clause 5, unless otherwise agreed in writing, documents of title or documents evidencing title to Securities shall not be lent by MSI or by any person specified in sub- Clauses 4(I)(2) or (3) above to any third party and money shall not be borrowed by MSI or any such person on the Client's behalf against the security of those documents. (J) As further security for all obligations of the Client under this Agreement, MSI shall have the right to retain (and apply as set out below all of the Client's property at any time held by MSI or any Connected Company for any purpose, including, but not limited to, property (other than as aforesaid) held in any other accounts of the Client with MSI or any Connected Company, irrespective of whether or not MSI has made any advances in connection with such property, and MSI may, without notice, transfer and re-transfer from time to time any money or other property between any such accounts. The Client shall execute such documents and take such other action as MSI shall reasonably request in order to perfect MSI's rights with respect to any security referred to in this sub-Clause (J). 11 5. MSI'S RIGHTS (A) MSI may, at any time without prior notice in its absolute discretion, and shall if the Client shall fail for five business days to meet a call for Margin from MSI in respect of a Transaction carried out on an Exchange which is a recognised or designated investment exchange (unless otherwise permitted under TSA Rules), take such steps as it may consider necessary or desirable to comply with or perform, cancel or satisfy any obligations of MSI to the relevant Exchange, Clearing House and/or Broker in respect of any Contract or Contracts acquired on the instructions of the Client or otherwise to protect the position of MSI, including closing out and/or performing any or all such Open Contracts, and may for such purpose: (1) buy or sell the Asset underlying any Open Contract in any manner howsoever and including from itself or any Connected Company; and/or (2) initiate new long or short positions in order to establish a spread or straddle; and/or (3) borrow, buy or sell any currency; and/or (4) apply any Margin. to each case so that all sums expended on liabilities incurred by MSI in excess of any sums held in the Margin Account for the Client shall be paid by the Client to MSI on demand. (B) On the exercise of MSI's rights under sub-Clause (A) above: (1) MSI shall not be obliged to deliver to the Client in respect of any corresponding Client Contract the underlying Asset (which may be registered in the name of MSI or its nominee (which may be a Connected Company) and MSI or such nominee may be the custodian of the document(s) of title or certificate(s) evidencing title to such Asset) or any money received or receivable on closing out until all sums due from and liabilities of the Client to MSI are satisfied or discharged to the satisfaction of MSI and (a) if such sums and/or liabilities shall not be satisfied or discharged to the satisfaction of MSI, MSI may sell or realise the underlying Asset upon such terms (including as to the consideration received therefor) as it may in its absolute discretion think fit (without being responsible for any loss or diminution in price) and any consideration received therefor shall be placed upon receipt to the credit of the Margin Account, and (b) any income in respect of such Asset paid 12 to MSI net of any Taxes payable by MSI (whether by withholding or otherwise) in respect of such income shall be placed upon receipt to the credit of the Margin Account; and (2) all amounts owing to MSI hereunder shall, if MSI shall so determine, become immediately payable. 6. FEES (A) Fees will be payable in respect of each Contract at such rates as MSI may from time to time notify to the Client and such fees will comprise either a commission or a mark-up or mark-down on the fee payable by MSI to any Exchange, Clearing House and/or Broker in respect of the relevant Transaction and/or such other amounts as may be agreed from time to time by MSI and the Client. If there is an element of mark-up or mark-down, this will be shown on the relevant contract note or confirmation where required by the TSA Rules. (B) MSI may share its charges with a Connected Company or Companies. If MSI has shared any charge with any third party who is not a Connected Company, the particulars of such charges will be available to the Client on written request. 7. INTRODUCED BUSINESS (A) MSI may introduce the Client to an overseas Connected Company, and the Client hereby authorises MSI on its behalf to expressly invite any such Connected Company to call the Client with a view to such Connected Company entering into investment transactions from time to time with or for the Client. If such Connected Company agrees to do so: (1) the Client shall have a direct relationship solely with such Connected Company and, in any dispute between, or claim against, the Client and/or any such Connected Company, the Client shall have no recourse to MSI; (2) the Client may place orders with MSI acting on behalf of such Connected Company for specific transactions to be executed by such Connected Company. In relation to such transactions, MSI shall act as agent only for such Connected Company and not as agent for the Client and nothing done by MSI in connection with any such transaction shall constitute MSI the agent of the Client. 13 (B) In relation to any such investment transaction only the following clauses of this Agreement shall apply as between MSI and the Client: 1, 2(H), (I), (K), 8(A), (B), (D), (G)-(N), (O)(2), (P), (S) and 10. (C) Any such Connected Company will not be an authorised person subject to the rules and regulations made under the Financial Services Act 1986 for the protection of investors. 8. GENERAL (A) Under the rules of the relevant Exchange and/or Clearing House or other regulatory organisations or applicable laws or regulation MSI may be required to disclose particulars concerning the Client and the Client's dealings. MSI is authorised by the Client to make any such disclosure. (B) (1) Any instructions, notices, demands, confirmations or requests to be given by the Client or MSI hereunder may be given orally or in writing to the last address notified, in accordance with this sub- Clause, by the relevant party to the other. Any confirmation as referred to in sub-Clause 2(D) above shall be deemed correct and conclusive and binding upon the Client if not objected to in writing within the earlier of five days of despatch by MSI or one day of receipt by the Client. Communications under sub-Clause 2(A) and 8(M) and any objection pursuant to the preceding sentence of this sub- Clause shall be deemed received only if actually delivered. All communications (except under sub-Clauses 2(A) and 8(M)) shall be deemed to have been received at the time when, in the ordinary course, they would have been received. (2) MSI shall be entitled to rely on the instructions of any person who is or appears to MSI to be a person designated in the attached Certificate or otherwise authorised by the Client for the purposes if this Agreement. (3) MSI shall be entitled to rely on, and shall not be liable for any actions taken or omitted to be taken in good faith pursuant to, at instruction, notice, demand or request hereunder (or anything which purports to be or MSI reasonably believes to be an instruction, notice, demand or request hereunder) whether or not received in writing. (C) The Client shall pay on demand interest on any sums due or owing to MSI hereunder from the date when the same are due until future settlement (as well after as before judgment) at the rate of 2 per cent per annum above the base rate or prime rate (or local equivalent thereof) of the bank at which MSI (or, if there is more than one such bank, the one determined by MSI in its absolute discretion) has Margin Account in the relevant currency. 14 (D) (1) The Client warrants that it will obtain, and maintain in effect, in relation to this Agreement, each Client Contract, matching Contract and Transaction, all necessary consents or approvals of any governmental or other regulatory body or authority or Exchange and that it will comply with the terms of the same and with all applicable laws, regulations and directives of such bodies and authorities. The Client shall, forthwith upon demand by MSI, deliver to MSI copies of all such consents or approvals or such other evidence of the existence of any such consents or approvals and such evidence of compliance with such and with any such laws, regulations and directives as MSI may reasonably require. (2) The Client shall: (a) provide to MSI upon demand all such information as may be required to be filed or disclosed pursuant to the byelaws and rules of any Exchange, Clearing House or other regulatory authority or to any applicable law, rule or regulation, in each case regarding MSI, the Client, any Client Contract, matching Contract, Transaction or this Agreement. (b) file (within any applicable time periods) such reports, letters and other communications as may be required from time to time by any governmental or other regulatory body or authority or any Exchange or Clearing House regarding MSI, the Client, any Client Contract, matching Contract, Transaction or this Agreement; and (c) send a copy of all such reports referred to in paragraph (b) above to MSI promptly upon such filing, and MSI may forward copy of the same to any relevant Broker. (E) All Client Contracts and all Transactions shall be subject to this Agreement and (in respect of any Exchange and/or Clearing House of which MSI is a member) the construction, byelaws, rules and/or regulations of the relevant Exchange and/or Clearing House and to any applicable laws (which term shall include the regulations of any governmental or quasi- governmental agency) whether imposed on the Client or MSI and so that: (1) in the event of any conflict between (a) this Agreement and (b) any such constitution, byelaws, rules, regulations and/or laws, the latter shall prevail; and (2) MSI shall be entitled to take or omit to take any action it considers fit or appropriate in order to ensure compliance with the same and all such actions so taken shall be binding upon the Client. 15 (F) All sums expressed to be payable by the Client hereunder are exclusive of all applicable Taxes. Such Taxes shall be payable to MSI by the Client at the same time as the sums to which those Taxes relate. (G) This Agreement shall apply to all Transactions, Client Contracts and transactions pursuant to clause 7 to the exclusion of any other terms and conditions which might otherwise apply by virtue of any course of dealing. This Agreement may be amended and/or supplemented by MSI giving to the Client written notice thereof (which, in the case of a private Client, shall take affect seven days after despatch) or by written agreement between MSI and the Client. By the Client's acceptance of this Agreement, the Client acknowledges that MSI has not made, and the Client is not relying upon, any statements, representations, promises or undertakings whatsoever that are not contained herein. (H) The Client's rights and obligations under this Agreement and any Contract and/or Client Contract are not capable of assignment. Any purported assignment thereof shall be in breach of the Client's obligations hereunder and shall be invalid. (I) The Client shall upon demand indemnify and keep indemnified MSI and its Connected Companies and any of its or their directors, officers or employees against any cost, expense, damage, loss or liability whatsoever which may be suffered or incurred by any of them directly or indirectly (including those incurred to a Broker, Exchange, Clearing House or other regulatory authority) as a result of, or in connection with, or arising out of, this Agreement or any Contract acquired or Transaction effected on the instructions of the Client or in relation to a corresponding Client Contract or arising out of any act or omission by MSI or by any such other person permitted hereunder (including in any such case any costs of enforcing the same). (J) If any action or proceeding is brought by or against MSI or a Connected Company by or against a third party in relation to this Agreement or any Contract acquired or Transaction effected on the instructions of the Client or in relation to a corresponding Client Contract or arising out of any act or omission by MSI or any such Connected Company permitted hereunder, the Client agrees to cooperate to the fullest extent possible in the defence or prosecution of such action or proceeding. (K) Time shall be of the essence in relation to all matters arising hereunder or pursuant hereto. (L) MSI shall not be liable to the Client for the non-performance of its obligations hereunder by reason of any cause beyond MSI's reasonable control, including breakdown or failure of transmission or communication or computer facilities, 16 postal or other strikes or similar industrial action and/or the failure of any relevant Exchange, Clearing House and/or Broker for any reason to perform its obligations. In no event shall MSI have any liability for any consequential or special damage, whether arising from bad faith, wilful default, fraud or otherwise. (M) Either party can terminate this Agreement without penalty upon receipt of notice in writing by the other, provided that such termination shall not affect: (1) the rights or liabilities of either party in respect of Contracts and any corresponding Client Contracts for which an instruction has already been given by the Client and accepted by MSI or in respect of which there is an outstanding liability to MSI and shall be without prejudice to MSI's rights to all Margin and sums in the Margin Account, and this Agreement shall apply thereto until all such Contracts have been closed out or settlement and/or delivery effected and all such liabilities discharged; and (2) any warranties given by the Client under this Agreement which shall survive such termination. (N) Neither MSI nor any of its Connected Companies, nor any of its or their directors, officers or employees shall have any responsibility or liability whatsoever, whether in negligence or otherwise, (1) in respect of any advice or opinion which may be given to the Client concerning or in pursuance of this Agreement or any Contract, Client Contract or Transaction, or (2) for any expense, loss or damage suffered by the Client as a result of MSI carrying out the instructions of the Client or carrying out or failing to carry out any actions permitted under this Agreement. (O) (1) MSI will not carry out any Transaction at the Client's request on the basis that such request evidences an expectation on the Client's part that the client is acting as agent for or on behalf of another and that MSI is to be responsible to the Client's principal as its direct customer for the execution of such Transaction (or for certain material aspects of such Transaction) and no Transaction carried out by MSI will be on the basis that such Transaction is investment business regulated by TSA with or for the Client as an intermediary (within the meaning of the Rules of TSA). (2) Without prejudice to sub-Clause (1) above, the Client undertakes that if in relation to any Contract and/or Client Contract it is acting as agent for or on behalf of another, then: 17 (a) in doing so, it is expressly authorised by its principal to instruct MSI in relation to that Contract and/or Client Contract upon the terms of this Agreement; (b) its principal will be jointly and severally liable with it to MSI in respect of all obligations and liabilities to be performed by the Client pursuant to and in respect of such Contract and/or Client Contract entered into hereunder or in pursuance hereof; and (c) notwithstanding paragraph (b) above, it will nevertheless be jointly and severally liable to MSI with its principal as if it were a principal in respect of all such obligations and liabilities. (P) MSI will not be bound to act in accordance with the instructions of any person other than the Client (and shall be entitled to act in accordance with all instructions given by or purporting to be given by the Client) and the liabilities of MSI hereunder shall be fully discharged by performing such in favour of the Client, notwithstanding any instructions that MSI may receive from the principal of the Client, and any notice that MSI may receive that the authority of the Client to act on behalf of its principal has been revoked or varied, and references to the word "Client" herein shall be construed accordingly. (Q) Where the Client is a company whose business includes acting as trustee and MSI is dealing with or for the Client in the Client's capacity as a trustee of more than one trust, this Agreement shall apply to the Client in each of such capacities and MSI shall not be required to treat the Client differently in respect of any capacity. (R) MSI may use telephone voice recording procedures in connection with receiving instructions or communications and such voice records will be accepted by the Client as conclusive evidence of the instructions or communications recorded. (S) The rights and remedies, powers and privileges of MSI contained herein are cumulative and not exclusive of any rights or remedies provided by law. No failure to exercise or delay in exercising the same shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof. MSI shall in no circumstances be obliged to close out Contracts or take any other action in respect of open Contracts acquired on the instruction of the Client, and, in particular, (subject to sub-Clause 5(A) above) no failure of the Client to pay Margin when demanded shall be taken to oblige MSI to close out any relevant Contract to which such Margin is attributable. 18 (T) Neither MSI nor any Connected Company shall be responsible to the Client for the solvency, actions or omissions of any person with whom it or they deal or transact business or who is appointed by MSI or any Connected Company in good faith on the Client's behalf or for any loss, theft or non-delivery of any of the Client's money and/or documents of title to investments held by a third party, but MSI or such Connected Company, as the case may be, will make available to the Client, when and to the extent reasonably so requested, any rights that it may have against any such person. 9. LONDON TRADED OPTIONS (A) All Transactions in relation to London Traded Options will be carried out by MSSL. (B) The Client hereby confirms that it has received, read, understood, completed and signed the Letter of Authority which has been supplied to the Client by MSI in accordance with the requirements of The International Stock Exchange. (C) The Client shall make available to MSSL cover or collateral and/or Margin securing written option contracts in such form and in such amounts and at such times as shall be demanded by MSSL for deposit with or to the order of LOCH. (D) If the Client instructs MSSL to carry out a transaction in relation to London Traded Options, then in relation to that transaction these Terms and Conditions shall apply save that: (1) the words "(and each matching a Client Contract)" and "(and with respect to the corresponding Client Contract)" shall be deleted from the definition of "close out" in sub-Clause (A). (2) sub-Clauses 2(C)(1), (F), 3(H) and 4(I) shall not apply. (3) in sub-Clauses 3(E)(2), (G), 4(A), 8(H)-(J), 8(M)-(O) references to "Client Contract" shall be ignored; and (4) in sub-Clauses 2(C)(2), (G), (H), 3(A)-(C), 3(E)(2), (F), 5(B), 8(D), (E) and (G) references to "futures or option contracts" and "Client Contracts" shall be construed as references to "Contracts" and "corresponding" and "matching" shall be ignored. (E) The Client hereby agrees to comply with the Rules and Regulations and Permanent Notices of The International Stock Exchange from time to time in force and authorises MSSL, in its absolute discretion, to act in accordance therewith or as permitted thereunder. 19 10. GOVERNING LAW (A) This Agreement and all Client Contracts shall be subject to and construed in accordance with English law. All disputes shall be subject to the jurisdiction of the English courts, to which the Client hereby submits. (B) It is hereby irrevocably agreed that any suit, action, claim or proceeding (together in this sub-Clause referred to as "Proceedings") arising out of or in connection with this Agreement or any Client Contract may be brought in the English courts and any objection that either MSI or the Client may have now or hereafter to the laying of the venue of such Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum is hereby waived. (C) To the extent that the Client may be entitled in any jurisdiction to claim for itself or for its property or assets immunity in respect of its obligations under this Agreement or any Client Contract from service of process, jurisdiction, suit, judgment, execution, attachment (whether before judgment, in aid of execution or otherwise) or legal process or to the extent that in any such jurisdiction there may be attributed to the Client or its property or assets such immunity (whether or not claimed), the Client hereby waives such immunity to the fullest extent permitted by the laws of such jurisdiction. I/We hereby agree to the above Terms and Conditions which I/we have read and understood. Signed: /s/ Mark F. Dalton ------------------- Name(s): Mark F. Dalton -------------- Title: President, Second Management Company, Inc., General Partner ------------------------------------------------------------ Authorised signatory(ies) for and on behalf of Tudor Fund For Employees L.P. - ---------------------------------- Name of Client Date: 4/12/90 ------- 20 CUSTOMER AGREEMENT In consideration of E D F Man International Inc. (the "Company") carrying and maintaining one or more accounts (the "Account") of the undersigned customer ("Customer"), as broker for the execution, clearance and/or carrying of transactions for the purchase and sale of futures contracts, commodities, forward contracts, options on futures contracts, forward contracts and commodities and similar interests (collectively "Commodities"), the Customer hereby agrees with the Company as follows: (1) DEFINITIONS. As used in this Agreement, the following terms shall have the meanings as indicated: (a) "Affiliate" shall mean any corporation, partnership, or other organization which controls, is controlled by, or is under common control with the Company. (b) "Exchange" shall mean any contract market, exchange, board of trade or other market on or subject to the Rules of which transactions are effected under this Agreement and their respective clearing associations. (c) Regulations" shall mean any rule, regulation, ruling or order (including any interpretations thereof) of the Commodity Futures Trading Commission ("CFTC") or any other governmental body (federal, state or local) having jurisdiction. (d) "Property" shall mean property of every kind and nature, real and personal, including without limitation cash in any currency, securities, Commodities, and any equity in any Account with the Company or any affiliate of the Company. (e) "Rules" shall mean any provision of the constitution, charter, by-laws, rules, regulations, rulings, interpretations and resolutions, as well as any custom, usage, practice or procedure, of any Exchange or any Self-Regulatory Organization. (f) "Self-Regulatory Organization" shall mean any commodity or securities self- regulatory organization, including without limitation the National Futures Association, the National Association of Securities Dealers, Inc. and the Municipal Securities Rule making Board. (2) APPLICABLE RULES. The Account and each transaction therein shall be subject to this Agreement, all Regulations, and all Rules of the Exchange where executed and any Self-Regulatory Organization, as any of the foregoing may be modified from time to time. Customer agrees that the Company shall not be liable to Customer for any action taken by the Company to comply with any Rules or Regulations. (3) RELATIONSHIP OF PARTIES. Unless the Company indicates otherwise, the Company is acting solely as broker in any transactions made for the Customer. The Company shall have no obligations other than to act in accordance with the instructions of the Customer and to provide the Customer with any information with respect to any position of the Customer (to the extent explicitly required by law or by any applicable Rules or Regulations). The Company shall have no obligation to effect any transaction or (except as directed by the Customer) to close out any position in any Account. (4) Trading Recommendations. Customer acknowledges that (a) any trading recommendations and market or other information communicated to Customer by any agent or employee of the Company or any affiliate of the Company does not constitute an offer to sell or the solicitation of an offer to buy any financial instrument, security, or Commodities; (b) any such recommendations and information, although based upon information obtained from sources believed by the Company to be reliable, may be incomplete, may not be verified and may be changed without notice to Customer; (c) any such recommendations and information will not serve as the primary basis for Customer's investment or trading decisions; (d) the Company makes no representation, warranty or guarantee with respect thereto or with respect to the tax consequences of Customer's transactions; (e) the Company or one or more of its affiliates (including employees, officers or directors of any thereof) may have positions in and may buy or sell Commodities that are the subject of information or recommendations furnished to Customer, and that the position or transactions of the Company or any such affiliate may not be consistent with the information or recommendations furnished to Customer; and (f) the Company has no responsibility for the recommendation or action of any commodity trading advisor or other party in connection with Customer's Accounts or any transaction therein, and Customer retains full responsibility for all trading decisions with respect to such Accounts. (5) COMMISSIONS and Fees. Customer shall pay such brokerage commission rates (at the rates in effect at time of liquidation) and such other charges as the Company and Customer shall agree from time to time (whether or not other customers pay lower commissions or charges) and shall pay any costs or expenses incurred in connection with transactions in any Account, including without limitation any taxes, transaction fees, charges, fines, penalties or other expenses imposed by any Exchange, Self-Regulatory Organization or govenmental authority. Debit balances in any Account will be charged with interest at a rate equal to the prime rate as quoted by Chemical Bank from time to time and shall be paid in full by Customer on demand. (6) MARGINS AND PREMIUMS. Customer shall at all times pay on demand and continuously maintain original and variation margin for Customer's Accounts in such form and amounts as may be required by the Company in its sole discretion, which requirements may exceed those established by Exchange Rules or for other clients and may be changed without prior notice to Customer. Once established, these requirements may apply to existing as well as new positions. Customer shall also promptly pay the premium required in connection with the purchase of any options. (7) SECURITY. (a) As security for the timely payment and performance in full of all obligations of Customer to the Company or any affiliate of the Company arising in connection with any Account or transaction effected under this Agreement, Customer hereby pledges and assigns to the Company and grants the Company a lien on and security interest in and right of setoff against any and all of Customer's Property in any Account or otherwise in the custody or control of the Company or any affiliate of the Company at any time for any purpose (whether held as margin, for safekeeping or otherwise). Customer will take such actions and execute and deliver such documents as the Company may reasonably require from time to time to perfect the lien and security interest granted here under. (b) In the event that: (i) Customer commences a voluntary case, or an involuntary case is commenced against the Customer, under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect. or a receiver, liquidation, trustee, custodian, sequestrator, or other similar official is appointed or takes possession (before or after the commencement of any such voluntary or involuntary case) of Customer or any of its property, or Customer is insolvent, makes a general assignment for the benefit of creditors, or fails generally to pay debts as they become due, or any similar event shall occur; (ii) Customer shall take any corporate or other action to effect a dissolution, liquidation, reorganization, winding up of its affair or any similar event; (iii) Customer shall fail or refuse to pay margin or any other sum as and when due pursuant to this Agreement or shall breach or default in the performance of any other obligation of Customer under this Agreement; (iv) the Company determines, in its sole discretion, with or without regard to market quotations, that any collateral or margins deposited with it to secure any Account of the Customer is inadequate and Customer shall fail to pay additional margin or deposit additional collateral upon demand by Company; or (v) an attachment is levied against any Account; then and in any such event, the Company may at its election (but need not) take any one or more of the following actions (in addition to any other rights or remedies the Company may have at law, in equity, under this Agreement or otherwise): (A) sell, exercise, offset or otherwise liquidate any or all securities or Commodities in any Account; (B) buy in, offset or otherwise liquidate any or all securities or Commodities short in any Account; (C) buy or sell securities or Commodities, or enter into and or liquidate straddle or spread positions, in order to liquidate or reduce the risk associated with carrying any securities or Commodities long or short in any Account; (D) cancel any outstanding orders, close out any or all outstanding contracts, close any Account, sell, set off against or otherwise dispose of any Property of Customer in any Account or in the custody or control of the Company or any affiliate of the Company (whether held as margin or for safekeeping or otherwise) and satisfy any obligation Customer may have to it (either directly or by way of guarantee or sure tyship) out of any such Property or the proceeds from the sale or other disposition thereof; and (E) exercise all rights and remedies of a secured party under the Uniform Commercial Code and under other applicable law. Any action referred to herein may be taken without (or following Any) demand for margin or additional margin, without notice to Customer (or to the successors or assigns of Customer) of sale or purchase or other notice or advertisement (except such notice as nay be required by law) whether or not the ownership interest shall be solely that of Customer or jointly with others (all and each of which demands, advertisements and/or notices are hereby expressly Waived). In all cases, a prior demand, call or notice of the time or lace of sale or purchase shall not be considered a waiver of the company's right to sell or to buy without demand, call or notice IS herein provided. Any purchase, sale, offset or liquidation of securities, Commodities or other Property may be made in any commercially reasonable manner according to the Company's judgment and in its sole discretion either by direct sale or purchase in the same market and for delivery in the same month, or in another market or another month, or by spread or straddle transactions, and nay be made in its sole discretion on any Exchange or other recognized market or elsewhere it deems appropriate. The Company will not be liable for any losses incurred or any damages suffered y Customer in taking any such action, whether or not any such loss or damage is occasioned by negligence on its part or on the art of any person acting under its instructions. In the event that the property held and applied by it pursuant to this Agreement is insufficient for the payment in full of all liabilities of Customer due to the Company, Customer shall remain liable for and shall promptly pay the deficit upon demand, together with interest thereon and all costs of collection (including legal fees and expenses). (8) Making Delivery; Liquidation Instructions. Customer agrees to give the Company timely notice immediately if Customer intends to make or take delivery under a futures contract or to exercise an option contract. If so requested by the Company, Customer shall satisfy the Company that Customer can fulfill its obligations to make or take delivery and shall furnish the Company with property deliverable by Customer under any contract in accordance with the Company's directions. The Company shall not have any obligation to exercise any long option contract unless Customer has furnished the Company with timely exercise instructions and sufficient initial margin with respect to each underlying futures contract. If the Company sells any property at Customer's direction and Customer fails for any reason to supply the Company with such property, the Company may (but shall not be obligated to) borrow or buy for Customer any property necessary to make such delivery. (9) Reports of Execution. Customer agrees that reports of execution of orders sent by the Company to Customer shall be binding and conclusive on Customer unless, in the case of an oral report, Customer objects at the time the report is received by Customer or its agent; and in the case of a written report, Customer objects prior to the opening of trading on the second business day following the day Customer has received the report. In addition, if after Customer has placed an order with the Company and has not received a written or verbal confirmation thereof in accordance with the Company's practice, Customer immediately shall notify the Company thereof. If Customer fails to notify the Company as set forth in this section, Customer agrees that Customer conclusively shall be deemed estopped to object and to have waived any objection to the Company's execution or failure to execute any transaction. However, nothing contained in this section shall bind either the Company or Customer with respect to any transaction or price reported in error. (10) Handling of Orders. The Company may use, in its sole discretion, such equipment, methods and procedures in connection with the transmission, handling and processing of orders from Customer as the Company may deem to be advisable. The Company, for and on behalf of Customer, is authorized and directed in its sole discretion to select floor brokers and, on markets where the Company is not a clearing member, clearing brokers which will act as Customer's broker and agent in the execution, clearing and/or carrying of transactions for Customer, which brokers may be affiliates of the Company or may be non-affiliated agents, and the Company shall be responsible only for using good faith and reasonable care in the initial selection of such brokers. Unless the Company and Customer have entered into a separate written agreement for "give-ups", the Company in its sole discretion, may, but shall not be obligated to, accept from other brokers contracts executed by such brokers on an Exchange for Customer and proposed to be given-up to the Company for clearance and/or carrying in the account. (11) Communications; Recording AU reports of transactions, statements, notices and other communications to Customer under this Agreement may be transmitted to the address, telephone number, or telecopy number, specified by Customer, or to such other address, telephone number or telecopy number, as the Customer may thereafter specify by written notice. AU such reports, statements, notices and other communications shall be deemed delivered when telephoned, or when delivered in person, or when deposited in the United States mail, or when received by a transmitting agent for telecopy or other electronic transmission, whether or not actually received by Customer. Customer consents to the electronic lecording of any or all telephone conversations with the Company (without automatic tone warning devices), and the use of same in any action or proceeding arising out of this Agreement. (12) Currency Exchange Rates If any transaction is effected in a foreign currency, any profit or loss arising as a result of a fluctuation in the exchange rate affecting such currency will be entirely for the account and risk of Customer. AU margin deposits shall be made in United States currency, unless the Company requests any such deposit in the currency of some other country, in which case such deposit shall be made in such currency. When any position is liquidated, the Company shall debit or credit the account of Customer in United States currency at the rate of exchange determined by the Company in its sole discretion on the basis of the then prevailing money rates for such foreign currency, unless Customer shall have given the Company specific written instructions to make such debit or credit in the foreign currency involved. (13) Funds on Deposit in Non-US. Banking Institutions Funds of Customer trading on United States contract markets may be held in accounts denominated in a foreign currency with depositories located outside the United States or its territories if Customer is domiciled in a foreign country or if the funds are held in connection with contracts priced and settled in a foreign currency. Such accounts are subject to the risk that events could occur which would hinder or prevent the availability of these funds for distribution to Customer. Such accounts may also be subject to foreign currency exchange rate risks. Customer authorizes the deposit of funds into such foreign depositories. For Customer domiciled in the United States, this authorization permits the holding of funds in regulated accounts offshore only if such funds are used to margin, guarantee, or secure positions in such contracts or accrue as a result of such positions. In order to avoid the possible dilution of other Customer funds, if Customer has funds held outside the United States, Customer further agrees that its claims based on such funds will be subordinated in the unlikely event both of the following conditions are met (I) Customer's futures commission merchant is placed in receivership or bankruptcy; and (2) there are insufficient funds available for distribution denominated in the foreign currency as to which Customer has a claim to satisfy all claims against those funds. Customer agrees that if both of the conditions listed above occur, Customer's claims against the Company's assets attributable to funds held overseas in a particular foreign currency may be satisfied out of segregated customer funds held in accounts denominated in dollars or other foreign currencies only after each customer whose funds are held in dollars or in such other foreign currencies receives its pro rata portion of such funds. It is further agreed that in no event may Customer whose funds are held overseas receive more than its pro-rata share of the aggregate pool consisting of funds held in dollars, funds held in the particular foreign currency, and non-segregated assets of the Company. (14) Emergency Actbns In addition to any other rights and remedies the Company may have under tbis Agreement, any Regulations or any Rules, the Company is authorized to take such steps as it, in its sole discretion, considers necessary or appropriate in the event any Exchange, Self-Regulatory Organization or governmental authority orders emergency or other action, including without limitation steps to liquidate securities Commodities or other Property carried in an Account of the Customer or transferring any such securities, Commodities or other Property of the Customer to another firm. (15) Position Limits The Company at any time upon notice to customer in its sole discretion may limit the number of positions which Customer may maintain or acquire through the Company and may decline to accept any orders or exercise notices, require that positions in Customer's Accounts be transferred to another firm and liquidate any such positions not so transferred pon demand. Customer agrees not to exceed any position limits established by the CFTC or any Exchange, whether acting alone or with others, and to promptly advise the Company if Customer is required to file any reports on positions. (16) Customer Representation, Warranties and Agreements. Customer represents and warrants to and agrees with the Company that: (a) Customer has full power and authority to enter into this Agreement and to engage in the transactions and perform its obligations hereunder and contemplated hereby; the execution, delivery and performance of this Agreement by Customer requires no action by or in respect of or filing with any governmental body, agency or official and does not and will not violate a Customer's charter or by-laws (or other comparable governing document) or any law, rule, regulation, judgment, decree, order or agreement to which Customer or its property is subject or bound; and Customer (i) if a corporation, is duly organized under the laws of its jurisdiction of incorporation or (ii) if a partnership, is duly organized pursuant to a written partnership agreement and the general partner executing this Agreement is duly authorized to do so under the partnership agreement; (b) Neither Customer nor (if Customer is other than an individual) any partner, director, officer or employee of Customer nor any affiliate of Customer is a partner, officer, director, or employee of a futures commission merchant, introducing broker, Exchange or Self-Regulatory Organization or an employee or commissioner of the CFTC, except as previously disclosed in writing to the Company; (c) Except as disclosed in writing to the Company, (i) customer is not a commodity trading advisor or a commodity pool operator or is exempt from registration under the rules of the CFTC and (ii) Customer is acting solely as principal and no one other than Customer has any interest in any Account of Customer, and (d) Customer has furnished true, complete and correct information concerning the Account and its financial condition, shall advise the Company of any material change in its financial condition and agrees that the Company may cause an investigation to be made concerning its credit standing and reputation; (17) CFIC Regulations. Customer is aware that CFTC Regulation 1.35(a-2X2) requires Customer to create, retain and produce upon the request of the CFTC, the United States Department of Justice and the applicable exchange documentation of cash transactions underlying exchanges of futures for cash commodities or exchanges of futures in connection with cash commodity transactions and, if Customer effects any such exchange of futures, it will fully comply with Regulation 1.35(a-2X2). If Customer maintains separate Accounts in which, pursuant to CFTC Rule I .46(d)(6), offsetting positions are not closed out, Customer understands at, if held open, offsetting long and short positions in the separate Accounts may result in the charging of additional margins although offsetting positions will result in no additional market gain or loss. If a foreign person, Customer acknowledges being informed by the Company that (i) CFTC Regulation 15.05 designates a futures commission merchant ("FCM") such as the Company, as the agent of foreign brokers, customers of foreign brokers, and foreign traders for certain purposes, and (ii) CFTC Regulation 21.03 authorizes the CFTC to request, when unusual market circumstances exist, certain account information from domestic FCM's as well as foreign brokers and traders. (18) Extraordinary Events. Customer Shall have no claim against the Company or any of its Affiliates for any loss, damage, liability, cost, charge, expense, penalty, fine or tax caused directly or indirectly by (a) any law, Regulation, Rule or court order, (b) suspension or termination of trading, (c) war, civil or labor disturbance, (d) delay or inaccuracy in the transmission or reporting of orders due to a breakdown or failure of transmission or communication failities, (e) failure or delay for any reason of any broker selected by the Company on behalf of Customer to fulfill its obligations or to pay in full amounts owed to the Company in respect to contracts, (f) failure or delay by any Exchange to enforce its rules or to pay to the Company any margin due in respect of customers account, (g) failure or delay by any entity which, consistent with Regulations, is holding customer segregated funds, securities or other property, to pay or deliver same to the Company or (h) any other causes beyond the Company's control. (19) Indemnification. Customer hereby agrees to pay, indemnify the Company, its affiliates and their respective shareholders, directors, officers, employees and agents against, and hold each of the foregoing harmless from, any liability, cost or expense (including without limitation reasonable legal fees and expenses, amounts paid in settlement of any claims, interest and any fines or penalties imposed by any Exchange, Self-Regulatory Organization or governmental agency) any of them may incur or be subjected to with respect to any Account of Customer or any transaction or position therein, or as a result of any violation by Customer of any of its obligations under this agreement Customer shall pay on demand any cost of collection incurred in collecting any sums owing by Customer under this Agreement and any cost incurred by any of the foregoing in successfully defending against any claims asserted by Customer, in each case including without limitation reasonable legal fees and expenses. (20) Introducing Broker. Customer understands that a party who introduces a customer to an FCM or who places orders on behalf of such customer may be deemed to be the "agent" of that FCM and in such situation, as a matter of law, such FCM may be liable to such customer for any acts and/or omissions of such party. Customer expressly agrees to waive any and all claims, rights or causes of action which Customer has or may have against the Company and its officers employees and agents arising in whole or in part directly or indirectly, out of any act or omission of such party. (21) Automated Trading. The Company, on behalf of Customer, is authorized and empowered to place orders through one or more elec- tronic automated trading systems (each a "System") maintained or operated by an Exchange. In consideration of the Company making one or more Systems, including without limitation GLOBEX services, available, in whole or in part directly or indirectly, to Customer, Customer agrees that neither the Company, any Exchange, the Chicago Mercantile Exchange ("CME"), the Board of Trade of the City of Chicago ("CBOT"), any other exchange whose products may be traded on the GLOBEX System, the GLOBEX Joint Venture, L.P. ("JV"), P-M-T Limited Partnership, Ceres Trading Limited Partnership, GLOBEX Corporation Reuters America Inc., nor any other entities controlling, controlled by or under common control with such entities, nor their respective directors, officers or employees, shall be liable for any losses damages, costs or expenses (including, but not limited to, loss of profits loss of use, incidental or consequential damages), regardless of the cause, arising from any fault delay, omission, inaccuracy or termination of services on any Systems or the inability to enter, alter, cancel or modify orders, or any other cause in connection with the furnishing, performance, maintenance, or use of or capability to use all or any part of a system, the GLOBEX System, or any JV, CME or CBOT facility or service and Customer agrees not to assert any claims against any of there foregoing with respect thereto. The provisions of this section shall apply regardless of whether Customer's claim arises in contract negligence, tort strict liability, breach of fiduciary obligation or otherwise. (22) jurisdiction, Venue, Waiver of Jury Trial In any action or proceeding with respect to this Agreement which is not subject to arbitration as provided in the annexed Arbitration Agreement Customer hereby submits and agrees to the jurisdiction and venue by the federal, state and local courts in the Borough of Manhattan, City and State of New York, waives any and all objections to personal jurisdiction and agrees that process may be served on Customer in any such action or proceeding by United States registered mail directed to the Customer at the address referred to in section 11 or in accordance with the provision of any law or fees applicable to the court in which such action or proceedings is brought with respect to service of process on non-residents. The Customer hereby waives trial by jury in any such action or proceeding under this Agreement. (23) Termination. This Agreement may be terminated by either party at any time by written notice to the other, provided, however that any such termination shall not affect any transactions theretofore entered into and shall not relieve either party of any obligations in connection with any debit balance or credit balance or other liability or obligation accruing prior to such termination. (24) Miscellaneous. (a) No provisions in this Agreement shall in any respect be waived or amended, except in writing signed by the party charged with such waiver or amendment, or by written notice delivered by the Company to Customer. If after such delivery Customer places an order or gives instructions with respect to the account no waiver or amendment of this Agreement may be implied from any course of dealing between the parties. (b) This Agreement and the documents annexed hereto constitute the entire agreement between the parties. Customer has not relied on any statements, representations, or understandings not set forth therein. (c) This Agreement shall be construed in accordance with the laws of the State of New York without giving effect to principles of conflicts of law. If any term or provision of this agreement or the application thereof to any person or circumstance, shall be held invalid or unenforceable by any court Exchange, Self-Regulatory Organization, arbitrator or arbitration panel, the remainder of this Agreement, or the application of such Provision to other persons or circumstances, shall not be affected thereby. (d) This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns. This Agreement shall be continuous and shall cover each and every account which Customer may open or reopen with the Company and each and every transaction effected or position carried by the Company with or for Customer. (e) No waiver of any breach of or default under any provision of this Agreement shall be deemed to constitute a waiver of a breach of or default under any other provision of this Agreement or of any other breach of or default under the same provision. Any failure on the Company's part to exercise any right privilege or remedy under this Agreement or applicable laws, Regulations or the Rules of any Exchange or Self-Regulatory Organization, and any waiver by the Company of the exercise of any such right privilege or remedy at any time or with respect to any event shall not constitute a waiver of its right to exercise that or any other right privilege or remedy at any other time or with respect to any other event and shall not give rise to any right privilege or remedy on the part of Customer, it being understood that such rights, privileges and remedies are for the Company's protection. Without limiting the generality of the foregoing, it is understood that the Company's granting Customer an extension of time to meet a demand for margin on any occasion or series of occasions shall not entitle Customer to any other extensions of time with respect to any other demands for margin on any other occasion. CUSTOMER NAME: ______________________________________ SIGNATURE: ______________________________________ PRINT NAME TITLE: ______________________________________ DATE: ______________________________________ CORPORATE COMMODITY CLIENT AGREEMENT In consideration of your accepting its account and your agreement to act as its broker and/or dealer, the Undersigned Corporation agrees to the following with respect to any of its accounts with Lehman Brothers Inc. ("LB" or "Lehman") for the purchase and sale of commodities, contracts for the future delivery thereof, commodity options and forward commodity and foreign exchange contracts: 1. All transactions for its accounts shall be subject to the regulations of all applicable federal, state and self-regulatory agencies, domestic and foreign, including but not limited to the exchanges and the constitution, rules and customs, as the same may be constituted from time to time, of the exchange or market (and their clearing associations, if any) where executed. Actual deliveries are intended on all transactions. This paragraph is solely for your protection and your failure to comply with any such constitutions, regulations, rules and/or customs shall not be a breach of this agreement and shall not relieve the Corporation of any of its obligations under this agreement. The Corporation also agrees not to exceed any applicable position limits set by any government agency as well as limits established by any foreign or domestic exchanges and boards of trade (hereinafter "exchanges") for its own account, acting alone or in concert with others, and to promptly advise LB if it is required to file reports of its commodity positions with the Commodity Futures Trading Commission (CFTC) or any exchange. The Corporation represents that it is the sole owner of its accounts and that no person other than you has any interest therein. The Corporation agrees to notify you of the identity of any other person who controls the trading of the account, has a financial interest of 10% or more in the account or the identity of any other account in which the Corporation has a 10% ownership interest. The Corporation shall maintain its accounts in accordance with and shall be solely responsible for compliance with the rules, regulations and/or guidelines issued by any federal, state or administrative bodies having oversight or regulatory authority over its activities, and any statutes governing its activities. 2. The word "property" herein means securities of all kinds, monies, options, commodities, and contracts for the future delivery of, or otherwise relating to, commodities or securities and all property, including, but not limited to, property customarily dealt in by brokerage firms. 3. The Corporation understands that you have, at your discretion, the right to limit positions in its accounts, to decline to accept any orders and to require that its accounts be transferred to another firm or be closed. The Corporation understands that if it does not promptly transfer its positions upon your demand you have the right to liquidate positions in its accounts at your discretion. The Corporation understands that you act as agent and not as principal for your customers' commodity futures and commodity options transactions which are effected on exchanges. Consequently, you do not guarantee the performance of the obligations of any party to the futures or options contracts purchased and/or sold by your customers. The Corporation understands you may, and generally do act as principal in cash, forward and foreign commodity transactions. 4. Any property belonging to the Corporation or in which it has an interest held by you or any of your subsidiaries or affiliates or carried in any account shall be subject to a general lien and security interest for the discharge of its obligations to you, wherever or however arising and without regard to whether or not you have made advances with respect to such property, and you are hereby authorized to sell and/or purchase any and all such property without notice to satisfy such general lien and security interest. The Corporation irrevocably appoints you as its attorney-in-fact with power of substitution to execute any documents for the perfection or registration of such general lien and security interest. 5. The Corporation agrees to maintain such collateral and/or margin as you may from time to time in your discretion require and to pay immediately on demand any amount owing with respect to any of its accounts. Against a "short" position in any commodity contract, prior to the maturity thereof, the Corporation will give you instructions to cover or furnish you with all necessary delivery documents, and in default thereof, you may, without demand or notice, cover the liability in the manner deemed most appropriate by you, or if an order to buy in such contracts cannot, or should not in your sole judgment, be executed under prevailing conditions, you may procure the actual commodity and either make delivery thereof upon any terms or take any other action you deem appropriate. If it fails to remit delivery documents in a timely manner, the Corporation also understands that it will be responsible for substantial penalties and late charges which may be assessed against you or it pursuant to the rules of the particular exchange. In the event the Corporation fails to deposit sufficient funds to pay for any commodities, commodity options, commodity futures contracts, forward commodity and foreign exchange contracts and/or to satisfy any demands for original and/or variation margin, or whenever in your discretion you consider it necessary, you may, without prior demand or notice, when and if you deem appropriate notwithstanding any rule of any exchange, liquidate the positions in its account, hedge and/or offset those positions in the cash or other market or otherwise, sell any property belonging to the Corporation or in which it has an interest, cancel any open orders for the purchase and sale of any property, and you may borrow or buy any property required to make delivery against any sales, including a short sale, effected for it, all at its sole risk. Such sale or purchase may be public or private and may be made without advertising or notice to the Corporation and in such manner as you may in your discretion determine, and no demands, tenders or notices which you make or give shall invalidate its aforesaid waiver. At any such sale you may purchase the property free of any right of redemption aNd the Corporation agrees not to make any claim against you concerning the manner of sale or timing thereof. The proceeds of such transactions are to be applied to reduce any indebtedness owing to you. The Corporation acknowledges that it shall be liable for all losses whether or not the account is liquidated and for any debts and deficiencies in its accounts including all debts and deficiencies resulting from a liquidation of its account. 6. The Corporation agrees to pay storage and delivery charges and service fees charged to its accounts. The Corporation also agrees to pay interest charges upon its accounts at the prevailing and/or allowable rates according to the laws of the State of New York, as determined by you at the time of the acceptance of this agreement in your New York office and thereafter for any advances, loans, debts, as well as on the amount of variation margin calls until the satisfaction of such calls where the account uses U.S. Treasury bills for original margin purposes. The Corporation understands you retain as your own any interest, increment, profit, gain or benefit, direct or indirect, resulting from or relating to the investment of funds held in commodity customer segregated accounts, non-regulated accounts, and foreign futures and foreign options secured amount accounts. The Corporation understands that you charge commissions for execution of transactions which commissions are charged upon each transaction except for commodity futures transactions, for which commissions are generally charged upon liquidation. Commission rates shall be those prevailing at the time commissions are charged. Commission rates may be changed from time to time without notice to the Corporation and it agrees to be bound thereby. 7. This agreement shall be binding upon the Corporation, its successors and assigns and in the event of dissolution, liquidation, bankruptcy or any similar act, you may cancel or complete any open orders for the purchase 1 or sale of any property; you may place orders for the sale of property which you may be carrying for it and for which payment has not been made; or buy any property of which its accounts may be short, or any part thereof, under the same terms and conditions as hereinabove stated, as though the Corporation was still in existence, without prior notice to its successors and assigns, and without prior demand upon any of them. 8. Written confirmation of actual transactions and/or orders, purchase and sales notices, correction notices and statements of its accounts shall be conclusive if not objected to in writing within seven days after mailing by you to the Corporation. In the event the Corporation fails to receive any such confirmations or notices for its account within ten days from the date of a transaction in its account, the Corporation agrees to notify you immediately in writing. Communications mailed to it at the address specified hereon shall, until you have received notice in writing of a different address, be deemed to have been personally delivered to it and the undersigned agrees to waive all claims resulting from failure to receive such communications. 9. The Corporation understands that you are not responsible for any losses resulting directly or indirectly from any government restriction, exchange ruling, suspension of trading, actions of independent floor brokers or other persons beyond your control, war, strike, national disaster or computer hardware or software malfunction, delay in mails or any other delay or inaccuracy in the transmission of orders or other information because of a breakdown or failure of transmission or communication facilities. Commodity information, all price quotations or trade reports given to it are also subject to change and errors as well as delays in reporting and the Corporation acknowledges that reliance upon such information is at its own risk. The Corporation understands that it is bound to the actual executions of transactions on the exchanges and that you are not bound by erroneous reports of executions, prices or quantities transmitted to it. 10. The Corporation understands that you may act as a dealer or broker in the purchase and sale of gold and silver bullion and other precious and non-ferrous metals ("metals"), and that you will inform the Corporation of the capacity in which you are acting on any particular transaction upon its request. If you act as broker, the Corporation understands that you do not warrant the authenticity of metals. In the event the Corporation asks you to store metals rather than to carry them on an unallocated basis it understands that its metals will be placed in a depository selected by you and may be commingled with your own metals and those of other customers. All taxes, postage, shipping, insurance expenses and storage fees will be the Corporation's responsibility. The Corporation agrees to promptly pay for the metals purchased and promptly ship conforming metals sold pursuant to instructions from you. 11. The Corporation acknowledges that you are hereby specifically authorized, for your account and benefit, from time to time and without notice to it, either separately or with others, to lend, pledge, repledge, hypothecate or rehypothecate, either to yourself or to others, any and all property (including but not limited to metals, warehouse receipts, securities or other negotiable instruments) held by you in any of its accounts and you shall not at any time be required to deliver to it such identical property but may fulfill your obligations by delivery of property of the same kind and amount. 12. If the Corporation initiates a commodity contract on an exchange where such transaction is effected in a currency other than U.S. dollars, any profit or loss from a fluctuation in the exchange rate of such currency will be for its account and risk. Unless the Corporation gives you contrary written instructions you will debit and credit its account, after such a contract is liquidated, in U.S. dollars at an exchange rate determined by you in your discretion based on prevailing money markets. It agrees to make all margin deposits in U.S. dollars unless you in your discretion require otherwise. Unless the Corporation instructs you otherwise, monies it deposits with you in currency other than U.S. dollars and unrealized profits in currencies other than U.S. dollars, are not intended to margin, guarantee or secure transactions on United States contract markets. 13. If a provision herein is or becomes inconsistent with any law or regulation of any government or a regulatory body having jurisdiction, the provision shall be deemed to be rescinded or modified in accordance with any such law or regulation. In all other respects, this agreement shall continue and remain in full force and effect. Your failure to insist at any time upon strict compliance with this agreement or with any of its terms or any continued course of such conduct on your part shall not constitute or be a waiver by you of any of your rights. 14. If the Corporation's account has been introduced to you and is carried by you only as a clearing broker, the Corporation agrees that you are not responsible for the conduct of the introducing broker and your sole responsibilities relate to the execution, clearing and bookkeeping of transactions in the account. 15. This agreement is governed by the laws of the State of New York without reference to the conflicts of law provisions thereof. The Corporation agrees that you may, in your sole discretion, initiate proceedings in the courts of any jurisdiction in which the Corporation is resident or in which its assets are situated. In any legal action pemmitted by or against the Corporation, the Corporation agrees that the United States courts sitting in the State of New York shall have jurisdiction over it, and that the venue of any such action shall be the Southern District of New York. The Corporation hereby waives any objection to such jurisdiction and venue. 16. Any modifications of this agreement must be in writing and accepted by an authorized officer of LB in writing and no other employee of LB is authorized to make any representations contrary to the terms of this agreement. 17. CFTC REG. (S)15.05 - DESIGNATION OF LB AS AGENT OF REIGN BROKERS, CUSTOMERS OF HREIGN BROKERS AND REIGN TRADERS; AND REG. (S)21.03 SELECTED SPECIAL CALLS - DUTIES OF HREIGN BROKERS, DOMESTIC AND FOREIGN TRADERS, FUTURES COMMISSION MERCHANTS AND CONTRACT MARKETS. If the Corporation is a foreign trader or foreign broker it understands that pursuant to CFTC Regulation 15.05, you are its agent (and in the case of a foreign broker the agent of its customers) for purposes of accepting delivery and service of any communications issued by the CFTC with respect to any futures or options contracts which are or have been maintained in accounts carried byyou. Service or delivery of any such communication shall constitute valid and effective service or delivery upon the Corporation (and if it is a foreign broker, upon its customers). The Corporation understands that said regulation requires you to transmit the communication promptly to it (or its customer) in a manner which is reasonable under the circumstances or specified by the CFTC. The Corporation also understands CFTC Regulation 21.03 requires it to provide to the CFTC upon special call, market information concerning its options and futures trading (or its customers') as outlined in the regulation. If the Corporation fails to respond to the special call, the CFTC may direct the appropriate contract market and all brokers to prohibit further trades for or on its behalf (or for its customers) in the contract specified in the call unless such trades offset existing open contracts. Special calls are made where the information requested would assist the CFTC in determining whether a threat of market manipulation, corner, squeeze or other market disorder existed. Under Regulation 21.03(9) if the Corporation believes it is aggrieved by the action taken by the CFTC it shall have the opportunity for a prompt hearing after the Commission acts. (The Corporation understands that copies of Reg. (S)15.05 and (S)21.03 are available from any LB Investment Representative.) Acknowledgement of Separate Risk Disclosure Statement and Corporate Commodity Client Agreement [ ] BY CHECKING THIS BOX, THE CORPORATION HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED A SEPARATE RISK DISCLOSURE STATEMENT REQUIRED BY CFTC REGULATION (S)1.55 PRIOR TO THE OPENING OF THIS ACCOUNT AND UNDERSTANDS IT. THE CORPORATION AREES TO THE TERMS AND CONDITIONS OF THE "COMMODITY CLIENT AGREEMENT" AND AUTHORIZES YOU TO OPEN A COMMODITY ACCOUNT IN THE NAME OF SAID CORPORATION. Date:_____________________ Signature:________________________________________ Address:_________________________________ Title/Position_____________________ ----------------- LISTED DERIVATIVES GROUP FUTURES CUSTOMER AGREEMENT This Futures Customer Agreement ("Agreement") between CS First Boston and the customer named below ("Customer") shall govern the purchase and sale by, CS First Boston of futures contracts and options thereon (collectively, "Contracts") for the account and risk of Customer through one or more accounts carried by CS First Boston on behalf and in the name of Customer (collectively, the "Account"). 1. APPLICABLE LAW. The Account and all transactions and agreements in respect of the Account shall be subject to all applicable Federal, state, exchange, clearing house and self- regulatory agency, rules, regulations and interpretations and custom and usage of the trade. All such rules, regulations, interpretations, custom and usage are hereinafter collectively referred to as "Applicable Law." (Please refer to Section 8, paragraph (h) of this Agreement.) Provisions contained in and remedies provided by this Agreement which are additional to or more expansive than any provisions contained in or remedies provided by any other agreement with customer (including, without limitation, provisions or remedies that cover the same subject matter) shall not be deemed to be in conflict with each other, and all such provisions and remedies shall be applicable and available. 2. CUSTOMER'S REPRESENTATIONS AND WARRANTIES. Customer represents and warrants that (a) Customer has full right, power and authority, to enter into this Agreement, and the person executing this Agreement on behalf of Customer is authorized to do so; (b) this Agreement is binding on Customer and enforceable against Customer in accordance with its terms; (c) Customer may, lawfully establish and open the Account for the purpose of effecting purchases and sales of Contracts through CS First Boston; (d) Customer has determined that trading in futures contracts is appropriate for customer, is prudent in all respects and transactions entered into pursuant to this Agreement will not violate any applicable law (including any Applicable Law) to which Customer is subject or any agreement to which Customer is subject or a party; (e) all information provided by Customer in the Account Application preceding this Agreement (which Application and the information contained therein hereby is incorporated into this Agreement) is true and correct and Customer shall immediately (and in no event later than within one business day) notify CS First Boston of any change in such information; (f) Customer understands that CS First Boston acts as agent, and not as principal, in the execution of futures contracts; (g) except as disclosed in writing to CS First Boston, Customer is acting solely as principal and not as agent for any other party and no other customer has any interest in Customer's Account; (h) any trading recommendations and market or other information communicated to Customer by CS First Boston, although based upon information obtained from sources believed by CS First Boston to be reliable, may be incomplete, may not be verified, may be changed without notice to Customer, and CS First Boston makes no representation, warranty or guarantee as to the accuracy or completeness of any such information or recommendation; and (i) Customer expressly, agrees to waive any and all claims, rights or causes of action which Customer has or may have against CS First Boston and its officers, employees and/or agents arising in whole or in part, directly or indirectly, out of any act or ommission of a party who refers or introduces Customer to CS First Boston or who places orders on behalf of Customer. ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS ----------------- LISTED DERIVATIVES GROUP 3. PAYMENT OBLIGATIONS OF CUSTOMER. Customer shall immediately pay CS First Boston upon demand (a) all brokerage charges, giveup fees, commissions and service fees as CS First Boston may from time to time charge; (b) all contract market, clearing house, NFA or clearing member fees or charges or any other regulatory fees and service charges incurred with respect to each transaction; (c) any tax imposed on such transactions by any competent taxing authority; (d) the amount of any trading losses in the Account; (e) any debit balance or deficiency in the Account; (f) any advances made by CS First Boston to or for the benefit of Customer, (g) any obligation of Customer to CS First Boston incurred in respect of a trade executed in connection herewith, (h) interest on any debit balances or deficiencies in the Account, at the overnight rate customarily charged by CS First Boston, together with costs and reasonable attorneys' fees incurred in collecting any such debit balance or deficiency; and (i) any other amounts owed by Customer to CS First Boston with respect to the Account or any transactions therein. 4. CUSTOMER'S EVENTS OF DEFAULT: CS FIRST BOSTON'S REMEDIES. (a) Events of Default. As used herein, each of the following shall be deemed an "Event of Default": (i) the commencement of a case under any Federal or state bankruptcy, insolvency or reorganization law or other law for the protection of creditors, or the filing of a petition for the appointment of a receiver, liquidator, trustee, conservator, or custodian by or against Customer, an assignment made by Customer for the benefit of creditors, an admission in writing by Customer that it is insolvent or is unable to pay its debts when they mature, or the suspension by the Customer of its usual business or anv material portion thereof; (ii) the issuance of any warrant or order of attachment against the Account or the levy of a judgment against the Account; (iii) any representation or warrant, made by Customer was incorrect or untrue in any material respect when made or repeated or deemed to have been made or repeated, (iv) if Customer states that it will not perform any obligation to CS First Boston under this Agreement or in connection with any trades executed by CS First Boston on Customer's behalf, (v) if CS First Boston believes that it may be unable to apply, without delay property that it is holding or expects to receive from Customer against any obligations to CS First Boston under this Agreement or in connection with any trades executed by CS First Boston on Customer's behalf, (vi) if Customer fails upon demand by CS First Boston to satisfy any debit balance in its account that remains outstanding for one business day or more, (vii) if Customer is an individual, Customer dies or is judicially declared incompetent, (viii) if Customer is an employee benefit plan, the termination of Customer or the filing by Customer of a notice of intent to terminate with a governmental agency or body, or the receipt of a notice of intent to terminate Customer from a governmental agency or body, or the inability of Customer to pay benefits under the relevant employee benefit plan when due; (ix) the failure by Customer to deposit or maintain margins as required by CS First Boston with or without a prior demand for such margin by CS First Boston, to pay required premiums, or to make payments upon demand as required by Section 3 hereof; or (x) the failure by Customer to perform, in any material respect, its obligations hereunder. (b) Remedies. Upon the occurrence of an Event of Default, or in the event Customer fails to honor a margin request within one business day, or as short a period of time as CS First Boston shall advise Client, of the request being made, or in the event CS First Boston, in its sole and absolute discretion, considers it necessary for its protection, CS First Boston shall have the right, in addition to any other remedy available to CS First Boston at law or in equity, and in addition to any other action CS First Boston may deem appropriate under the ----------------------------- [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS ------------------------- Listed Derivatives Group circumstances, to cancel or liquidate at any time deemed appropriate by CS First Boston any or all open Contracts held in or for the Account, sell any or all of the securities or other property of Customer held by CS First Boston whether or not the ownership interest shall be solely Customer's or held jointly with others and to apply the proceeds thereof to any amounts owed by Customer to CS First Boston, borrow or buy any options, securities, Contracts or other property for the Account and immediately cancel any unfilled orders for the purchase or sale of Contracts for the Account, or take such other or further actions CS First Boston, in its reasonable discretion, deems necessary or appropriate for its protection, all without demand for margin and without notice or advertisement. Any such action may be made at the discretion of CS First Boston. All purchases or sales pursuant to this Section 4 may be effected in public or private purchases in whatever manner and with whichever party CS First Boston deems appropriate and at such price(s) as CS First Boston may deem satisfactory. In the event CS First Boston's position would not be jeopardized thereby, CS First Boston will make reasonable efforts under the circumstances to notify Customer prior to taking any such action, except that Customer agrees that CS First Boston or the failure to previously enforce any provision of this Agreement shall have the right to take any, and all action pursuant to this Section 4 without any notice of default, demand for margin or additional margin, notice to Customer of sale or purchase, or other notice or advertisement. A prior demand or margin call of any kind from CS First Boston or prior notice from CS First Boston or the failure to previously enforce anv provision of this Agreement shall not be considered a waiver of CS First Boston's right to take any, action as described herein without notice or demand. In the event CS First Boston exercises and, remedies available to it under this Agreement, Customer shall reimburse, compensate, indentify, defend and hold harmless CS First Boston for any and all costs, losses, penalties, fines, taxes and damages that CS First Boston may incur, including reasonable attorneys, fees incurred in connection with the exercise of its remedies and the recovery of any such costs, losses, penalties, fines, taxes and damages. 5. LIMITATION OF LIABILITY. CS First Boston shall have no responsibility or liability to Customer hereunder (i) in connection with the performance or non-performance by any contract market, clearing house, clearing firm or other third party (including floor brokers and banks) to CS First Boston of its obligations in respect of any Contract or other property of Customer, in particular CS First Boston shall not be liable to Customer if any such third party makes an error in filling orders or fails to fill an order for Customer; (ii) as a result of any prediction, recommendation or advice made or given by a representative of CS First Boston whether or not made or given at the request of Customer; (iii) as a result of CS First Boston's reliance on any instructions, notices and con-Lmunications that it believes to be that of an individual authorized to act on behalf of Customer; (iv) as a result of any delay in the performance or non-performance of any of CS First Boston's obligations hereunder directly or indirectly caused by the occurrence of any contingency beyond the control of CS First Boston including, but not limited to, the unscheduled closure of an exchange or contract market or delays in the transmission of orders due to breakdowns or failures of transmission or communication facilities, execution, and/or trading facilities or other systems (including, without limitation, GLOBEX, ACCESS, or other electronic trading systems, facilities or services), it being understood that CS First Boston shall be excused from performance of its obligations hereunder for such period of time as is reasonably necessary after such occurrence to remedy the effects therefrom; (v) as a result of any action taken by CS First Boston or its floor brokers to comply with Applicable law; (vi) as a result of any actions taken by CS First Boston in connection with the exercise of the available remedies pursuant to Section 4; or (vii) for any acts or omissions of those neither employed nor supervised by CS First Boston. CS First Boston shall ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - ------------------------- LISTED DERIVATIVES GROUP not be responsible for any loss, liability, damage or expense except to the extent that such loss, liability, damage or expense arises from its gross negligence or willful misconduct. In no event will CS First Boston be liable to Customer for consequential, incidental or special damages hereunder. 6. GENERAL AGREEMENTS. The parties agree that: (a) CS FIRST BOSTON'S RESPONSIBILITY. CS First Boston is not acting as a fiduciary, foundation manager, commodity pool operator, commodity trading advisor or investment advisor in respect of any Account opened by Customer. CS First Boston shall have no responsibility hereunder for compliance with any law or regulation governing the conduct of fiduciaries, foundation managers, commodity pool operators, commodity trading advisors or investment advisors. (b) ADVICE. All advice or market information communicated by CS First Boston with respect to any Account opened by Customer hereunder is incidental to the conduct of CS First Boston's business as a futures commission merchant and such advice or information does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any contract and will not serve as the primary basis for any decision by or on behalf of Customer. CS First Boston shall have no discretionary authority, power or control over any decisions made by or on behalf of Customer in respect of the Account, regardless of whether Customer relies on the advice of CS First Boston in making any such decision. Customer acknowledges that CS First Boston and its managing directors, officers, employees and affiliates may take or hold positions in, or advise other customers concerning, contracts that are the subject of advice from CS First Boston to Customer. The positions and advice of CS First Boston and its managing directors, officers, employees and affiliates may be inconsistent with or contrary to positions of, and the advice given by, CS First Boston to Customer. (c) RECORDING. CS First Boston, in its sole and absolute discretion, may record, on tape or otherwise, any telephone conversation between CS First Boston and Customer involving their respective officers, agents and employees, and Customer hereby agrees and consents thereto. (d) ACCEPTANCE OF Orders; POSITION LIMITS. (i) CS First Boston shall have the right, whenever in its discretion it deems such action necessary or desirable, to limit the size of open positions (net or gross) of Customer with respect to the Account at any time and to refuse acceptance of orders to establish new positions, whether such refusal, reduction or limitation is required by, or based on position limits imposed under, Applicable Law. CS First Boston shall immediately notify Customer of its rejection of any order. Unless specified by Customer, CS First Boston may designate the exchange or other markets (including, without limitation, GLOBEX or ACCESS) on which it will attempt to execute orders to notify CS First Boston promptly if Customer is required to file such reports, and (ii) Customer shall comply with all position limit rules and shall file or cause to be filed all applications or reports required under Applicable Law with the CFTC or the relevant contract market or clearing house, and shall provide CS First Boston with a copy of such applications or reports and such other information as CS First Boston may reasonably request in connection therewith. ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS 4 - ------------------------ LISTED DERIVATIVES GROUP (e) ORIGINAL AND VARIATION MARGIN; PREMIUMS; OTHER CONTRACT Obligations. Customer shall make, or cause to be made, all applicable original margin, variation margin, intra-day margin, additional margin and premium payments, and perform all other obligations attendant to transactions or positions in such Contracts, as may be required by Applicable Law or by CS First Boston, in its sole discretion. Requests for margin deposits and/or premium payments may, at CS First Boston's election, be communicated to Customer orally, telephonically or in writing. Customer margin deposits and/or premium payments shall be made by wire transfer to CS First Boston's Customer Segregated Account and shall be in U.S. dollars unless CS First Boston specifically requests otherwise. Any outstanding debit balances in the Customer Accounts shall accrue interest, in accordance with CS First Boston's usual custom, at a rate permitted by the laws of the State of New York. Any such interest unpaid at the end of a charge period (such period being determined by CS First Boston from time to time in its sole discretion) will be added automatically to the opening balance in such Customer Accounts for the next charge period. (f) SECURITY INTEREST AND RIGHTS RESPECTING COLLATERAL. Except to the extent proscribed by Applicable Law not subject to waiver, all Contracts, cash, securities, and/or any other property of Customer (either individually or jointly held with others) whatsoever (collectively, the "Collateral") at any time held by CS First Boston or its affiliates, or carried by others for the Account, hereby are pledged to CS First Boston and shall be subject to a general lien and security interest in CS First Boston's favor to secure any, indebtedness or other amounts, obligations and/or liabilities at any time owing from Customer to CS First Boston (collectively, the "Customer's Liabilities"). Customer hereby grants CS First Boston the right to borrow, pledge, repledge, hypothecate, rehypothecate, loan or invest any of the Collateral, including utilizing the Collateral to purchase United States Government Treasury obligations pursuant to repurchase agreements or reverse repurchase agreements with any party, in each case without notice to Customer, and without any obligation to pay or to account to Customer for any interest, income or benefit that may, be derived therefrom. The rights of CS First Boston set forth above shall be qualified by any applicable requirements for segregation of customers'property under Applicable Law. (g) REPORTS AND Objections. All confirmations, (purchase and sale notices, correction notices) and account statements (collectively, "Statements") shall be submitted to Customer and shall be conclusive and binding on Customer unless Customer notifies CS First Boston of any objection thereto prior to the opening of trading on the contract market on which such transaction occurred on the business day following the day on which Customer receives such Statement; provided, that with respect to monthly Statements, Customer may notify CS First Boston of any objection thereto within ten business days after receipt of such monthly Statement, provided the objection could not have been raised at the time any prior Statement was received by Customer as provided for above. Any such notice of objection, if given orally to CS First Boston, shall immediately (and no later than within one business day) be confirmed in writing by Customer. ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - ------------------------ LISTED DERIVATIVES GROUP (h) DELIVERY PROCEDURES; OPTIONS ALLOCATION PROCEDURES. (i) CS First Boston shall liquidate any Contract for which an offsetting order is entered by Customer, unless Customer instructs CS First Boston not to liquidate such Contract and to maintain the offsetting Contracts as open positions, provided, that CS FIRST Boston shall not be obligated to comply with any such instructions given by Customer if Customer fails to provide CS First Boston with any representations, documentation or information reasonably requested by CS First Boston or if, in CS First Boston's reasonable judgment, any failure to liquidate such offsetting Contracts against each other would result in a violation of applicable laws. (ii) Customer will provide CS First Boston with instructions either to liquidate Contracts previously established by Customer, make or take delivery under any such Contracts, or exercise options entered into by Customer, within such time limits as may be specified by CS First Boston. CS First Boston shall have no responsibility to take any action on behalf of Customer or positions in the Account unless and until CS First Boston receives oral or written instructions reasonably acceptable to CS First Boston indicating the action CS First Boston is to take, except that CS First Boston may liquidate any or all Contracts when authorized or required by the exchange or contract market on which such Contracts were executed. Funds sufficient to take delivery pursuant to such Contract or deliverable grade commodities to make delivery pursuant to such Contract must be delivered to CS First Boston at such time as CS First Boston may require in connection with any delivery. CS FIRST BOSTON IS SPECIFICALLY AUTHORIZED TO TRANSFER TO CUSTOMER'S CASH ACCOUNT ON THE SETTLEMENT DAY FOLLOWING A PURCHASE MADE IN THAT ACCOUNT, EXCESS FUNDS AVAILABLE IN ANY OF CUSTOMER'S OTHER ACCOUNTS, INCLUDING BUT NOT LIMITED TO ANY FREE BALANCE IN ANY MARGIN ACCOUNT OR IN ANY NON-REGULATED FUTURES ACCOUNT, SUFFICIENT TO MAKE FULL PAYMENT OF THIS CASH PURCHASE. CUSTOMER AGREES THAT ANY DEBIT OCCURRING IN ANY OF CUSTOMER'S ACCOUNTS MAY BE TRANSFERRED BY CS FIRST BOSTON, AT ITS OPTION, TO CUSTOMER'S MARGIN ACCOUNT. (iii)Customer shall have sole responsibility to exercise in a proper and timely manner any right, privilege or obligation of every option in a Customer Account. Failure to do so could result in substantial loss to Customer. CS First Boston shall not have any obligation to exercise any long option contracts unless Customer has furnished CS First Boston with timely exercise instructions and sufficient initial margin with respect to each underlying futures contract. CS First Boston shall not be obligated, except within a reasonable period of time following receipt of Customer's instruction, to close out any positions in any Customer Account. (iv) Short option Contracts may be subject to exercise at any time. Exercise notices received by CS First Boston from the applicable contract market with respect to option Contracts sold by Customer may be allocated to Customer pursuant to a random allocation procedure, and Customer shall be bound by any such allocation of exercise notices. In the event of any allocation to Customer, unless CS First Boston has previously received instructions from Customer, CS First Boston's sole responsibility shall be to use its best efforts to notify Customer of such allocation. (v) If Customer fails to comply with any of the foregoing obligations and Customer is required to make delivery of any security, commodity or other property and is unable to deliver same, CS First Boston may, in its sole and absolute discretion, liquidate any open positions, make or receive delivery of any commodities, securities or other property, or exercise or allow the expiration of any options, in ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - --------------------------- LISTED DERIVATIVES GROUP such manner and on such terms as CS First Boston, in its sole and absolute discretion, deems necessary or appropriate, and Customer shall indemnify and hold CS First Boston harmless as a result of any action taken or not taken by CS First Boston in connection therewith or pursuant to Customer's instructions. (i) FINANCIAL AND OTHER INFORMATION. Customer shall provide to CS First Boston such financial information regarding Customer as CS First Boston may from time to time reasonably request to determine Customer's financial condition and Customer's ability to perform its obligations under this Agreement or in connection with any Contracts executed by CS First Boston on Customer's behalf.. Customer shall notify CS First Boston immediately (and no later than within one business day) if the financial condition of Customer changes materially and adversely from that shown in the most recent financial information theretofore provided to CS First Boston. An investigation may be conducted pertaining to Customer's credit standing and business and/or to verify any financial information furnished to CS First Boston by Customer. (j) CURRENCY EXCHANGE RISK. If Customer enters into any Contract on an Exchange on which transactions are effected in a foreign currency, then Customer shall bear all risk and cost in respect of the conversion of currencies incident to transactions effected on behalf of Customer pursuant hereto, including any loss arising as a result of a fluctuation in the exchange rate affecting such foreign currency. (k) TRANSACTIONS ON SIMEX. If Customer intends to engage in transactions on the Singapore International Monetary Exchange Limited ("SIMEX") through CS First Boston, then Customer agrees that, with respect to transactions on SIMEX, notwithstanding anything to the contrary herein, (a) the phrase "(as defined in the Companies Act, Cap 50)" shall be added after the word "subsidiary" wherever the latter shall appear in this Agreement, and (b) the phrase "(excluding Saturdays)" shall be added after the phrase "business days" wherever the latter shall appear in this Agreement. 7. TERMINATION. This Agreement may be terminated at any time by Customer or CS First Boston by written notice to the other. Termination shall not affect any transaction entered into prior to receipt of such notice and shall not relieve either party of any obligations in connection with any, debt or credit balance or other liability or obligation incurred prior to such receipt. In the event of such notice, Customer shall either close out open positions in the Account or arrange for such open positions to be transferred to another futures commission merchant. Upon satisfaction by Customer of all of Customer's liabilities, CS First Boston shall transfer to another futures commission merchant all Contracts, if any, then held for the Account, and shall transfer to Customer or to another futures commission merchant, as Customer may instruct, all cash, securities and other property held in the Account, whereupon this Agreement shall terminate. 8. MISCELLANEOUS. (a) SEVERABILITY. If any provision of this Agreement is, or at any time becomes, inconsistent with any present or future law, rule or regulation of any exchange or other market, sovereign government or regulatory body thereof, and if any of these authorities have jurisdiction over the subject matter of this Agreement, the inconsistent provision shall be deemed superseded or modified to conform with such law, rule or regulation but in all other respects, this Agreement shall continue and remain in full force and effect. ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - ------------------------ LISTED DERIVATIVES GROUP (b) BINDING EFFECT. This Agreement shall be binding on and inure to the benefit of the parties and their successors. CS First Boston shall have the right to transfer or assign this Agreement (and thereby the Account) to any successor entity or to another properly registered futures commission merchant in its sole and absolute discretion and without obtaining the consent of Customer. Customer shall not assign any of its rights or obligations under this Agreement without the prior written consent of CS First Boston, and any such attempted assignment without such consent shall be ineffective. (c) ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties and supersedes any prior agreements between the parties as to the subject matter hereof. No provision of this Agreement shall in any respect be waived, altered, modified, or amended unless such waiver, alteration, modification or amendment is in writing and signed by the party against whom such waiver, alteration, modification or amendment is to be enforced. (d) CURRENCY DENOMINATION. Unless another currency is designated in the confirmations reporting transactions entered into by Customer, all margin deposits in connection with such transactions, and a debit or credit in the Account, shall be stated in United States dollars. (e) INSTRUCTIONS, NOTICES OR COMMUNICATIONS. Except as specifically otherwise provided in this Agreement, all instructions, notices or other communications may be oral or written. All oral instructions, unless custom and usage of trade dictate otherwise, shall be promptly confirmed in writing. All written instructions, notices or other communications shall be addressed as follows: (i) if to CS First Boston: CS FIRST BOSTON 5 World Trade Center, 7th Floor New York, New York 10048 Attention: Futures Department (ii) if to Customer at the address as indicated on the Futures Account Application. (f) RIGHTS AND REMEDIES CUMULATIVE. All rights and remedies arising under this Agreement as amended and modified from time to time are cumulative and not exclusive of any rights or remedies which may be available at law or otherwise. (g) NO WAIVER. No failure on the part of CS First Boston to exercise, and no delay in exercising, any contractual right will operate as a waiver thereof, nor will any single or partial exercise by CS First Boston of any right preclude any other or future exercise thereof or the exercise of any other partial right. (h) GOVERNING LAW. THE INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW. (i) CONSENT TO JURISDICTION. ANY LITIGATION BETWEEN CS FIRST BOSTON AND CUSTOMER RELATING TO THIS AGREEMENT OR TRANSACTIONS HEREUNDER SHALL TAKE PLACE IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. CUSTOMER CONSENTS TO THE SERVICE OF PROCESS BY THE MAILING TO CUSTOMER OF COPIES OF SUCH COURT ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - ------------------------- LISTED DERIVATIVES GROUP FILING BY CERTIFIED MAIL TO THE ADDRESS OF CUSTOMER AS IT APPEARS ON THE BOOKS AND RECORDS OF CS FIRST BOSTON, SUCH SERVICE TO BE EFFECTIVE TEN DAYS AFTER MAILING. CUSTOMER HEREBY WAIVES IRREVOCABLY ANY IMMUNITY TO WHICH IT MIGHT OTHERWISE BE ENTITLED IN ANY ACTION AT LAW, SUIT IN EQUITY OR ANY OTHER PROCEEDING ARISING OUT OF OR BASED ON THIS AGREEMENT OR ANY TRANSACTION IN CONNECTION HEREWITH. (j) WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES. Customer hereby waives a trial by jury in any action arising out of or relating to this Agreement or any transaction in connection therewith. Furthermore, no party to this Agreement will attempt to obtain an award of punitive damages against the other. (k) CUSTOMER ACKNOWLEDGMENTS. (i) CUSTOMER HEREBY ACKNOWLEDGES THAT IT HAS RECEIVED AND UNDERSTANDS THE FOLLOWING DISCLOSURE STATEMENTS PRESCRIBED BY THE CFTC AND FURNISHED HEREWITH (CHECK WHERE APPLICABLE): [ ] RISK DISCLOSURE STATEMENT (CFTC Rule 1.55(b) transcribed in full on pages 1-2 of Booklet 2 - Risk Disclosure Statements) [ ] OPTIONS DISCLOSURE STATEMENT (CFTC Rule 33.7 transcribed in full on pages 3-12 of Booklet 2 - Risk Disclosure Statements) [ ] DISCLOSURE STATEMENT FOR NON-CASH MARGIN (CFTC Rule 190.10 transcribed in full on page 16 of Booklet 2 - Risk Disclosure Statements) [ ] FOREIGN FUTURES AND FOREIGN OPTIONS RISK DISCLOSURE STATEMENT (CFTC Rule 30.6 transcribed in full on pages 1-2 of Booklet 2 - Risk Disclosure Statements) (ii) IF CUSTOMER HAS INDICATED ON the FUTURES ACCOUNT APPLICATION THAT ORDERS PLACED FOR THE ACCOUNT REPRESENT BONA FIDE HEDGING TRANSACTIONS, PLEASE COMPLETE THE FOLLOWING. You should note that CFTC Regulation (S)190.06 permits you to specify whether, in the unlikely event of CS First Boston's bankruptcy, you prefer the bankruptcy trustee to liquidate or transfer to another futures commission merchant all positions in the Account. Accordingly, Customer hereby elects as follows: (check one) [ ] LIQUIDATION [ ] TRANSFER TO ANOTHER FUTURES COMMISSION MERCHANT IF NEITHER ALTERNATIVE IS CHECKED, CUSTOMER WILL BE DEEMED TO HAVE ELECTED TO HAVE ALL POSITIONS LIQUIDATED. THIS ELECTION MAY BE CHANGED AT ANY TIME BY WRITTEN NOTICE. (iii) CUSTOMER ACKNOWLEDGES THAT UNLESS THIS IS A HEDGE ACCOUNT, INVESTMENT IN FUTURES AND OPTIONS ON FUTURES CONTRACTS IS SPECULATIVE, INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR PERSONS WHO CAN ASSUME THE RISK OF SUBSTANTIAL LOSSES. CUSTOMER ALSO UNDERSTANDS THAT BECAUSE OF THE LOW MARGIN NORMALLY REQUIRED IN COMMODITY FUTURES AND ON SHORT POSITIONS IN OPTIONS ON FUTURES, PRICE CHANGES in FUTURES CONTRACTS MAY RESULT IN SIGNIFICANT LOSSES, WHICH LOSSES MAY EXCEED THE MARGIN ------------------------------ [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS - ---------------------- LISTED DERIVATIVES GROUP DEPOSIT. PURCHASERS OF OPTIONS ON FUTURES MAY LOSE THE ENTIRE AMOUNT OF THE PREMIUM PAID. IN WITNESS WHEREOF, Customer has executed this Agreement on the date indicated below. CORPORATION/PARTNERSHIPS: By:___________________________________ Date:__________________________ Authorized Officer/General Partner Name:_________________________________ Title:_________________________ (Print) (Print) INDIVIDUAL/JOINT ACCOUNT: By:___________________________________ By:____________________________ Individual Secondary Party (Joint Account) Date:_____________ Name:_____________ Date:____________ Name:__________ (Print) (Print) REMINDER: PLEASE BE SURE TO CHECK THE APPROPRIATE BOXES IN SECTIONS 8(K) (I) AND (II) ABOVE. ----------------------------------- [LOGO] CS FIRST BOSTON GLOBAL CLEARING ACROSS MARKETS FUTURES CUSTOMER AGREEMENT BEAR STEARNS SECURITIES CORP. ("AGREEMENT") One Metrotech Center North Brooklyn, NY 11201-3859 ACCOUNT TITLE_____________________________ ACCOUNT NUMBER____________________________ PLEASE READ CAREFULLY In consideration of Bear, Stearns Securities Corp., its successors and assigns, ("BSSC") acting as Futures Commission Merchant and carrying one or more commodity futures accounts for the undersigned, ("Customer") its successors and assigns, and when applicable, in consideration of Bear, Stearns & Co. Inc. acting as Customer's introducing broker (Bear, Stearns & Co. Inc. and BSSC are sometimes hereinafter collectively referred to as the "Brokers"), it is agreed to with respect to all accounts, whether on margin or otherwise, which the Customer now has or may at any future time have with the Brokers that: 1. AUTHORIZATION TO ACT AS BROKER Customer authorizes the Brokers to purchase and sell futures contracts and option contracts thereon ("Contracts") traded on duly registered contract markets and exchanges located within and outside the United States, off-exchange transactions where permitted by law, and spot, forward and option contracts (including over-the-counter foreign currency spot, forward and option contracts) for Customer's account in accordance with Customer's oral or written instructions. The Brokers shall rely on any oral or written instructions received from any person whom the Brokers believe, in good faith, to have been an authorized person. The Brokers will be fully protected in acting on such instructions. The Customer hereby waives any claim or defense that any such instruction was not in writing as may be required by the Statute of Frauds or any other law, rule, or regulation. 2. SUBJECT TO LAW AND EXCHANGE RULES All transactions by the Brokers on Customer's behalf shall be subject to the applicable constitution, by-laws, rules, resolutions, regulations, customs, usages, rulings, and interpretations of the contract market and its clearinghouse on which such transactions are executed or cleared by BSSC or its agents for Customer's accounts, and to all applicable govermnental acts and statutes (such as the Commodity Exchange Act) and to rules and regulations made thereunder. Further, Customer represents that it has reviewed the registration requirements of the Commodity Futures Trading Commission, the National Futures Association, and/or such other regulatory bodies applicable to Customer, and that it is either appropriately registered or is not required to be so registered. The Brokers shall not be liable to Customer as a result of any action taken by the Brokers or their agents to comply with any such constitution, by-laws, resolutions, regulations, customs, usages, rulings, interpretations, acts, or statutes. 3. COMMISSIONS, CHARGES AND FEES Customer, in connection with such transactions, agrees to pay BSSC: (A) Brokerage and commission charges as agreed upon by the Brokers and Customer from time to time. (B) Any charges, fees, fines or penalties imposed on any transaction undertaken for Customer by the contract market and/or the clearinghouse through which it is executed and any tax or fee imposed on such transactions by any competent authority or self-regulatory organization. (C) Any interest and/or service charges on any Customer deficit balances or any other amounts due from Customer at the rates customarily charged by BSSC together with the Brokers' costs and attorney's fees incurred in collecting such deficit. (D) Such payments shall be made promptly in Federal funds to BSSC at such address as BSSC may designate. 4. MARGINS AND PREMIUMS Customer agrees to maintain such margin, option premium and/or collateral as BSSC in its sole discretion may require from time to time and will pay on demand any amounts owing with respect to any of Customer's accounts. Margin requirements established by BSSC for Customer's accounts may exceed the margin required of BSSC by a contract market or clearing organization or the margin required by BSSC of its other customers. BSSC may change margin requirements for Customer at its sole discretion at any time. 5. DELIVERY OR EXERCISE OF DELIVERY INSTRUCTIONS In the event that BSSC undertakes to make or take delivery of futures contracts, exercise options or effect the sale of any property on behalf of Customer, Customer will provide BSSC with the same at the time, in the manner and under the terms and conditions necessary for BSSC to effect delivery thereof or to purchase as required. (A) Customer will provide BSSC with notice of intention to accept delivery on long futures contracts at least five business days prior to the last trading day for the contracts. At that time Customer will also indicate its financial ability to pay for the contracts and the means and time by which funds will be made available to BSSC. (B) If Customer intends to make delivery on a short position, Customer must notify BSSC at least five business days prior to the intended delivery date or the last trading day, whichever comes first. At tnat time Customer will also indicate the location of the commodities to be delivered and will certify to BSSC that the commodities comply fully with the delivery specifications of the contract market on which the contracts trade. (C) BSSC may, from time to time, demand deposits or other assurances of performance relating to the delivery of commodities which may be beyond those specified by the contract market on which the contracts are traded. If Customer fails to so supply BSSC with the same, then BSSC, in addition to any other right to remedy it may have, is authorized by Customer to, in its sole discretion, borrow or buy any commodities necessary to make delivery thereof at the sole risk and expense of Customer. (D) In the event of cash settlement of a contract, Customer must provide BSSC with the cash one ( I ) business day before settlement. 6. OPTIONS If this Agreement applies to options on futures contracts, Customer acknowledges and agrees that Customer has full responsibility for taking or 1 failing to take action to exercise any option contract in Customer's account and that in no event will the Brokers take action to exercise any option contract in the Customer's account without instructions from the Customer. Customer further acknowledges and agrees that such option contract may be subject to automatic exercise pursuant to applicable law. Customer understands that exercise notices may be allocated to the Customer's account pursuant to a random allocation procedure and agrees that the Customer shall be bound by any allocation of exercise notices to the Customer pursuant thereto. Customer understands that such notices may be assigned to the account after the close of trading on the day on which such notices have been assigned to BSSC. In such event, BSSC's sole responsibility shall be to use its best efforts to place a telephone call to the Customer at any time before trading commences on the next day on which such option contracts are traded on the applicable contract market and, if an authorized representative of the Customer is present, to inform the authorized representative of the Customer of such allocation. In the event that BSSC makes such call, but no authorized representative of the Customer is present, the Brokers shall have no responsibility to take any action on behalf of the Customer unless BSSC has previously received from the Customer written instruction acceptable to BSSC indicating the action BSSC is to take in such event. 7. EXCHANGE FOR PHYSICALS ("EFP") If this Agreement applies to EFP transactions, the Customer acknowledges familiarity with all rules and regulations applicable to Customer's EFP transactions and certifies to the Brokers Customer's possession of all required records documenting each underlying cash transaction. Customer agrees to produce such records to the Brokers upon their request. Customer agrees to indemnify and hold the Brokers harmless from all costs, claims, fines or penalties the Brokers may incur resulting from an EFP transaction requested by the Customer. 8. HEDGE ACCOUNT If this is a hedge account, all orders which the Customer gives for the purchase or sale of futures or options contracts for the Customer's accounts will represent bona fide hedges in accordance with accepted definitions of hedge transactions under the Commodity Exchange Act, if applicable, and any amendments or interpretations thereto which may be made in the future by the Commodity Futures Trading Commission, any state or self-regulatory organization, or any court of competent jurisdiction, if applicable. Should orders be placed for the purchase or sale of contracts which are not hedge transactions, the Customer will advise the Brokers to that effect. 9. COMMUNICATIONS Reports, confirmations, statements, notices and any other communication may be transmitted to Customer at the address designated in this Agreement, or to such address as Customer may designate in writing to BSSC, Attn: Director, Futures Operations, 1 Metrotech Center North, Brooklyn, NY 11201-3859. All communications so sent, whether by mail, messenger, telegraph, or otherwise shall be deemed transmitted when deposited in the United States mail, or when received by a transmitting agent, and will be deemed to have been delivered to Customer personally, whether actually received by Customer or not. All communications to Bear, Stearns Securities Corp. shall be to its office at One Metrotech Center North, Brooklyn, New York 11201-3859 or to such other address as BSSC shall hereafter direct Customer, in writing, to use. 10. CONFIRMATION AND STATEMENTS A detailed trade confirmation of all transactions for or on Customer's behalf shall be furnished to Customer. A detailed monthly statement of all transactions for or on Customer's behalf shall be funished to Customer on a monthly basis. Confirmations of transactions and orders, correction notices and monthly statements of account shall be conclusive if not objected to in writing to One Metrotech Center North, Brooklyn, New York, 11201-3859 within one (1) business day following the day on which Customer receives the written notice from BSSC; if a confirmation is reported to Customer orally, it is conclusive unless objected to at the time of such report. In the event that Customer fails to receive any such confirmation of transactions and orders, correction notices or monthly statements of account within five (5) business days from the date of a transaction, or solely in connection with a monthly statement of account, within (5) days after the last business day of the preceding month, Customer will notify BSSC immediately. In addition to oral notification of objections, Customer must also provide written notification to BSSC at One Metrotech Center North, Brooklyn, New York 11201-3859, Attn: Director, Futures Operations, or to such other person as BSSC shall hereafler direct Customer, in writing, to notify. If Customer fails to give BSSC such notification, Customer will be deemed to have adopted and ratified the transactions and to have waived any right to have them removed from the account. 11. CURRENCY FLUCTUATION RISK In the event that BSSC is directed to enter into any transactions for Customer which are effected in and/or margin deposits are made in curencies other than in United States dollars: (A) Any profits or losses arising as a result of the fluctuation in the exchange rate affecting such currency will be entirely for the account and risk of the Customer. (B) All initial and subsequent deposits for margin purposes shall be made in United States dollars in such amounts as BSSC, in its sole discretion, may designate. (C) Unless otherwise agreed to by the Customer and the Brokers in writing, when such transaction is established or liquidated, BSSC shall credit or debit the account in United States Dollars at an exchange rate determined by BSSC. This rate will be based on the prevailing money market rates available at the time of the transaction. 12. CUSTOMER ACKNOWLEDGMENTS Customer acknowledges that: (A) Any trading recommendations and market or other information communicated to Customer by the Brokers is incidental to the conduct of the Brokers' business as Futures Commission Merchants. (B) Such recommendations and information, although based upon information obtained from sources believed by the Brokers to be reliable, may be incomplete, may not be verified, and may be changed without notice to Customer. (C) The Brokers make no representation, warranty or guarantee as to the accuracy or completeness of any market or other information or trading recommendation finished to Customer. (D) Customer understands that the Brokers, their managing directors, officers, employees, and/or affiliates may have a position in, may intend to, and may, buy or sell contracts or instruments that are the subject of contracts, including contracts which are the subject of information or recommendations furnished to Customer, and that the position or transactions of the Brokers, their managing directors, employees, officers and/or affiliates may or may not be consistent with the recommendations furnished by the Brokers to Customer. (E) All decisions by the Customer or its agent(s), whether or not utilizing any advice of the Brokers, their employees and officers, are solely within the power and discretion of the Customer. 13. LIQUIDATION In the event that: (A) Customer commences a voluntary case, or an involuntary case is commenced against Customer under any applicable bankruptcy, insolvency 2 or other similar law now or hereafter in effect, or a receiver, liquidator, trustee, custodian, sequestrater or other similar official is appointed or takes possession (before or after the commencement of any such action) of Customer, or Customer is insolvent, makes any general assignment for the benefit of creditors, or fails generally to pay debts as they become due, or any similar event takes place; (B) Customer takes any corporate action to effect a dissolution, liquidation, reorganization, winding up of its affairs or any similar event; (C) Customer fails or refuses to deposit or maintain initial margin and/or collateral or fails to provide additional or variation margin and/or collateral, as set forth in Section 4 hereof; (D) Customer has a breach or default under this Agreement or any other agreement with a Bear Stearns entity; (E) BSSC in its sole discretion, determines with or without regard to market quotations that the collateral or margin deposited with BSSC to secure Customer's positions is inadequate; or, (F) The Brokers, in either of their discretion, determine that it is necessary for their own protection then: Any and all property belonging to the Customer and held by BSSC or by any of its affiliates will be subject to a priority lien for the discharge of Customer's obligation to BSSC. To satisfy this lien, BSSC may close out Customer's open contracts in whole or in part, sell any or all of Customer's property held by BSSC and by any of its affiliates, buy any securities or other property for Customer's account(s) to cover existing short positions, and cancel any outstanding orders and commitments made by BSSC and/or its affiliates on behalf of Customer. For the purpose of this Agreement the word "property" means securities of any kind, monies, options, commodities and contracts for the future delivery of or otherwise relating to, commodities and securities and all property customarily dealt in by brokerage firms or pledged to secure an account Subject to BSSC's and its affiliates' obligations to use best efforts to obtain a fair and reasonable price, any such sale, purchase, or cancellation may be made at BSSC's and/or its aff liates' sole discretion on the contract or other market or through the clearinghouse where such business is then transacted, at public auction or at private sale, without advertising the same and without notice to Customer, and without prior tender, demand or call upon Customer. Customer shall remain liable for and shall pay to BSSC the amount of any deficiency resulting from any transactions described above. 14. LIMITATIONS OF LIABILITY AND INDEMNIFICATION BSSC retains the right to limit the number of open positions which Customer may acquire or maintain at BSSC. BSSC will attempt to execute all orders which it may, in its sole discretion, choose to accept for the purchase or sale of contracts, options or other property in accordance with the oral or written instructions of Customer. However, the Brokers shall not be held liable in any way for Customer error or for delays in transmission of an order and the Brokers shall not be liable in any way for delays in execution of any order due to the breakdown or failure of transmission or communication facilities, or any other cause beyond the Brokers' control. Further, neither the Brokers nor their managing directors, officers, employees and agents shall have any responsibility for compliance by Customer with any law or regulation governing its conduct. In the event that the Brokers and/or their affiliates are parties to any claim, dispute or other litigation or otherwise incur any expense or loss in connection with Customer's obligations or liabilities arising from Customer's accounts or this Agreement, Customer shall indemnify and reimburse the Brokers and/or their affiliates for all loss and expense incurred, including the Brokers' and/or their affiliates' reasonable attorneys fees. 15. TAPING The parties hereto agree that any party may electronically record all telephone conversations among each other and that such recordings among the parties may be used to establish compliance with this Agreement or in resolving any dispute under this Agreement. 16. INTRODUCED ACCOUNT Bear, Stearns & Co. Inc. or another firm may be the introducing broker on this account. The Introducing Broker's ("IB") account executive(s) are the Customer's broker(s) for purposes of solicitation and the taking and conveying of orders for execution. The IB will supervise its employees for compliance with all applicable rules and regulations in connection with the IB's activities undertaken in connection with this Agreement. If any of the Customer's account(s) are carried by any Bear Steams entity as clearing agent for the Customer, unless such Bear Stearns entity receives from the Customer or another broker of the Cusstomer prior written notice to the contrary, it may accept from such other broker, without any inquiry or investigation: (a) orders for the purchase or sale of securities and other property in the Customer's account(s) on margin or otherwise and (b) any other instructions concerning the Customer's account(s) or the property therein. The Customer understands and agrees that BSSC shall have no responsibility or liability to the Customer for any acts or omissions of such broker, its officers, employees or agents. The Customer agrees that the Customer's broker and its employees are third-party beneficiaries of this Agreement and that the terms and conditions hereof, including the arbitration provision, if executed, shall be applicable to all matters between or among the Customer, its agents, the Customer's broker and its employees and BSSC and its employees. 17. MISCELLANEOUS Any rights BSSC has under this Agreement for purposes of cross collateralization and Customer default may be exercised by any of BSSC's affiliates in connection with assets and positions of Customer with such affiliates whether governed by agreement or otherwise. As security for the payment of all Customer's obligations and liabilities to a Bear Steams' entity, each Bear Stearns entity shall have a continuing priority security interest in all property in which Customer has an interest held by or through a Bear Stearns entity. Further, in order to satisfy any outstanding liability or obligation of Customer at a Bear Stearns entity, such entities may, at any time and without prior notice, use, apply or transfer any such securities, property, assets or collateral interchangeably. En the event of a breach or default under this Agreement or any other agreement Customer may have with any Bear Stearns entity, each Bear Stearns entity shall have all rights and remedies available to a secured creditor under any applicable law in addition to the rights and remedies provided herein. 18. GOVERNING LAW AND JURISDICTION If any provisions herein are or should become inconsistent with any present or future law, rule or regulation of any sovereign government or regulatory body having jurisdiction over the subject matter of this Agreement, such provisions shall be deemed to be rescinded or modified in accordance with any such law, rule or regulation. In all other respects this Agreement shall continue and remain in full force and effect. THIS AGREEMENT AND ITS TERMS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. With respect to any suit, action or proceedings ("Proceedings") relating to this Agreement, each Party irrevocably (i) submits to the non-exclusive jurisdiction of the courts of the 3 State of New York and the United States District Court located in the Borough of Manhattan in New York City, and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such Party. Nothing in this Agreement precludes any Party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. Each Party irrevocably waives any and all right to trial by jury in any Proceedings arising out of or relating to this Agreement. Each Party hereby irrevocably waives, to the fullest extent pemmitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific perfommance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. Customer also may have the option of resolving any disputes by arbitration. If Customer agrees to arbitration, the accompanying Arbitration Agreement must be acknowledged. 19. BINDING EFFECT Subject to Section 18 hereof, no provision of this Agreement shall in any respect be waived, altered, modified, or amended unless such waiver, alteration, modification, or amendment is committed to in writing and signed by Customer and a duly authorized official of the Brokers. This Agreement shall inure to the benefit of the Brokers and their respective successors or assigns, whether by merger, consolidation or otherwise. This Agreement shall also be binding on Customer and/or its successors, assigns, administrators, and other legal representatives whether by merger, consolidation or other, provided that Customer may not assign this Agreement without the prior written consent of the Brokers. The rights and remedies conferred upon the parties hereto shall be cumulative, and the exercise or waiver of any thereof shall not preclude or inhibit the exercise of additional rights and remedies. This Agreement shall continue until signed notice of revocation is received by or from Customer and in the case of such revocation the Agreement shall continue effective as to transactions entered into prior thereto, until those positions are either closed out or transferred. 20. FINANCIAL STATEMENTS Customer agrees to provide financial statements in certified or audited form to the Brokers as the Brokers request with this Agreement and to provide annual updates to those statements. Customer further agrees to furnish such other infommation relevant to the account as the Brokers may reasonably request. Customer agrees to promptly notify each of the Brokers in writing should there be any material change in Customer's financial condition, business or prospects. 21. ERISA/PENSION LIMITATION It is hereby understood, acknowledged and accepted by the underlying Customer, Pension Trustee, Trustee and Advisor, if any, that if this is an ERISA or pension account, the Brokers shall not be deemed to be acting as fiduciaries --- under the federal ERISA statute or any similar federal, state and/or foreign statute. All advice with respect to contracts transmitted to the Customer or its agents by the Brokers are incidental to the conduct of the Brokers' respective business as introducing broker and clearing broker and such advice will not serve as the primary basis for any decision by the Customer. All decisions by the Customer or its agents, whether or not utilizing any advice of the Brokers, their employees and officers, are solely within the power and discretion of the Customer. Any such advice, although based upon infommation from sources the Brokers believe to be reliable, may be incomplete, may not be verified and may be changed without notice to the Customer. The Brokers make no representation or warranty as to the accuracy, completeness, reliability or prudence of any such advice or information. 22. CPO and CTA REGISTRATION Customer and Advisor, if any, have reviewed the registration requirements of the Commodity Exchange Act, the National Futures Association and all applicable foreign regulations pertinent to commodity pool operators and commodity trading advisors and each has determined that it is in compliance with such requirements. 23. INTEREST ON DEBIT BALANCES Customer agrees to pay interest on any debit balance in its account from the date such debit is incurred to the date of its payment in full. The rate of interest charged shall be determined by the Brokers at their sole discretion, may change from time to time and will appear on Customer's monthly statements. In no event, however, shall such rate exceed three percent (3%) above the Brokers' Call Money Rate or the highest rate allowable under New York law. The Brokers' Call Money Rate is the rate quoted daily by the Brokers at their offices in New York based upon the broker's call rates posted by various financial institutions (such as the call money rates published by the Wall Street Journal and the New York Times) and the rate of interest charged the Brokers for their own borrowings. Interest shall be computed daily and calculated on the basis of a 360-day year. Any debit balance which is not paid at the close of an interest period will be added to the opening balance for the next interest period. Since the rate of interest charged is related to the Brokers' Call Money Rate, changes in the Brokers' Call Money Rate will cause corresponding changes in the rate charged to Customer, which changes will be made without prior notice to Customer. If Brokers change the rate of interest charged to Customer for any other reason, Customer will be given at least 30 days' prior written notice thereof. 24 LANGUAGE GOVERNING LAW THIS AGREEMENT IS EXECUTED IN THE ENGLISH LANGUAGE ONLY, WHICH LANGUAGE SHALL PREVAIL IN THE EVENT OF ANY CONTROVERSY. 25. EXTRAORDINARY EVENTS The Brokers shall not be liable for losses caused directly or indirectly by government restrictions, exchange or market rulings, suspension of trading, war, strikes or other conditions beyond their control. 4 EX-23.01 6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- As independent public accountants, we hereby consent to the use of our report dated February 12, 1996 on the financial statements of Tudor Fund for Employees L.P. for the year ended December 31, 1995 and to all references to our Firm included in or made a part of this post effective amendment No. 6 to the registration statement of Tudor Fund for Employees L.P. filed on Form S-1 with the Securities and Exchange Commission. ARTHUR ANDERSEN LLP New York, New York May 29, 1996 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the use of our report dated February 12, 1996 on the financial statements of Second Management Company, Inc. for the year ended December 31, 1995 and to all references to our Firm included in or made a part of this post effective amendment No. 6 to the registration statement of Tudor Fund for Employees L.P. filed on Form S-1 with the Securities and Exchange Commission. ARTHUR ANDERSEN LLP New York, New York May 29, 1996 -----END PRIVACY-ENHANCED MESSAGE-----