-----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, DvcptYL8bFSqkpYViQv/EDVTjtjbGPp+o+y8t0uzJ1KYbLvk561p8TWh1k5MkJ0F BQxmPLKj/o5iJ0fiPx/dBA== 0000950130-99-004788.txt : 19990816 0000950130-99-004788.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950130-99-004788 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 10-Q SEC ACT: SEC FILE NUMBER: 033-33982 FILM NUMBER: 99686677 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 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED: 6/30/99 COMMISSION FILE NUMBER: 333-52543 ------- --------- TUDOR FUND FOR EMPLOYEES L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3543779 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 Steamboat Road, Greenwich, Connecticut 06830 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (203) 863-6700 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. X YES _____ NO ----- PART 1 - FINANCIAL INFORMATION Item 1. - Financial Statements TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31, 1999 1998 (UNAUDITED) (AUDITED) ------------- ------------ ASSETS ------ CASH $ 802,943 $ 3,672,689 U.S. GOVERNMENT SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 15,800,000 12,600,000 EQUITY IN COMMODITY TRADING ACCOUNTS: Due from broker 1,607,375 1,281,103 Net unrealized gain on open commodity interests 45,773 711,244 ----------- ----------- Total equity in commodity trading accounts 1,653,148 1,992,347 SUBSCRIPTION RECEIVABLE 118,515 - ----------- ----------- Total assets $18,374,606 $18,265,036 =========== =========== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- LIABILITIES: Redemptions payable $ 1,799,946 $ 238,091 Pending partner additions 428,959 2,989,786 Incentive fee payable - 29,507 Management fee payable 24,475 40,370 Accrued professional fees and other 69,112 76,170 ----------- ----------- Total liabilities 2,322,492 3,373,924 ----------- ----------- PARTNERS' CAPITAL: Limited Partners, 20,000 units authorized and 3,094.54 and 2,589.21 outstanding at June 30, 1999 and December 31, 1998 15,093,311 13,840,543 General Partner, 196.58 units outstanding at June 30, 1999 and December 31, 1998 958,803 1,050,569 ----------- ----------- Total partners' capital 16,052,114 14,891,112 ----------- ----------- Total liabilities and partners' capital $18,374,606 $18,265,036 =========== ===========
The accompanying notes are an integral part of these statements. TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,1999 AND 1998 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 ---------- ---------- ----------- ---------- REVENUES: Net realized trading gain (loss) $ (909,294) $ (682,478) $(1,027,857) $ 27,833 Change in net unrealized trading gain (loss) (36,628) 82,331 (664,360) 156,107 Interest income 209,017 160,650 406,876 322,384 ---------- ---------- ----------- ---------- Total revenues (736,905) (439,497) (1,285,341) 506,324 ---------- ---------- ----------- ---------- EXPENSES: Brokerage commissions and fees 41,550 39,299 120,362 106,803 Incentive fee - - - 66,614 Management fee 74,385 58,143 148,316 120,414 Professional fees and other 27,342 22,336 54,916 46,283 ---------- ---------- ----------- ---------- Total expenses 143,277 119,778 323,594 340,114 ---------- ---------- ----------- ---------- Net income (loss) $ (880,182) $ (559,275) $(1,608,935) $ 166,210 ========== ========== =========== ========== Limited Partners' Net Income (Loss) (832,011) (526,177) (1,517,169) 158,605 General Partners' Net Income (Loss) (48,171) (33,098) (91,766) 7,605 ---------- ---------- ----------- ---------- $ (880,182) $ (559,275) $(1,608,935) $ 166,210 ========== ========== =========== ========== Change in Net Asset Value Per Unit $ (244.85) $ (168.36) $ (466.81) $ 38.69 ========== ========== =========== ========== Net income (loss) Per Unit (Note 2) $ (240.55) $ (165.41) $ (459.22) $ 48.82 ========== ========== =========== ==========
The accompanying notes are an integral part of these statements. TUDOR FUND FOR EMPLOYEES L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE PERIOD ENDED JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
Partners Limited General Partner Total Net Asset Value --------------------------- ------------------------ Units Capital Units Capital Capital Per Unit ----------- ----------- --------- ---------- ----------- --------------- Partners' Capital, January 1, 1998 2,186.284 $ 8,712,315 196.580 $ 783,372 $ 9,495,687 $ 3,984.99 ----------- ----------- -------- ---------- ----------- Net income -- 3,929,937 -- 267,197 4,197,134 TIC 401(k) Plan unit adjustment (a) 24.416 -- -- -- -- Capital Contributions 1,303.556 5,270,917 -- -- 5,270,917 Redemptions (924.435) (4,072,626) -- -- (4,072,626) ----------- ----------- -------- ---------- ----------- Partners' Capital, December 31, 1998 (b) 2,589.821 13,840,543 196.580 1,050,569 14,891,112 $ 5,344.21 ----------- ----------- -------- ---------- ----------- Net income -- (1,517,169) -- (91,766) (1,608,935) TIC 401(k) Plan unit adjustment (a) 5.846 -- -- -- -- Capital Contributions 927.292 4,869,198 -- -- 4,869,198 Redemptions (428.42) (2,099,261) -- -- (2,099,261) ----------- ----------- -------- ---------- ----------- Partners' Capital, June 30, 1999 (b) 3,094.539 $15,093,311 196.580 $ 958,803 $16,052,114 $ 4,877.40 =========== =========== ======== ========== ===========
(a) See Note 3 - Capital Accounts (b) See Note 4 - Redemption of Units The accompanying notes are an integral part of these statements. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (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 LLC (the "General Partner") was the general partner for the Partnership during the quarter ended June 30, 1999 and owned approximately 197 units of general partnership interest. Tudor Investment Corporation ("TIC"), an affiliate of the General Partner, acts as the trading advisor of the Partnership. Ownership of limited partnership units is restricted to either employees of TIC or its affiliates. The objective of the Partnership is to realize capital appreciation through speculative trading of commodity futures, forwards, 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 Second Amended and Restated Limited Partnership Agreement dated as of May 22, 1996 (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 ------------------------------------------ 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 or fair value. 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 commodity interests at the end of the period are accrued. INCENTIVE FEE ------------- The Partnership pays TIC, as trading advisor, an incentive fee equal to 12% of the Net Trading Profits (as defined in the Limited Partnership Agreement), earned as of the end of each fiscal quarter of the Partnership. Effective August 1, 1995, TIC waived its right to receive an incentive fee attributable to units held by the TIC 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 1/12 of 2% (2% per annum) of the Partnership's Net Assets (as defined in the Limited Partnership Agreement). Effective August 1, 1995, TIC waived its right to receive a management fee attributable to units held by the TIC 401(k) Plan. 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 SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL --------------------------------------------------------------- Securities purchased under agreements to resell are collateralized investment transactions and are carried at the amounts at which the securities will be subsequently resold plus accrued interest, which approximates market value. These transactions are part of the Partnership's operating activities, and it is the policy of the Partnership to take possession or control of all underlying assets and to use such assets as collateral in connection with its trading. DUE FROM BROKERS ---------------- Due from brokers includes cash, foreign currencies, forward contracts pending settlement, and margin balances. PENDING PARTNER ADDITIONS ------------------------- Pending partner additions is comprised of cash received prior to the last day of the quarter for which units were issued on the first day of the subsequent quarter. Pending partner additions do not participate in the earnings of the Partnership until the related units are issued. NET INCOME PER UNIT ------------------- Net income per unit is computed by dividing net income by the average number of units outstanding at the beginning of each month during the relevant report period. (3) CAPITAL ACCOUNTS ---------------- The minimum subscription amount is $1,000 for new Limited Partners. Additional contributions may be made in increments of $1,000. Both subscriptions and contributions may be made quarterly, at the beginning of the respective month. 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 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. (4) REDEMPTION OF UNITS ------------------- At each quarter-end, units are redeemable at the discretion of each 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 Limited 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 primary forward contract counterparty. Effective August 1, 1995, BPL ceased charging commissions for transacting the partnership's foreign exchange and commodity forward contracts. The Partnership typically has on deposit with BPL, as collateral for forward contracts, up to 5% of the Partnership's net assets. Bellwether Futures LLC ("BFL"), a Delaware limited liability company, is an affiliate of the General Partner and is qualified to do business in Illinois. Effective January 1, 1996, BFL ceased collecting give-up fees from the Partnership as compensation for managing the execution of treasury bond futures by floor brokers on the Chicago Board of Trade. TIC receives incentive and management fees as compensation for acting as trading advisor (Note 2). (7) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF ---------------------------------------------------------------------- CREDIT RISK ----------- During June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This statement requires the Partnership to recognize all derivatives in the statements of financial condition at fair value with adjustments to fair value recorded through income. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999 (January 1, 2000, for entities with calendar-year fiscal years); however, early adoption is allowed. The Partnership has elected early adoption and, accordingly, its standards are applied in the accompanying financial statements. The Partnership has always maintained a policy of valuing its commodity interests at market values or estimated fair values and including any unrealized gains and losses in income and, accordingly, the adoption of SFAS No. 133 has not resulted in a valuation or an accounting change in the accompanying financial statements. In the normal course of business, the Partnership is a party to a variety of off-balance sheet financial instruments in connection with its trading activities. These activities include the trading of financial futures, forwards, swaps, exchange traded and negotiated over-the-counter options and the other commodity interests. These financial instruments give rise to market and credit risk in excess of the amounts recognized in the statements of financial condition. The Partnership is subject to market and credit risk associated with changes in the value of underlying financial instruments, as well as the loss of appreciation on certain instruments, if its counterparties fail to perform. TIC takes an active role in managing and controlling the Partnership's market and credit risks and has established formal control procedures that are reviewed on an ongoing basis. TIC attempts to minimize credit risk exposure to trading counterparties and brokers through formal credit policies and monitoring procedures. In order to control the Partnership's market exposure, TIC applies risk management guidelines and policies designed to protect the Partnership's capital. These guidelines and policies include quantitative and qualitative criteria for evaluating the appropriate risk levels for the Partnership. TIC's Risk Management Committee, comprised of senior personnel from different disciplines throughout the firm, regularly assesses and evaluates the Partnership's potential exposures to the financial markets based on analysis provided by the Risk Management Department. The Risk Management Department's responsibilities include: focusing on the positions taken in various instruments and markets globally; ascertaining that all such positions are accurately reflected on the Partnership's position reports; and evaluating the risk exposure associated with all of those positions. The Partnership uses a statistical technique known as Value at Risk ("VaR") to assist the Risk Management Department in measuring its exposure to market risk related to its trading positions. The VaR model projects potential losses in the portfolio and is based on a methodology which uses a one-year observation period of hypothetical daily changes in trading portfolio value, a one-day holding period and one standard deviation level. These figures can be scaled-up to indicate risk exposure at the 95% or 99% confidence level. Cash and due from brokers are due principally from high credit quality international financial institutions. 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. Forwards are generally settled with the counterparties two days after the trade date. 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 ensure ample customer protection in the event of an FCM's default. The Partnership monitors the creditworthiness of its FCMs and, when deemed necessary, reduces its exposure to these FCMs. The Partnership's credit risk associated with the nonperformance of these FCMs 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 primary forward contract counterparty (Note 6). Notwithstanding the risk monitoring and credit review performed by TIC with respect to its FCMs and counterparties, including BPL, there is always a risk of nonperformance. Generally, financial contracts can be closed out at TIC's discretion. An illiquid or closed market, however, could prevent the closeout of positions. TIC has a formal Credit Committee, comprised of senior managers from different disciplines throughout the firm, that meets regularly to analyze the credit risk associated with the Partnership's counterparties, intermediaries and service providers. A significant portion of the Partnership's positions are invested with or held at institutions with high credit standing. TIC establishes counterparty exposure limits and specifically designates which product types are approved for trading. The following table summarizes the quarter-end assets and liabilities resulting from unrealized gains and losses on derivative instruments included in the statements of financial condition (000's omitted):
June 30, 1999 December 31, 1998 --------------------- --------------------- Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Exchange Traded Contracts: Interest Rate Contracts- Domestic $ - $ - $ 27 $ - Foreign 171 71 83 37 Foreign Exchange Contracts- Financing Futures Contracts - 3 - 9 Forward Currency Contracts - 164 - 30 Equity Index Futures- Domestic - - 106 - Foreign 7 - 57 - Over-the-Counter Contracts: Forward Currency Contracts 136 - - - Commodity Swaps - 63 - 24 Equity Index Swaps - 28 - - Non-Financial derivative instruments 61 - 63 24 ---- ---- ---- ---- Total $375 $329 $336 $124 ==== ==== ==== ====
(8) YEAR 2000 ISSUE --------------- Like other organizations, the Partnership could be adversely affected if the computer systems used by the Partnership and its service providers do not properly process and calculate date-related information from and after January 1, 2000 (the "Year 2000 Problem"). The Partnership is taking steps that it believes are reasonably designed to address the Year 2000 Problem with respect to the computer systems that it uses and to obtain satisfactory assurances that comparable steps are being taken by each of the Partnership's major service providers. At this time, however, there can be no assurance that these steps will be sufficient to avoid any material adverse impact on the Partnership. The inability of the Partnership or its third-party providers to timely complete all necessary procedures to address the Year 2000 Problem could have a material adverse impact on the Partnership's operations. The Partnership will continue to monitor the status of and its exposure to this issue. All expenses related to the Year 2000 problem will be borne by the trading advisor. As such, the partnership does not expect to incur Year 2000 expenses. The Partnership is in the process of establishing a contingency plan to address recovery from unavoided and unavoidable Year 2000 problems, if any. ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF - ------- ------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The Partnership commenced operations on July 2, 1990. Following the closing of the initial offering period, the Partnership had 37 Limited Partners who subscribed for 421 units for $421,000. In addition, the General Partner purchased 400 units of general partnership interest for $400,000. The Partnership had additions of $1,879,413 and redemptions of $1,799,946 during the quarter ended June 30, 1999 (the "Current Quarter"). From its inception through July 1, 1999, the Partnership received total Limited Partner contributions of $25,607,996 and had total withdrawals of $19,924,514. In addition, the General Partner contributed $1,900,000 since inception. The General Partner redeemed $2,000,000 on March 31, 1994 and $1,400,000 on December 31, 1996. The General Partner's equity in the Partnership as of June 30, 1999 was approximately $958,800 representing 6% of the Partnership's equity. At July 1, 1999, the Partnership had a total of 111 Limited Partners. As specified in the Limited Partnership Agreement, the Partnership may accept investments from certain employee benefit plans to the extent that such investment does not exceed 25% of the aggregate value of outstanding units, excluding units held by the General Partner and its affiliates. On August 1, 1995, the Partnership accepted an investment of $99,306 from the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k) Plan"), a qualified plan organized for the benefit of employees of TIC and certain of its affiliates. The Partnership has received TIC 401(k) Plan contributions in the aggregate amount from inception through July 1, 1999 of $2,487,199. The TIC 401(k) Plan's equity in the Partnership as of July 1, 1999 was approximately $2,755,000 representing approximately 17.2% of the Partnership's equity or approximately 19.3% excluding units held by the General Partner and its affiliates. TIC has waived its right to receive management and incentive fees attributable to units held by the TIC 401(k) Plan. The number of units of limited partnership interest held by the TIC 401(k) Plan will be restated as necessary to equate the per unit value of the TIC 401(k) Plan's capital account with the Partnership's per unit value. Furthermore, BPL ceased charging commissions for transacting the Partnership's foreign exchange spot and forward and commodity forward contracts. (1) LIQUIDITY --------- The Partnership's assets are deposited and maintained with BPL, banks or in trading accounts with clearing brokers, and are used by the Partnership as margin and collateral to engage in futures, option, and forward contract trading. Securities purchased under agreements to resell are collaterlized investment transactions and are carried at the amount the securities will be subsequently resold plus accrued interest, which approximates market. As of June 30, 1999 and December 31, 1998, U.S. Government Securities purchased under agreements to resell maturing July 1, 1999 and January 4, 1998 represented approximately 86% and 69% of the total assets of the Partnership. To the extent necessary, such U.S. Government Securities are used by the Partnership as collateral in connection with its trading activities.The percentage that U.S. Government Securities purchased under agreements to resell bear to the total assets varies daily and monthly, as the market value of commodity interest contracts changes, as Government Securities are resold, and as the Partnership sells or redeems units. Since the Partnership's sole purpose is to trade in futures, option, and forward contracts, and other commodity interest contracts, it is anticipated that the Partnership will continue to maintain substantial liquid assets for margin purposes. Interest income for the Current Quarter was $209,017, compared to $160,650 during the quarter ended June 30, 1998. This increase was due to an increase in the Partnership's assets. In the context of the commodity or futures trading industry, cash and cash equivalents are part of the Partnership's inventory. Cash deposited with banks represented approximately 4% and 20% of the Partnership's assets as of June 30, 1999 and December 31, 1998. The cash and U.S. Government Securities purchased under agreements to resell satisfy the Partnership's need for cash on both a short-term and long-term basis. Since futures contract trading generates a significant percentage of the Partnership's income, any restriction or limit on that trading may render the Partnership's investment in futures contracts illiquid. Most commodity exchanges limit fluctuations in certain commodity contract prices during a single day by regulations referred to as a "daily price fluctuation limit" or "daily limits." Pursuant to such regulations, during a single trading day, no trade may be executed at a price beyond the daily limits. If the price for a contract or a particular commodity has increased or decreased by an amount equal to the "daily limit," positions in such contracts 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 positions. (2) 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 impact the amount of funds available for investments in commodity interest contracts in subsequent periods. As the amount of capital changes, the size of the positions taken by the Partnership is adjusted. The Partnership is currently open to new investments, which can be made quarterly. Such investments are limited to employees of TIC or its affiliates and certain employee benefit plans, including, but not limited to, the TIC 401(k) Plan. (3) RESULTS OF OPERATIONS --------------------- The following table compares net asset value per unit for the three and six months ended June 30, 1999 and 1998:
Net Asset Value per Three Months Ended Six Months Ended Unit June 30 June 30 --------------------- ------------------------- ------------------------ $ % $ % ------------------------- ------------------------ June 30, 1999 $4,877.40 $( 245.05) (4.78%) $(466.81) (8.73)% June 30, 1998 $4,023.60 $( 168.37) (4.02%) $ 38.69 .97%
Net trading gains and losses (includes realized and unrealized trading gains, losses and commissions ("Net Trading Gains")) 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, for the three and six months ended June 30, 1999 and 1998.
Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Exchange Traded Contracts: Interest Rate Futures and Option Contracts- Domestic $ (390) $ (457) $ (366) $ (71) Foreign 226 130 (117) 41 Foreign Exchange Contracts (326) 191 (883) (198) Equity Index Futures- Domestic (431) (59) (624) 109 Foreign (63) (125) (669) (8) Over-the-Counter Contracts: Forward Currency Contracts 136 5 858 521 Commodity Swaps (216) (134) (118) (216) Equity Index Swaps (28) (67) (88) (151) Non-Derivative Financial Instruments 105 (123) 194 50 -------- -------- -------- -------- Total $ (987) $ (639) $(1,813) $ 77 ======== ======== ======== ========
Since the Partnership is a speculative trader in the commodities markets, current year results are not comparable to previous year's results. The following table illustrates the Partnership's Net Trading Gains as a return on average Net Assets, brokerage commissions and fees as a percentage of Net Assets, and incentive fees as a percentage of Net Trading Gains.
Three Months Ended, Six Months Ended, ----------------------- ----------------------- June 30, June 30, June 30, June 30, -------- -------- -------- -------- 1999 1998 1999 1998 ---- ---- ---- ---- Net trading gains and losses as a % of Net Assets (5.7)% (4.9)% (10.4)% 0.6% Brokerage Commissions & Fees as a % of Net Assets 0.3% 0.3% 0.7% 0.8% Incentive Fees as a % of Net Trading Gains 0.0% 0.0% 0.0% 86.36%
In general, commission rates have remained stable during the past three years. Professional fees and other expenses during the Current Quarter ended remained stable as compared to the quarter ended June 30, 1998. Trading losses incurred during the second quarter of 1998 resulted in higher incentive fees as a percentage of Net Trading Gains for the first six months of 1988. 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. (4) RISK MANAGEMENT. --------------- In the normal course of business, the Partnership is a party to a variety of off-balance sheet financial instruments in connection with its trading activities. These activities include the trading of financial futures, forwards, swaps, exchange traded and negotiated over- the-counter options and the other commodity interests. These financial instruments give rise to market and credit risk in excess of the amounts recognized in the statements of financial condition. The Partnership is subject to market and credit risk associated with changes in the value of underlying financial instruments, as well as the loss of appreciation on certain instruments if its counterparties fail to perform. TIC takes an active role in managing and controlling the Partnership's market and credit risks and has established formal control procedures that are reviewed on an ongoing basis. TIC attempts to minimize credit risk exposure to trading counterparties and brokers through formal credit policies and monitoring procedures. In order to control the Partnership's market exposure, TIC applies risk management guidelines and policies designed to protect the Partnership's capital. These guidelines and policies include quantitative and qualitative criteria for evaluating the appropriate risk levels for the Partnership. TIC's Risk Management Committee, comprised of senior personnel from different disciplines throughout the firm, regularly assesses and evaluates the Partnership's potential exposures to the financial markets based on analysis provided by the Risk Management Department. The Risk Management Department's responsibilities include: focusing on the positions taken in various instruments and markets globally; ascertaining that all such positions are accurately reflected on the Partnership's position reports; and evaluating the risk exposure associated with all of those positions. The Partnership uses a statistical technique known as Value at Risk ("VaR") to assist the Risk Management Department in measuring its exposure to market risk related to its trading positions. The VaR model projects potential losses in the portfolio and is based on a methodology which uses a one-year observation period of hypothetical daily changes in trading portfolio value, a one-day holding period and one standard deviation level. These figures can be scaled-up to indicate risk exposure at the 95% or 99% confidence level. Cash and due from brokers are due principally from high credit quality international financial institutions. 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. Forwards are generally settled with the counterparties two days after the trade date. 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 ensure ample customer protection in the event of an FCM's default. The Partnership monitors the creditworthiness of its FCMs and, when deemed necessary, reduces its exposure to these FCMs. The Partnership's credit risk associated with the nonperformance of these FCMs 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 primary forward contract counterparty (Note 6). Notwithstanding the risk monitoring and credit review performed by TIC with respect to its FCMs and counterparties, including BPL, there is always a risk of nonperformance. Generally, financial contracts can be closed out at TIC's discretion. An illiquid or closed market, however, could prevent the closeout of positions. TIC has a formal Credit Committee, comprised of senior managers from different disciplines throughout the firm, that meets regularly to analyze the credit risk associated with the Partnership's counterparties, intermediaries and service providers. A significant portion of the Partnership's positions are invested with or held at institutions with high credit standing. TIC establishes counterparty exposure limits and specifically designates which product types are approved for trading. The following table illustrates the VaR for each component of market risk as of June 30, 1999. The dollar values represent the VaR assuming a one standard deviation move in each of the financial instruments indicated.
VaR Risk Factors 1 Standard Deviation ------------ (95% Confidence) --------------------------- Interest rate futures and option contracts- Domestic $ - Foreign 132,495 Foreign Exchange Contracts 65,010 Equity index futures- Domestic - Foreign 37,950 Non-derivative financial instruments 38,610 ----------- $ 274,065
PART II - OTHER INFORMATION CHANGES IN SECURITIES AND USE OF PROCEEDS ----------------------------------------- The Partnership initially registered 10,000 Units of Limited Partnership Interest pursuant to a registration statement (Commission file number 33- 33982) that was declared effective on June 22, 1990. The Partnership registered an additional 10,000 Units of Limited Partnership Interest on June 9, 1998 (Commission file number 333-52543). Of the 20,000 Units that have been registered, 9,896.789 Units having an aggregate value of $25,607,996 have been sold through July 1, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TUDOR FUND FOR EMPLOYEES L.P. By: Second Management LLC, General Partner By: /s/ Mark F. Dalton ---------------------------------- Mark F. Dalton, President of the General Partner By: /s/ Mark Pickard ---------------------------------- Mark Pickard, Managing Director and Chief Financial Officer of the General Partner August 12, 1999 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TUDOR FUND FOR EMPLOYEES L.P. FORM 10Q FOR THE QUARTER ENDED 6/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 802,943 15,800,000 1,771,663 0 0 18,374,606 0 0 18,374,606 2,322,492 0 0 0 0 16,052,114 18,374,606 0 (736,905) 0 (143,277) 0 0 0 (880,182) 0 0 0 0 0 (880,182) (244.85) 0
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