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: 3/31/01 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.)
1275 King Street, Greenwich, Connecticut 06831
- --------------------------------------------------------------------------------
(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 I - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
--------------- ----------------
ASSETS
------
Cash and Cash Equivalents $ 28,691,497 $ 25,307,514
Due from brokers 6,237,349 2,610,863
--------------- ----------------
Total assets $ 34,928,846 $ 27,918,377
=============== ================
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Securities sold, not yet purchased, at market value (proceeds
$417,120 and $0 as of March 31, 2001 and December 31, 2000) $ 627,264 $ -
Redemptions payable 1,652,827 369,794
Pending partner additions 3,145,000 4,931,369
Management fee payable 148,185 29,661
Incentive fee payable 268,878 339,869
Accrued professional fees and other 113,585 86,612
--------------- ----------------
Total liabilities 5,955,739 5,757,305
--------------- ----------------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,512.761 and
2,926.555 outstanding at March 31, 2001 and December 31, 2000 27,437,645 20,766,179
General Partner, 196.580 units outstanding at March 31, 2001 and
December 31, 2000 1,535,462 1,394,893
--------------- ----------------
Total partners' capital 28,973,107 22,161,072
--------------- ----------------
Total liabilities and partners' capital $ 34,928,846 $ 27,918,377
=============== ================
The accompanying notes are an integral part of these statements.
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
MARCH 31, MARCH 31,
2001 2000
----------------------------
REVENUES:
Net realized trading gains (losses) $ 3,958,539 $ (433,480)
Change in net unrealized trading losses (979,936) (430,586)
Interest income 389,323 264,384
------------ ------------
Total revenues 3,367,926 (599,682)
------------ ------------
EXPENSES:
Brokerage commissions and fees 62,554 74,009
Incentive fee 268,878 -
Management fee 118,524 79,391
Professional fees and other 34,477 28,349
------------ ------------
Total expenses 484,433 181,749
------------ ------------
Net gain (loss) $ 2,883,493 $ (781,431)
============ ============
Limited Partners' net gain (loss) 2,742,924 (735,097)
General Partners' net gain (loss) 140,569 (46,334)
------------ ------------
$ 2,883,493 $ (781,431)
============ ============
Changes in Net Asset Value per Unit $ 715.07 $ (235.70)
============ ============
Net gain (loss) per Unit (Note 2) $ 736.55 $ (230.89)
============ ============
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 MARCH 31, 2001 AND THE YEAR ENDED DECEMBER 31, 2000
Limited Partners General Partner
----------------------------------------- -----------------------------------------
Units Capital Units Capital
------------------- --------------------- ------------------ ---------------------
Partners' Capital, January 1, 2000 2,650.276 $ 15,204,445 196.580 $ 1,127,770
------------------- --------------------- ------------------ ---------------------
Net income -- 4,235,516 -- 267,123
TIC 401(k) Plan unit adjustment (a) 27.169 -- -- --
Capital Contributions 959.408 5,416,452 -- --
Redemptions (710.298) (4,090,234) -- --
------------------- --------------------- ------------------ ---------------------
Partners' Capital, December 31, 2000 (b) 2,926.555 20,766,179 196.580 1,394,893
Net income -- 2,742,924 -- 140,569
TIC 401(k) Plan unit adjustment (a) 11.237 -- -- --
Capital Contributions 786.576 5,581,369 -- --
Redemptions (211.607) (1,652,827) -- --
------------------- --------------------- ------------------ ---------------------
Partners' Capital, March 31, 2001 (b) 3,512.761 $ 27,437,645 196.580 $ 1,535,462
=================== ===================== ================== =====================
Total Net Asset Value
Capital Per Unit
------------------------------------------
Partners' Capital, January 1, 2000 $ 16,332,215 $ 5,736.93
----------------------
Net income 4,502,639
TIC 401(k) Plan unit adjustment (a) --
Capital Contributions 5,416,452
Redemptions (4,090,234)
----------------------
Partners' Capital, December 31, 2000 (b) 22,161,072 $ 7,095.78
Net income 2,883,493
TIC 401(k) Plan unit adjustment (a) --
Capital Contributions 5,581,369
Redemptions (1,652,827)
----------------------
Partners' Capital, March 31, 2001 (b) $ 28,973,107 $ 7,810.85
======================
(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
MARCH 31, 2001
(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") is the general partner of the
Partnership. Tudor Investment Corporation ("TIC"), an affiliate of the
General Partner, acts as the trading advisor of the Partnership. The
General Partner is registered with the Commodity Futures Trading Commission
as a Commodity Pool Operator and a Commodity Trading Advisory and is a
member of the National Futures Association in such capacities. Ownership of
limited partnership units is restricted to either employees of TIC and its
principals or its affiliates.
The objective of the Partnership is to realize capital appreciation through
speculative trading of futures, forwards, option contracts and other
derivative instruments, including commodity interests (collectively,
"derivative instruments"). The Partnership will terminate on December 31,
2010 or at an earlier date if certain conditions occur as outlined in the
Second Amended and Restated 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 of 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.
CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash held at banks and overnight time
deposits.
REVENUE RECOGNITION AND VALUATION METHODOLOGIES
-----------------------------------------------
Trading activities, including related revenues and expenses, are recorded
on a trade date basis. Interest income and expense are recorded on the
accrual basis.
Derivative instruments are valued at independent market values when
available from major exchanges or, if none is available, at independent
broker quotations or fair value as determined by management. In determining
fair value, management utilizes pricing models with market quoted inputs
and also considers closing exchange prices of related instruments, time
value of money, volatility factors of the underlying instruments, and other
market conditions. The valuations are comparable to those obtained from the
counterparties to the contracts.
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.
Since inception of the TIC 401(k) Savings and Profit-Sharing Plan (the "TIC
401(k) Plan"), TIC has waived its right to receive an incentive fee
attributable to units held at the beginning of each month by 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). Since inception
of the TIC 401(k) Plan, TIC waived has its right to receive a management
fee attributable to units held at the beginning of each month 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.
DUE FROM BROKERS
----------------
Due from brokers primarily consists of foreign currencies and cash balances
carried as margin deposits with clearing brokers for the purpose of trading
in commodity interests, futures contracts and other derivative instruments.
Also included in due from brokers is the unrealized gains and losses on
open commodity interests, futures contracts and other derivative
instruments. As of March 31, 2001 and December 31,
2000 due from broker was comprised of $6,538,865 and $2,212,410 in cash
balances and foreign currencies and ($301,516) and $401,008 in unrealized
gains (losses) on commodity interest, open futures contracts and other
derivative instruments.
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 did not participate in the
earnings of the Partnership until the related units were issued.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing the financial statements are reasonable and
prudent, however, actual results could differ from these estimates.
NET GAIN (LOSS) PER UNIT
------------------------
Net gain (loss) per unit is computed by dividing net income by the monthly
average of units outstanding at the beginning of each month.
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior year balances to conform
with current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In September of 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - a replacement of FASB Statement No. 125" ("SFAS 140"). SFAS
140 amends the recognition and reclassification of collateral and
disclosures related to securitization transactions and collateral. These
changes are effective for fiscal years ending after December 15, 2000. SFAS
140 also amends the accounting for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001.
The impact of the SFAS 140 provisions as of December 31, 2000 and effective
subsequent to March 31, 2001 are not anticipated to have a material impact
on the Partnership's financial statements.
(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 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.
(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 assisting in 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
----------------------------
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement requires the Partnership
to recognize all derivatives on the statements of financial condition at
fair value. SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of Effective Date of SFAS No. 133," amended SFAS No.
133 to be effective for fiscal years beginning after June 15, 2000 (January
1, 2001, for all companies with calendar-year fiscal year). The Partnership
has elected early adoption of SFAS No. 133 and, accordingly, its standards
are applied in the accompanying financial statements. The Partnership has
always maintained a policy of valuing its securities positions and
derivative instruments at market or estimated fair values and of including
any unrealized gains and losses in results of operations. 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 futures, forwards,
options, swaps and other derivative instruments. For future, forwards,
swaps and forward rate agreements the unrealized gain or loss, rather than
the contract or notional amounts, represents the approximate future cash
requirements.
The Partnership is subject to market and credit risk associated with
changes in the value of the underlying financial instruments, as well as
the loss of appreciation on certain instruments, if its counterparties fail
to perform which may be in excess of the amounts recognized in the
statements of financial condition. As a writer of options, the Partnership
bears the risk of unfavorable changes in the price of the underlying
instrument which may be in excess of the premium received.
TIC takes an active role in managing and controlling the Partnership's
market and credit risk and has established formal control procedures which
are reviewed on an ongoing basis.
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, regularly assesses and evaluates the Partnership's
potential exposures to market risk based on analyses performed by 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 Risk Management Department uses
a statistical technique known as Value at Risk ("VaR") to assist the
Partnership in measuring its exposure to market risk related to its trading
positions. The VaR model is a proprietary system and is
one of the many analytical tools used by the Risk Management Department to
monitor and review the market risk exposure of the Partnership's trading
portfolios. The VaR model projects potential losses of 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 a one standard deviation level. These figures can be scaled up
to indicate risk at the 95% or 99% confidence level.
TIC attempts to minimize credit risk exposure to trading counterparties and
brokers through formal credit policies and monitoring procedures. TIC has
established a formal Credit Committee, comprised of senior managers from
different disciplines, that meets regularly to analyze the credit risks
associated with the Partnership's counterparties, intermediaries and
service providers. A significant portion of the Partnership's positions,
including cash and cash equivalents, are invested with or held at
institutions of high credit standing. The Credit Committee establishes
counterparty exposure limits and specifically designates which product
types are approved for trading.
The Partnership also reduces its credit risk by entering into master
agreements with certain counterparties that include netting provisions that
incorporate the right of "offset" (assets less liabilities) across OTC
contracts with such counterparties. Accordingly, cash collateral received
is net against the contractual commitment asset and a liability is recorded
to the counterparty for the cash collateral pledged.
The Partnership has bi-lateral collateral agreements ("Collateral
Agreements") with its counterparties whereby the Partnership is required to
monitor the fair value of its derivative transactions on a daily basis and
will pledge or pull back additional collateral as necessary. The
Partnership records cash collateral posted as a receivable from the
counterparty. As of March 31, 2001, the Partnership has pledged $1,666,300
and no securities collateral, under these Collateral Agreements.
Counterparties' creditworthiness is monitored in the context of the
Partnership's overall exposure to such counterparties. 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 counterparties, including BPL, there always is a risk of
nonperformance.
The following table summarizes March 31, 2001 and December 31, 2000 assets
and liabilities resulting from unrealized gains and losses on derivative
instruments included in the statements of financial condition (000's
omitted):
March 31, 2001 December 31, 2000
---------------------------- ----------------------------
Assets Liabilities Assets Liabilities
Exchange Traded Contracts:
Interest Rate Contracts $188 $- $182 $-
Foreign Exchange Contracts 81 - 6
Equity Index Contracts 88 405 124 -
Over-the-Counter Contracts: 94 -
Commodity Swaps - 128 27 -
Equity Index Swaps - 155 - -
Interest Rate Swaps - 72 7 -
Non-Financial derivative instruments 101 - - -
---------------------------- ----------------------------
Total $458 $760 $407 $6
============================ ============================
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 $5,581,369 and redemptions of $1,652,827
during the quarter ended March 31, 2001 (the "Current Quarter"). From its
inception through April 1, 2001, the Partnership received total Limited
Partner subscriptions and contributions of $39,942,427 and had total
withdrawals of $28,914,339. 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 March 31, 2001 was approximately $1,535,000
representing approximately 5% of the Partnership's equity. At April 1,
2001, the Partnership had a total of 97 Limited Partners.
As specified in its 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
April 1, 2001 of $3,676,628. The TIC 401(k) Plan's equity in the
Partnership as of April 1, 2001 was approximately $5,440,000 representing
approximately 16.9% of the Partnership's equity or approximately 20.0%
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. 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 $389,323 compared to $264,384 during the quarter ended March 31, 2000.
This increase was due to an increase in the Partnership's assets.
Cash and cash equivalents are part of the Partnership's inventory. Cash and
cash equivalents represented approximately 82% and 91% of the Partnership's
assets as of March 31, 2001 and December 31, 2000. The cash and cash
equivalents 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 and its
principals 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 as of March 31, 2001
and 2000:
Net Asset Value Increase (Decrease)
per Unit During Quarter
--------------- -------------------
$ %
-------------------
March 31, 2001 $7,810.85 $ 715.07 10.08%
March 31, 2000 $5,501.23 $(235.70) (4.11%)
Net trading gains and losses includes realized and unrealized trading gains
and losses and commissions 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, for the three months ended March 31, 2001 and 2000.
March 31, March 31,
2001 2000
------------- -------------
Exchange Traded Contracts:
Interest Rate Futures and Options Contracts $ 504 $ (424)
Foreign Exchange Contracts 1,845 (416)
Equity Index Futures 1,725 (355)
Over-the-Counter Contracts:
Forward Currency Contracts (210) (103)
Commodity Swaps (496) 140
Equity Index Swaps (359) 50
Interest Rate Swaps 18 37
Non-Financial Derivative Instruments (111) 133
------------- -------------
Total $ 2,916 $ (938)
============= =============
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 and losses
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 and losses.
Three Months Ended,
------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Net trading gains and losses as a % of Net Assets 10.32% (4.9)%
Brokerage Commissions & Fees as a % of Net Assets 0.3% 0.4%
Incentive Fees as a % of Trading Profits 9.2% 0.0%
In general, commission rates have remained stable. Professional fees and
other expenses during the Current Quarter ended remained stable as compared
to the quarter ended March 31, 2000.
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. 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 futures, forwards,
options, swaps, and other derivative instruments. For futures,
forwards, swaps and forward rate agreements the unrealized gain or loss,
rather than the contract notional amounts, represents the approximate
future cash requirements.
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, which may be in excess of the amounts recognized in the statements
of financial condition. As a writer of options, the Partnership bears the
risk of unfavorable changes in the price of the underlying instrument which
may be in excess of the premium received.
TIC takes an active role in managing and controlling the Partnership's
market and credit risk and has established formal control procedures that
are reviewed on an ongoing basis.
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, regularly assesses and evaluates the Partnership's
potential exposures to market risk based on analysis performed 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 Risk Management Department uses
a statistical technique known as Value at Risk ("VaR") to assist the
Partnership in measuring its exposure to market risk related to its trading
positions. The VaR model is a proprietary system and is one of the many
analytical tools used by the Risk Management Department to monitor and
review the market risk exposure of the Partnership's trading portfolios.
The VaR model projects potential losses of 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.
The following table illustrates the VaR for each component of market risk
as of March 31, 2001. The dollar values represent the VaR scaled up to a
95% confidence level.
VaR
Risk Factors (95% Confidence)
------------ ---------------------
Exchange traded contracts:
Interest rate futures and option contracts $ 286,110
Foreign exchange contracts 640,365
Equity index futures 412,995
Non-financial derivative instruments 198,825
-----------
$ 1,538,295
-----------
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 contracts are executed. Forward
contracts are generally settled with the counterparty two days after the
trade.
TIC attempts to minimize credit risk exposure to trading counterparties and
brokers through formal credit policies and monitoring procedures. TIC has
established a formal Credit Committee, comprised of senior managers from
different disciplines, that meets regularly to analyze the credit risks
associated with the Partnership's counterparties, intermediaries and
service providers. A significant portion of the Partnership's positions,
including cash and cash equivalents, are invested with or held at
institutions of high credit standing. The Credit Committee establishes
counterparty exposure limits and specifically designates which product
types are approved for trading.
The Partnership also reduces its credit risk by entering into master
agreements with certain counterparties that include netting provisions that
incorporate the right of "offset" (assets less liabilities) across OTC
contracts with such counterparties. Accordingly, cash collateral received
is net against the contractual commitment asset and a liability is recorded
to the counterparty for the cash collateral pledged.
Counterparties' creditworthiness is monitored in the context of the
Partnership's overall exposure to such counterparties. 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 counterparties, including BPL, there always is 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.
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, 12,082.852 Units having an aggregate value of
$39,942,427 have been sold through April 1, 2001.
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
May 15, 2001