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: 6/30/01 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
JUNE 30, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------- -----------
ASSETS
------
Cash and Cash Equivalents $28,385,678 $25,307,514
Due from brokers 4,530,460 2,610,863
----------- -----------
Total assets $32,916,138 $27,918,377
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 3,178,972 $ 369,794
Pending partner additions 394,000 4,931,369
Management fee payable 172,759 29,661
Incentive fee payable -- 339,869
Accrued professional fees and other 139,739 86,612
----------- -----------
Total liabilities 3,885,470 5,757,305
----------- -----------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,512.717 and
2,926.555 outstanding at June 30, 2001 and December 31, 2000 27,492,137 20,766,179
General Partner, 196.580 units outstanding at June 30, 2001 and
December 31, 2000 1,538,531 1,394,893
----------- -----------
Total partners' capital 29,030,668 22,161,072
----------- -----------
Total liabilities and partners' capital $32,522,138 $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 AND SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES:
Net realized trading gain (loss) $ (396,925) $ 769,908 $ 3,561,614 $ 336,428
Change in net unrealized trading gain (loss) 354,018 (686,994) (625,918) (1,117,578)
Interest income 336,282 324,407 725,604 588,791
----------- ----------- ----------- -----------
Total revenues 293,375 407,321 3,661,300 (192,359)
----------- ----------- ----------- -----------
EXPENSES:
Brokerage commissions and fees 36,607 39,059 99,161 113,069
Incentive fee - - 268,878 -
Management fee 130,579 82,253 249,103 161,644
Professional fees and other 34,655 36,545 69,132 64,894
----------- ----------- ----------- -----------
Total expenses 201,841 157,857 686,274 339,607
----------- ----------- ----------- -----------
Net income (loss) $ 91,534 $ 249,464 $ 2,975,026 $ (531,966)
=========== =========== =========== ===========
Limited Partners' Net Income (Loss) 88,465 236,951 2,831,388 (498,146)
General Partner's Net Income (Loss) 3,069 12,513 143,638 (33,820)
----------- ----------- ----------- -----------
$ 91,534 $ 249,464 $ 2,975,026 $ (531,966)
=========== =========== =========== ===========
Change in Net Asset Value Per Unit $ 15.61 $ 63.65 $ 730.68 $ (172.05)
=========== =========== =========== ===========
Net income (loss) Per Unit (Note 2) $ 22.25 $ 68.93 $ 741.05 $ (151.92)
=========== =========== =========== ===========
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, 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 -- 2,831,388 -- 143,638
TIC 401(k) Plan unit adjustment (a) 14.731 -- -- --
Capital Contributions 1,189.221 8,726,369 -- --
Redemptions (617.790) (4,831,799) -- --
------------------- --------------------- ------------------ ----------------------
Partners' Capital, June 30, 2001 (b) 3,512.717 $ 27,492,137 196.580 $ 1,538,531
=================== ===================== ================== ======================
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 2,975,026
TIC 401(k) Plan unit adjustment (a) --
Capital Contributions 8,726,369
Redemptions (4,831,799)
---------------------
Partners' Capital, June 30, 2001 (b) $ 29,030,668 $ 7,826.46
=====================
(a) See Note 3 - Capital Accounts
(b) See Note 4 - Redemption of Unites
The accompanying notes are an intergral of these statements
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 of limited partnership
interest 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 has waived its
right to receive a management fee attributable to units of limited
partnership interest 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 June 30, 2001 and
December 31, 2000 due from broker was comprised of $4,698,098 and
$2,212,410 in cash balances and foreign currencies and ($167,639) 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 has not resulted in
a material change 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
of partnership interest. 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.
BFL ceased operations in March 2001.
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 June 30, 2001, the Partnership has pledged
$566,422 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 June 30, 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):
June 30, 2001 December 31, 2000
---------------------------- ----------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Exchange Traded Contracts:
Interest Rate Contracts $41 $170 $182 $-
Foreign Exchange Contracts 3 - - 6
Equity Index Contracts 160 77 124 -
Over-the-Counter Contracts: -
Commodity Swaps - 79 94 -
Equity Index Swaps 8 61 - -
Interest Rate Swaps - - 7 -
Non-Financial Derivative Instruments 7 - - -
-------------- ------------ ------------- -------------
Total $219 $387 $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 of limited partnership interest for $421,000. In
addition, the General Partner purchased 400 units of general partnership
interest for $400,000. The Partnership had additions of $3,145,000 and
redemptions of $3,178,972 during the quarter ended June 30, 2001 (the
"Current Quarter"). From its inception through July 1, 2001, the
Partnership received total Limited Partner subscriptions and contributions
of $40,336,427 and had total withdrawals of $32,093,311. 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, 2001 was
approximately $1,538,431 representing approximately 5% of the Partnership's
equity. At July 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
July 1, 2001 of $3,676,628. The TIC 401(k) Plan's equity in the
Partnership as of July 1, 2001 was approximately $5,293,000 representing
approximately 18.0% of the Partnership's equity or approximately 20.3%
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. 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 $336,282 compared to $324,407 during the quarter ended June 30, 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 86% and 91% of the
Partnership's assets as of June 30, 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 June 30, 2001
and 2000:
Change in Net Asset Value per Unit
------------------------------------------------------------------
Net Asset Value per Three Months Ended Six Months Ended
Unit June 30 June 30
----------------------- ------------------------------ ------------------------------
$ % $ %
------------------------------ ------------------------------
June 30, 2001 $7,826.46 $15.61 0.20% $ 730.68 10.30%
June 30, 2000 $5,564.88 $63.65 1.15% $(172.05) (3.00)%
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 and six months ended June 30, 2001 and 2000.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ------------------------------------
2001 2000 2001 2000
-------------- ------------- -------------- ----------------
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts $(610) $ 1 $ (106) $ (423)
Foreign Exchange Contracts 166 63 2,014 (353)
Equity Index Futures (334) 731 1,391 376
Over-the-Counter Contracts:
Forward Currency Contracts 529 209 317 106
Commodity Swaps (155) (551) (652) (411)
Equity Index Swaps 144 32 (215) 82
Interest Rate Swaps (131) - (112) 37
Non-Financial Derivative Instruments 311 (441) 200 (308)
-------------- ------------- -------------- ----------------
Total $ (80) $ 44 $ 2,837 $ (894)
============== ============= ============== ================
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, Six Months Ended,
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
------- ------- ------- -------
2001 2000 2001 2000
----- ---- ---- ----
Net trading gains and losses as a % of Net Assets (0.3)% 0.2% 9.68% (4.61)%
Brokerage Commissions & Fees as a % of Net Assets 0.1% 0.2% 0.3% 0.6%
Incentive Fees as a % of net trading gains and losses 0.0% 0.0% 9.5% 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 June 30, 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 June 30, 2001. The dollar values represent the VaR scaled up to a
95% confidence level.
VaR
(95% Confidence)
Risk Factors ---------------------
- ------------
Exchange traded contracts:
Interest rate futures and option contracts $ 241,065
Foreign exchange contracts 93,555
Equity index futures 53,955
Non-financial derivative instruments 135,795
--------------
$ 524,370
--------------
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, 12,133.194 Units having an aggregate value of
$40,336,427 have been sold through July 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/ John Torell
-----------------------------------
John Torell
Managing Director and
Chief Financial Officer of the
General Partner
August 14, 2001