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: 9/30/01 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
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(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
SEPTEMBER 30, DECEMBER 31,
2001 2000
(UNAUDITED) (AUDITED)
----------------------- -----------------------
ASSETS
------
Cash and Cash Equivalents $ 31,376,142 $ 25,307,514
Due from brokers 3,776,553 2,610,863
Subscription Receivable 81,814 --
----------------------- -----------------------
Total assets $ 35,234,509 $ 27,918,377
======================= =======================
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 2,273,414 $ 369,794
Pending partner additions 505,814 4,931,369
Management fee payable 133,707 29,661
Incentive fee payable 434,117 339,869
Accrued professional fees and other 169,286 86,612
----------------------- -----------------------
Total liabilities 3,516,338 5,757,305
----------------------- -----------------------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,325.241 and
2,926.555 outstanding at September 30, 2001 and December 31, 2000 29,947,729 20,766,179
General Partner, 196.580 units outstanding at September 30, 2001 and
December 31, 2000
1,770,442 1,394,893
----------------------- -----------------------
Total partners' capital 31,718,171 22,161,072
----------------------- -----------------------
Total liabilities and partners' capital $ 35,234,509 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES:
Net realized trading gain $ 5,017,712 $ 65,118 $ 8,579,326 $ 401,546
Change in net unrealized trading gain (loss) (78,726) 1,186,043 (704,643) 68,465
Interest income 277,223 299,184 1,002,825 887,975
----------- ----------- ----------- -----------
Total revenues 5,216,209 1,550,345 8,877,508 1,357,986
----------- ----------- ----------- -----------
EXPENSES:
Brokerage commissions and fees 47,086 43,235 146,247 156,304
Incentive fee 434,116 -- 702,994 --
Management fee 133,708 74,343 382,810 235,987
Professional fees and other 34,382 48,658 103,514 113,552
----------- ----------- ----------- -----------
Total expenses 649,292 166,236 1,335,565 505,843
----------- ----------- ----------- -----------
Net income $ 4,566,917 $ 1,384,109 $ 7,541,943 $ 852,143
=========== =========== =========== ===========
Limited Partners' Net Income 4,335,006 1,302,724 7,166,394 804,578
General Partner's Net Income 231,911 81,385 375,549 47,565
----------- ----------- ----------- -----------
$ 4,556,917 $ 1,384,109 $ 7,541,943 $ 852,143
=========== =========== =========== ===========
Change in Net Asset Value Per Unit $ 1,179.72 $ 414.01 $ 1,910.41 $ 241.96
=========== =========== =========== ===========
Net income Per Unit (Note 2) $ 1,211.65 $ 419.99 $ 1,917.71 $ 248.22
=========== =========== =========== ===========
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 SEPTEMEBR 30, 2001 AND THE YEAR ENDED DECEMBER 31, 2000
Limited Partners General Partner Total Net Asset Value
-------------------------------- ------------------------------
Units Capital Units Capital Capital Per Unit
-------------- ----------------- ------------ ---------------- ----------------- -----------------
Partners' Capital, January
1, 2000 2,650.276 $ 15,204,445 196.580 $ 1,127,770 $ 16,332,215 $ 5,736.93
Net income -- 4,235,516 -- 267,123 4,502,639
TIC 401(k) Plan unit
adjustment (a) 27.169 -- -- -- --
Capital Contributions 959.408 5,416,452 -- -- 5,416,452
Redemptions (710.298) (4,090,234) -- -- (4,090,234)
-------------- ----------------- ------------ ---------------- -----------------
Partners' Capital, December
31, 2000 (b) 2,926.555 20,766,179 196.580 1,394,893 22,161,072 7,095.78
Net income -- 7,166,394 -- 375,549 7,541,943
TIC 401(k) Plan unit
adjustment (a) 29.341 -- -- -- --
Capital Contributions 1,239.563 9,120,369 -- -- 9,120,369
Redemptions (870.218) (7,105,213) -- -- (7,105,213)
-------------- ----------------- ------------ ---------------- -----------------
Partners' Capital, September
30, 2001 (b) 3,325.241 $ 29,947,729 196.580 $ 1,770,442 $ 31,718,171 $ 9,006.18
============== ================= ============ ================ =================
(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
SEPTEMBER 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 compared 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 September 30, 2001 and December 31, 2000 due from broker was
comprised of $4,235,263 and $2,209,855 in cash
balances and foreign currencies and ($458,710) 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 PER UNIT
------------------------
Net gain 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 reviews the Partnership's
trading positions. The Tudor Management Committee, together with
the Risk Management Committee and Tudor's Risk Management
Department assess and evaluate the Partnership's potential
exposures to market risk based on analyses 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 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 September 30,
2001, the Partnership has pledged $424,775 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 September 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):
September 30, 2001 December 31, 2000
---------------------------- ----------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Exchange Traded Contracts:
Interest Rate Contracts $157 $28 $182 $ -
Foreign Exchange Contracts 22 186 - 6
Equity Index Contracts - 262 124 -
Over-the-Counter Contracts: -
Commodity Swaps - 193 94 -
Equity Index Swaps 32 - - -
Interest Rate Swaps - - 7 -
Non-Financial Derivative Instruments - 1 - -
------------- -------------- ------------- --------------
Total $211 $670 $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 $394,000 and redemptions of $2,273,414 during the quarter
ended September 30, 2001 (the "Current Quarter"). From its inception
through October 1, 2001, the Partnership received total Limited Partner
subscriptions and contributions of $40,842,241 and had total
withdrawals of $34,366,725. 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 September 30, 2001
was approximately $1,770,442 representing approximately 6% of the
Partnership's equity. At October 1, 2001, the Partnership had a total
of 103 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 October 1, 2001 of $4,182,443. The TIC
401(k) Plan's equity in the Partnership as of October 1, 2001 was
approximately $6,304,469 representing approximately 19.6% of the
Partnership's equity or approximately 22.2% 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 $277,223 compared to
$299,184 during the quarter ended September 30, 2000. This decrease was
due to a lowering of interest rates by the Federal Reserve.
Cash and cash equivalents are part of the Partnership's inventory. Cash
and cash equivalents represented approximately 89% and 91% of the
Partnership's assets as of September 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 September
30, 2001 and 2000:
Change in Net Asset Value Per Unit
-------------- ----------------------------------------------------------
Net Asset Three Months Ended Nine Months Ended
Value per September 30 September 30
Unit
-------------- --------------------------- ---------------------------
September 30, 2001 $9,006.18 $1,179.72 15.07% $1,910.41 26.92%
September 30, 2000 $5,978.89 $414.01 7.44% $241.96 4.22%
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 nine
months ended September 30, 2001 and 2000.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ------------------------------
2001 2000 2001 2000
------------ ----------- ------------ --------------
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts $ 2,254 $ 359 $ 2,148 $ (63)
Foreign Exchange Contracts 458 (806) 2,511 (1,159)
Equity Index Futures 2,186 617 3,577 993
Over-the-Counter Contracts:
Forward Currency Contracts 6 608 285 713
Commodity Swaps 99 165 (553) (245)
Equity Index Swaps (252) 90 (468) 172
Interest Rate Swaps -- (34) (112) 2
Non-Financial Derivative Instruments 141 209 340 (99)
------- ------- ------- -------
Total $ 4,892 $ 1,208 $ 7,728 $ 314
======= ======= ======= =======
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, Nine Months Ended,
-------------------------------------------- -----------------------------------------
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
------------------ ------------------ -------------- ------------------
Net trading gains and losses as a % of 15.4% 7.1% 25.7% (5.7)%
Net Assets
Brokerage Commissions & Fees as a % of 0.2% 0.3% 0.5% 1.0%
Net Assets
Incentive Fees as a % of net trading 8.9% 0.0% 9.1% 0.0%
gains and losses
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 September 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
reviews the Partnership's trading positions. The Tudor Management
Committee, together with the Risk Management Committee and Tudor's Risk
Management Department assess and evaluate the Partnership's potential
exposures to market risk based on analyses 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 September 30, 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 $268,290
Foreign exchange contracts 306,735
Equity index futures 307,395
Non-financial derivative instruments 102,300
----------
$984,720
----------
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, 12,189.357
Units having an aggregate value of $40,842,242 have been sold through
October 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 R. Torell
----------------------------------
John R. Torell,
Chief Financial Officer of the
General Partner
November 14, 2001