As filed with the Securities and Exchange Commission on May 14, 2002
Registration No. 333-52543
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
POST-EFFECTIVE AMENDMENT NO. 4
to
FORM S-1
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
-----------------
TUDOR FUND FOR EMPLOYEES L.P.
(Exact name of registrant as specified in Limited Partnership Agreement)
Delaware 6793 13-3543779
(State of Organization) (Primary Standard (I.R.S. Employer
Industrial Identification Number)
Classification Code
Number)
-----------------
1275 King Street
Greenwich, Connecticut 06831
(203) 863-6700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ANDREW S. PAUL, ESQ.
Managing Director and General Counsel
Second Management LLC
1275 King Street
Greenwich, Connecticut 06831
(203) 863-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------
Copies of communications to:
M. HOLLAND WEST, ESQ.
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
(212) 848-4000
-----------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the Securities and Exchange Commission declares
our registration statement effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Subject to completion, dated May 14, 2002
TUDOR FUND FOR EMPLOYEES L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST
MINIMUM INVESTMENT--$1,000
Tudor Fund For Employees L.P. (the "Partnership") is a limited partnership
commodity pool engaged in the speculative trading of commodity interest
contracts.
Offering Dates............... First day of each calendar quarter
(January 1, April 1, July 1, and October 1)
Offering Price............... Net Asset Value
Selling Commission........... None
Units are offered through CIS Securities, Inc. The Selling Agent is not
required to
sell any specific number of Units but will use its best efforts basis to sell
Units.
These are speculative securities and involve a high degree of risk. See
"Principal Risk Factors" on Page 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this
Prospectus. Any representation to the
contrary is a criminal offense.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
THIS PROSPECTUS IS THE FIRST PART OF A TWO-PART DISCLOSURE DOCUMENT AND SHOULD
BE READ IN CONJUNCTION WITH THE STATEMENT OF ADDITIONAL INFORMATION
ATTACHED AS THE SECOND PART OF THIS TWO-PART DISCLOSURE DOCUMENT.
Neither Tudor Fund For Employees L.P. nor Tudor Investment Corporation is
affiliated with Tudor Fund, a mutual fund registered under the Investment
Company Act of 1940 as amended, or with Tudor Management Co., Inc., a
wholly-owned subsidiary of Weiss, Peck & Greer.
-----------------
CIS SECURITIES, INC.
-----------------
The date of this Prospectus is May [ ], 2002
TABLE OF CONTENTS
PART I Page
-----
Prospectus Summary................................................................................. 1
Principal Risk Factors............................................................................. 3
Conflicts of Interest.............................................................................. 7
The Partnership.................................................................................... 8
Description of Charges to the Partnership.......................................................... 9
Investment Program and Use of Proceeds............................................................. 11
Capitalization..................................................................................... 15
Selected Financial Data............................................................................ 15
Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 16
The General Partner................................................................................ 19
Performance Record of the Partnership.............................................................. 19
Reporting to Pool Participants..................................................................... 21
The Trading Advisor................................................................................ 21
The Management Agreement........................................................................... 24
Brokerage Arrangements............................................................................. 24
The Commodities Markets............................................................................ 32
Distributions...................................................................................... 34
The Limited Partnership Agreement.................................................................. 34
Plan of Distribution............................................................................... 36
Subscription Procedure............................................................................. 37
Purchases by Employee Benefit Plans--ERISA Considerations.......................................... 37
Transfers and Redemptions.......................................................................... 39
Money Laundering Prevention........................................................................ 40
Security Ownership of Certain Beneficial Owners and Management..................................... 40
Federal Income Tax Aspects......................................................................... 41
State and Local Income Tax Aspects................................................................. 51
Auditor............................................................................................ 52
Legal Matters...................................................................................... 52
PART II
Statement of Additional Information--Additional Partnership Performance............................ SAI-1
Affirmation of Commodity Pool Operator............................................................. F-1
Tudor Fund For Employees L.P. Financial Statements as of December 31, 2001 and 2000 together with
Auditors' Report and Unaudited Financial Statements as of March 31, 2002........................... F-2
Second Management LLC Financial Statements as of December 31, 2001 and 2000 together with Auditors'
Report and Unaudited Statement of Financial Condition as of March 31, 2002......................... F-25
Exhibit A--Second Amended and Restated Limited Partnership Agreement............................... A-1
Annex A-- Form of Request for Redemption.......................................................... A-36
Exhibit B--Subscription Agreement and Power of Attorney for Individuals............................ B-1
Exhibit C--Subscription Agreement and Power of Attorney for the Tudor Investment Corporation
401(k) Savings and Profit-Sharing Plan............................................................. C-1
Exhibit D--Representations and Agreements by Plan Participants..................................... D-1
Exhibit E--Subscription Agreement for Use in Making Additions to Existing Accounts................. E-1
ii
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN DOING SO, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, ADVISORY, AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO THIS POOL BEGINNING AT
PAGE 9 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 10.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT BEGINNING AT PAGE 3.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
PRIVACY NOTICE
INFORMATION REGARDING PROSPECTIVE INVESTORS, EXISTING LIMITED PARTNERS, OR
FORMER LIMITED PARTNERS OF THE PARTNERSHIP RECEIVED BY TUDOR INVESTMENT
CORPORATION ("TIC" OR THE "TRADING ADVISOR") OR SECOND MANAGEMENT LLC (THE
"GENERAL PARTNER") WILL NOT BE SOLD OR MARKETED TO NONAFFILIATED THIRD PARTIES.
HOWEVER, INFORMATION MAY BE DISCLOSED TO NONAFFILIATED THIRD PARTIES UNDER
LIMITED CIRCUMSTANCES, PRIMARILY TO PERSONS THAT PROVIDE SERVICES TO THE
TRADING ADVISOR, THE GENERAL PARTNER, OR THE PARTNERSHIP. SUCH PERSONS INCLUDE
ACCOUNTANTS, ATTORNEYS, ADMINISTRATORS, SELLING AGENTS OR OTHER THIRD PARTIES
IN CONNECTION WITH THE SERVICING OF THE PARTNERSHIP, OR TO PROTECT AGAINST
FRAUD OR MAINTAIN SECURITY PRECAUTIONS THAT PROTECT CONFIDENTIALITY. THE
GENERAL PARTNER WILL USE REASONABLE EFFORTS TO ENSURE THAT ANY PERSON THAT
RECEIVES INFORMATION WILL ONLY USE IT FOR THE SERVICES REQUIRED AND AS ALLOWED
BY APPLICABLE LAW OR REGULATION.
INFORMATION MAY BE SHARED WITH AFFILIATES OF THE TRADING ADVISOR AND THE
GENERAL PARTNER. ACCESS TO SUCH INFORMATION WILL BE LIMITED TO AUTHORIZED
EMPLOYEES FOR THE PURPOSE OF PROVIDING SERVICES TO THE PARTNERSHIP OR THE
LIMITED PARTNERS.
-----------------
The General Partner first intends to use this Disclosure Document on May [ ],
2002.
iii
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
Prospectus. It is not complete and may not contain all of the information that
is important to you. To understand this offering fully, you should read the
entire Prospectus carefully, including the risk factors and financial
statements.
The Partnership Tudor Fund For Employees L.P. (the "Partnership") was organized on
November 22, 1989 as a Delaware limited partnership. The
Partnership's principal office is located at 1275 King Street,
Greenwich, CT 06831; Telephone No. (203) 863-6700; Facsimile No.
(203) 863-8600.
- --------------------------------------------------------------------------------------------------------
The General Partner Second Management LLC, a Delaware limited liability company, is
the general partner of the Partnership (the "General Partner"). The
General Partner manages the business of the Partnership. The
principal address and telephone and facsimile numbers of the General
Partner are the same as those of the Partnership. The Investor
Relations Department can be contacted at Telephone No. (203) 863-
8677; Facsimile No. (203) 863-1868; e-mail investor@tudor.com.
- --------------------------------------------------------------------------------------------------------
The Trading Advisor Tudor Investment Corporation, an affiliate of the General Partner, is
the trading advisor to the Partnership ("TIC" or the "Trading
Advisor").
- --------------------------------------------------------------------------------------------------------
The Business of the Partnership The Partnership is engaged in the speculative trading of futures
contracts, options on futures contracts, physical commodities, spot
and forward contracts, currencies, debt securities, other commodities
interests, swaps, and various other derivatives and hybrid instruments.
In the past, the Partnership has focused the substantial majority of its
trading in cash currencies and currency forward contracts, interest
rate futures contracts, stock index futures contracts, precious metals
futures contracts, energy futures contracts, agricultural futures
contracts, and options on and in respect of the foregoing.
- --------------------------------------------------------------------------------------------------------
Permitted Investors Units of Limited Partnership Interest in the Partnership (the "Units")
may be purchased and owned only by:
. employees of the General Partner or the Trading Advisor, or
employees of any present or future affiliate or successor of the
General Partner or the Trading Advisor,
. the General Partner, the Trading Advisor, or any present or future
affiliate or successor of the General Partner or the Trading
Advisor, or
. the Tudor Investment Corporation 401(k) Savings and Profit-
Sharing Plan (the "TIC 401(k) Plan").
- --------------------------------------------------------------------------------------------------------
Purchase Requirements If you purchase Units, you must complete and sign a Subscription
Agreement and Power of Attorney (Exhibits B through E) and
confirm that your investment in the Partnership does not exceed 25%
of your net worth. In addition, if you are purchasing Units as a
participant in the TIC 401(k) Plan, you will be asked to read and sign
certain additional representations.
- --------------------------------------------------------------------------------------------------------
Minimum Investment You may invest a minimum of $1,000 in the Partnership. Investments
in excess of such minimum must be made in increments of $1,000.
1
Offering Dates Units generally will be offered for sale at the Net Asset Value thereof
as of the opening of business on the first day of each calendar quarter,
i.e., January 1, April 1, July 1, and October 1.
- ----------------------------------------------------------------------------------------------
Break-Even Analysis The Partnership will need to generate Trading Profits equal to
approximately 2% of your purchase price in order for you to be in a
break-even position one year from the date of your purchase of Units.
For example, for a minimum investment of $1,000, the Partnership
would need to generate $20 of Trading Profits for you to break even.
- ----------------------------------------------------------------------------------------------
Fees and Expenses In addition to paying its ordinary operational expenses and transaction
costs, the Partnership will be required to pay the following fees to the
Trading Advisor:
. A monthly management fee equal to 1/12 of 2% (a 2% annual
rate) of the Partnership's Net Assets.
. A quarterly incentive fee equal to 12% of the Partnership's
Trading Profits.
- ----------------------------------------------------------------------------------------------
Risks An investment in the Partnership is speculative and involves a high
degree of risk. It is possible that you could lose all or a part or your
investment.
- ----------------------------------------------------------------------------------------------
Conflicts of Interest Because of the affiliation of the General Partner, the Trading Advisor,
and the Partnership's foreign currency dealer counterparty, there are
significant conflicts of interest in the structure and operation of the
Partnership.
- ----------------------------------------------------------------------------------------------
Transfers You will only be permitted to transfer your Units to any of the
following:
. the General Partner,
. the Trading Advisor,
. a present or future affiliate or successor of the General Partner or
the Trading Advisor, or
. an employee of the General Partner, the Trading Advisor, or an
employee of any present or future affiliate or successor of the
General Partner or the Trading Advisor.
- ----------------------------------------------------------------------------------------------
Redemptions You will only be permitted to redeem your Units on the last day of
each calendar quarter, i.e., March 31, June 30, September 30, or
December 31. Units will be redeemed at the Net Asset Value thereof
as of the applicable redemption date.
- ----------------------------------------------------------------------------------------------
Taxation You will be required to take your allocable share of the Partnership's
income, gain, loss, deduction, or credit into account in computing
your U.S. federal income tax liability regardless of whether you have
received any cash distributions from the Partnership.
2
PRINCIPAL RISK FACTORS
Your investment in the Partnership will involve certain risks. You should
read the Risk Disclosure Statement at the beginning of this Prospectus and the
following discussion of risks before you decide whether an investment in the
Partnership is suitable for you.
Prices of Commodity Interest Contracts Are Volatile
The prices of commodity interest contracts are highly volatile and are
influenced by various factors, such as:
. supply and demand of a particular commodity,
. government policies and programs,
. political and economic events,
. interest rates and rates of inflation,
. currency devaluations and revaluations, and
. sentiment in the marketplace.
Commodity Interest Contract Trading Is Highly Leveraged
A leveraged investment is one in which an investor can gain or lose an
amount larger than the value of the margin deposited by the investor for that
investment. Commodity interest contract trading generally requires only a small
margin deposit (typically between 2% and 15% of the value of the contract).
Accordingly, there is an extremely high degree of leverage in such trading, and
a relatively small movement in the price of a commodity interest contract can
result in substantial losses to the Partnership.
For example, if 10% of the purchase price of a contract is deposited as
margin, a 10% decrease in the price of the contract would, if the contract were
then closed out, result in a total loss of the margin deposit. A decrease of
more than 10% would result in a loss of more than the total margin deposit.
Thus, like other leveraged investments, any purchase or sale of a commodity
interest contract may result in losses in excess of the amount initially
invested.
Commodity Interest Contract Trading May Be Illiquid
An illiquid market is one in which an investor is unable to buy or sell an
investment at a desired price. If a commodity market is illiquid, the Trading
Advisor may not be able to buy or sell a commodity interest contract at an
advantageous price. Commodity market illiquidity can be caused by numerous
factors, such as the following:
. A commodity exchange may prohibit trading outside of a designated price
range, referred to as a "daily limit." Prices in various commodity
interest contracts have occasionally moved the daily limit for several
consecutive days with little or no trading.
. An exchange or the Commodity Futures Trading Commission (the "CFTC") may
suspend or limit trading in a particular contract, order immediate
liquidation and settlement of a particular contract, or order that trading
in a particular contract be conducted for liquidation only.
. Some commodity exchanges that trade stock index futures contracts have
adopted rules referred to as "circuit breakers" that automatically halt
trading when the Dow Jones Industrial Average declines to certain levels.
. Little trading in a particular commodity interest contract could cause the
Partnership to accept or make delivery of the commodity underlying a
particular contract if the position cannot be liquidated prior to its
delivery or expiration date.
3
Units Are Illiquid
An investment in the Units is illiquid because the Units are not traded on a
public market and cannot be assigned, transferred, pledged, encumbered or
otherwise disposed of except under the terms and conditions set forth in the
Limited Partnership Agreement, including obtaining the prior consent of the
General Partner (which it may withhold in its sole discretion). In addition,
you will only be able to redeem your Units for cash four times a year on the
last day of each calendar quarter.
Trading of Spot and Forward Contracts
The Partnership trades some commodities (such as currencies and metals) in
the spot, forward, and interbank markets. A spot contract is a cash market
transaction to buy or sell immediately a specified quantity of a commodity,
usually with settlement in two days. A forward contract is a contract to buy or
sell a specified quantity of a commodity at a specified date in the future at a
specified price. Spot and forward contracts are expected to comprise, on
average, between 20% and 50% of the Partnership's annual trading activities.
This estimate is based on the Partnership's trading during the past two years.
Spot and forward contracts involve risks in addition to those found in the
futures and options markets because these contracts are not traded on exchanges
and are not subject to oversight by regulatory authorities. Therefore, the
Partnership does not benefit from CFTC and exchange rules that are aimed at
maintaining orderly and stable markets and protecting investors. Unlike
exchanges, the spot and forward markets have:
. no regulation,
. no limitations on daily price movements,
. no rules to regulate the level of speculation,
. no daily valuation or settlement procedures,
. no minimum financial requirements for participants, and
. no exchange or clearinghouse to require the parties to fulfill their
contractual obligations.
Trading in the spot and forward markets involves an extension of credit
between the parties. Because the Partnership can look only to its counterparty
for performance and not to an exchange or clearinghouse, the Partnership is
subject to the creditworthiness of the counterparty and the risk that the
counterparty will be unable or unwilling to fulfill its contractual obligation.
Any such failure or refusal could cause the Partnership to sustain substantial
losses.
The Partnership uses Bellwether Partners LLC ("BPL") as the dealer for its
spot and forward contract trades. BPL is an affiliate of the General Partner
and Trading Advisor. As much as 10% of the Partnership's Net Assets may be
deposited with BPL to satisfy collateral requirements. In addition to potential
conflicts of interest, this relationship involves certain additional risks,
including the following:
. potential liquidity problems because of the concentration of the
Partnership's positions with BPL, and
. the risk that BPL might become insolvent because of its limited capital.
Trading on Foreign Exchanges
The Partnership trades commodity interest contracts on exchanges located
outside of the United States where CFTC and SEC regulations do not apply.
Trading on foreign exchanges is expected to comprise, on average, between 10%
and 40% of the Partnership's annual trading activities. This estimate is based
on the Partnership's trading during the past two years.
Some foreign commodity exchanges are similar to the spot and forward markets
in that the exchanges are "principals markets" in which contract performance is
the responsibility only of an individual member and not of the exchange or
clearinghouse. Consequently, the Partnership is subject to the risk that its
counterparty may be unable or unwilling to perform.
4
The U.S. dollar value of commodity interest contracts traded on foreign
markets may be subject to risks that arise from fluctuating currency rates.
This risk arises because contracts on foreign markets are denominated in the
currency of the foreign country. The Partnership may hedge (but is not required
to do so) its foreign currency positions to minimize the impact of foreign
currency fluctuations.
Trading of commodity interest contracts on foreign exchanges may involve
certain other risks not applicable to trading on United States exchanges, such
as exchange control regulations, risk of expropriation, lack of government
supervision and regulation, high taxes, moratoriums, or market disruptions
caused by political events.
Trading of Swaps
The Partnership occasionally enters into swap transactions. A swap
transaction is an individually negotiated, non-standardized agreement between
two parties to exchange cash flows (and sometimes principal amounts) measured
by different interest rates, currency exchange rates, securities, commodities,
or other items, indices or prices, with payments generally calculated by
reference to a principal ("notional") amount or quantity. Swap contracts are
not traded on exchanges and not otherwise regulated, and, as a consequence
investors in such contracts do not benefit from regulatory protections. Swap
trading is similar to the spot and forward markets in that banks,
broker-dealers, or their affiliates generally act as principals in the swap
markets, and the Partnership is subject to risks similar to those described in
the discussion of the spot and forward markets.
Trading of Options
Commodity options are expected to comprise, on average, between 5% and 30%
of the Partnership's annual trading activities. This estimate is based on the
Partnership's trading during the past two years. A commodity option on a
futures contract or on a physical commodity grants the right (but not the
obligation) to either buy (a "call") or sell (a "put") the underlying futures
contract or commodity on or until a certain date (the "expiration date") for a
fixed price (the "strike price").
The risks involved with commodity options trading are somewhat different
than the risks involved with futures contract trading because the specific
market movements of the underlying futures contract or commodity must be
predicted accurately. For example, if the Partnership buys an option (either to
sell or buy a futures contract or commodity), it will pay a "premium"
representing the market value of the option. Unless the price of the futures
contract or commodity underlying the option changes and it becomes profitable
to exercise or offset the option before it expires, the Partnership may lose
the entire amount of the premium. Conversely, if the Partnership sells an
option (either to sell or buy a futures contract or commodity), it will receive
the premium but will be required to deposit margin to secure its potential
obligation to take or make delivery of the underlying futures contract or
commodity in the event the option is exercised. Traders who sell options are
subject to the entire loss that occurs in the underlying futures contract or
commodity less the amount of any premium that they had been paid.
The Partnership also trades over-the-counter options with respect to United
States and foreign government and agency debt obligations, currencies, and
other commodities. Over-the-counter options present certain additional risks to
those found in exchange-traded options. These risks are similar to those risks
involved in the spot and forward markets.
Insolvency of Broker/Counterparty or Exchange
If a broker/counterparty or exchange (or its clearinghouse) becomes
insolvent, the funds that the Partnership deposits with such
broker/counterparty or exchange (or its clearinghouse) to trade commodity
interest contracts may be lost in their entirety.
5
Conflicts of Interest
Significant actual and potential conflicts of interest exist in the
structure and operation of the Partnership due to the affiliation of the
General Partner, Trading Advisor, BPL, and Paul Tudor Jones, II, who directly
or indirectly controls these entities. See "Conflicts of Interest."
Experience and Reliance on the Trading Advisor
Trading decisions made by the Trading Advisor are based on a combination of
technical and fundamental analyses. The Trading Advisor's trading decisions do
not adhere rigidly to any particular trading formula or system, but rather rely
primarily on the knowledge, judgment, and experience of Paul Tudor Jones, II.
Partners' Tax Liability May Exceed Distributions
If the Partnership has profits, a Partner will be taxed on his allocable
share of the Partnership's profits, whether or not the profits actually have
been distributed to him. Therefore, in any given year, the taxes paid by a
Partner may exceed the distributions (if any) that he receives from the
Partnership. In addition, if the Partnership sustains losses in a subsequent
year and those losses offset the earlier profits, the Partner may never receive
the profits on which he paid taxes in the prior years.
Statutory Regulation
The Partnership is not registered as an investment company or mutual fund
under the Investment Company Act of 1940 as amended (or any similar state
laws), and neither the General Partner nor the Trading Advisor is registered as
an investment adviser under the Investment Advisers Act of 1940 as amended (or
any similar state laws). Investors, therefore, will not generally benefit from
the protective measures provided by such legislation.
The General Partner is registered as a commodity pool operator ("CPO") and a
commodity trading advisor ("CTA"), the Trading Advisor is registered as a CPO
and a CTA, and the Partnership's domestic clearing brokers are registered as
futures commission merchants ("FCMs"). In addition, the General Partner, the
Trading Advisor, and the domestic clearing brokers are all members of the
National Futures Association (the "NFA").
If the CFTC or the NFA were to revoke or not renew the registration or
membership of the General Partner as a CPO, or the Trading Advisor as a CTA, or
a clearing broker as an FCM, the unregistered entity could not perform services
for the Partnership until its registration and membership were reinstated.
Governmental Initiatives
In recent years, certain governmental authorities, agencies and
representatives and trade groups commenced initiatives for additional
regulation of investment funds (such as the Partnership) and certain of their
activities, including restrictions on certain types of trading and reporting of
material investment position data, and recommended certain business practices.
Numerous studies have reviewed the activities of investment funds and other
similar participants engaged in the type of trading activities in which the
Partnership engages to determine their role, if any, in those periods of market
volatility, without definitive conclusion. In the event restrictions on certain
trading activities are imposed, the performance of the Partnership may be
adversely affected.
6
CONFLICTS OF INTEREST
The General Partner, the Trading Advisor, and BPL
The General Partner, the Trading Advisor, and BPL are affiliates and all are
controlled, directly or indirectly, by Paul Tudor Jones, II.
The General Partner has a conflict of interest between its fiduciary duty to
the Partnership to select a trading advisor in the Partnership's best interests
and to monitor trading in the Partnership's account, and its decision to select
its affiliate as the trading advisor and delegate complete trading authority to
it. In addition, the management agreement with the Trading Advisor was not
negotiated at arm's length. However, the management and incentive fees that are
charged by the Trading Advisor to the Partnership are approximately one-half of
the rates that it normally charges to other customers for a comparable trading
program.
The Trading Advisor has a conflict of interest between its duty to maximize
profits from trading and hence maximize its incentive fee, and a possible
desire to avoid taking risks which might reduce the assets of the Partnership
and consequently reduce its management fee. In addition, because the fees that
the Trading Advisor charges to the Partnership are substantially lower than
those of its other customers, the Trading Advisor has a conflict of interest
between its duty to manage the Partnership's trading prudently, and an
incentive to increase its relatively low fees by making investments that are
more risky or more speculative than normal.
The Partnership's spot and forward transactions are executed through BPL.
This involves posting collateral with BPL in amounts of up to 10% of the
Partnership's Net Assets. Although BPL has unrestricted use of these funds, it
does not receive a fee for its services. Many of the employee traders of the
Trading Advisor are also employees of BPL. In addition to executing
transactions for the Trading Advisor and Mr. Jones, certain of these traders
manage accounts for other investment funds that are customers of the Trading
Advisor or its affiliates and for accounts of affiliates of the Trading Advisor
that trade proprietary capital. There are conflicts of interest because these
traders know about customer (including the Partnership) and proprietary orders
in their capacity as employees of BPL when they also have accounts under their
management. However, internal guidelines and policies of BPL and the Trading
Advisor prohibit the improper use of trading information by their employees.
Proprietary Trading
The General Partner, the Trading Advisor, Mr. Jones, and certain other
persons and affiliates trade commodity interest contracts for proprietary
accounts. In particular, Mr. Jones trades extensively for proprietary accounts.
This trading may be more aggressive and more risky than the Partnership's
trading and may be conducted at lower brokerage commissions and lower or no
advisory fees. If so, the trading results of proprietary accounts might be
substantially different from those of the Partnership.
Allocation of Speculative Position Limits
Mr. Jones may allocate up to 40% of the applicable speculative position
limits in futures contracts to his own and his affiliates' proprietary accounts
and the balance among all other accounts managed or controlled by Mr. Jones,
the Trading Advisor, and their affiliates, pursuant to a neutral allocation
system that is designed, over time, not to favor any account managed or
controlled by them.
Other Customer Accounts
The Trading Advisor and its affiliates manage the accounts of various
customers other than the Partnership. Although the General Partner presently
serves as the CPO only of the Partnership, the General Partner may in the
future serve as the CPO to other pools, and also may manage the accounts of
other customers. The same trading methods and strategies are generally used in
managing all commodity interest-only customer accounts, although certain
accounts may be precluded from participating in certain transactions due to
legal, authorization, or credit
7
considerations. In addition, all such accounts may be competing for the same or
similar positions, and, depending upon whose order is placed first, the
difference in timing may result in some accounts receiving better prices than
others.
Market and Industry Associations
Certain principals of the General Partner and its affiliates serve, or may
serve, on various committees and boards of commodity exchanges, the Futures
Industry Association, the NFA, and other related associations. In these roles,
they help to establish rules and policies that are intended for the betterment
of the commodities industry as a whole, but may be contrary to the interests of
the Partnership.
THE PARTNERSHIP
The Partnership was formed as a limited partnership on November 22, 1989
under the Delaware Revised Uniform Limited Partnership Act, with initial
capital contributions of $1,000 by the General Partner and $1,000 by a
principal of the General Partner as the initial Limited Partner.
The Partnership initially offered 10,000 Units for sale at a price of $1,000
per Unit and sold 421 Units for a total of $421,000 between June 22, 1990 and
June 30, 1990. The General Partner contributed an additional $399,000, which
allowed the Partnership to begin trading on July 2, 1990 with total assets of
$821,000. The Partnership subsequently has, and is, offering an additional
10,000 Units.
Since July 1990, the Partnership has been offering unsold Units for sale at
a price equal to 100% of the Net Asset Value of a Unit as of the opening of
business on the first day of each calendar quarter. After the April 1, 2002
closing, 3,883 Units were outstanding, with 14,043 Units having been sold,
5,947 Units remaining unsold, 10,276 of the sold Units having been redeemed,
and 116 Units having been allocated to the TIC 401(k) Plan. In addition, the
General Partner holds 197 units of general partnership interest.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934 as amended, and files reports and other
information with the Securities and Exchange Commission (the "SEC"). These
documents may be read and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You may obtain
information about the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330. In addition, the Partnership is required to file electronic
versions of these documents with the SEC through the SEC's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The SEC maintains a World
Wide Web site at http://www.sec.gov that contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC.
The General Partner is required by the CFTC and the NFA to provide Limited
Partners with monthly statements of account and certified annual reports of the
Partnership's financial condition. Monthly reports include performance,
financial, and other required information. See "Reporting to Pool Participants."
8
DESCRIPTION OF CHARGES TO THE PARTNERSHIP
The Partnership is subject to the charges described below.
Recipient Nature of Charge Amount of Charge
--------- --------------------------- -------------------------------------------------------
Trading Advisor. Management fee 1/12 of 2% per calendar month (a 2% annual rate) of
the Partnership's Net Assets (as described below).
Incentive fee 12% of Trading Profits (as described below) earned by
the Partnership as of the end of each calendar quarter.
Clearing Brokers Brokerage fees Rates of between $6 and $15 for a "round turn" trade
(as described below) on United States exchanges.
Rates are generally higher for trades outside of the
United States.
Others.......... Ordinary operating expenses Actual expenses incurred.
Management Fee
The Partnership pays the Trading Advisor a monthly management fee equal to
1/12 of 2% (a 2% annual rate) of the Partnership's Net Assets. "Net Assets" (or
"Net Asset Value") are equal to the market value of the Partnership's assets
less liabilities (paid and accrued). The Partnership's Net Assets are
determined on the last day of each calendar quarter before taking into account
any payments for incentive fees, distributions, or redemptions. This fee is
owed to the Trading Advisor whether or not the Partnership is profitable. In
2001, the Partnership paid approximately $512,700 in management fees.
Incentive Fee
The Partnership pays the Trading Advisor a quarterly incentive fee equal to
12% of any Trading Profits earned by the Partnership. "Trading Profits" are
calculated at the end of each calendar quarter and are equal to: (a) actual
profits from commodity interest contract trading and profits that could be
realized if open positions were closed out at current market prices, (b)
increased by any decline in the Net Asset Value of redeemed Units, and (c)
decreased by certain expenses. Trading Profits is measured from the end of the
last calendar quarter in which an incentive fee was paid to the Trading Advisor
(the "highwater mark"). As a result, the Trading Advisor could earn an
incentive fee during a year because of an increase in Trading Profits during
one quarter even though the Partnership ends up incurring a loss for that year.
In 2001, the Partnership paid approximately $703,000 in incentive fees.
Brokerage Commissions
Brokerage commissions for trades on commodity exchanges are generally paid
on the completion or liquidation of a trade and are referred to as "round turn
commissions." A round turn commission covers both the initial purchase (or
sale) of a commodity interest contract and the subsequent offsetting sale (or
purchase) of the contract. The Partnership pays clearing brokers commissions
for trades on United States exchanges at rates of between $8 and $18 per round
turn for futures and options trades. These commissions cover all transactions
costs, including floor brokerage, exchange, clearing, clearinghouse, and NFA
fees. Commissions are generally higher for trades outside the United States,
and may include additional regulatory fees and charges.
Brokerage commissions and fees change from time to time as mutually agreed
between the General Partner and each broker. The General Partner anticipates
that the Partnership will normally pay annually up to approximately 1% of its
average annual Net Assets in brokerage commissions and other transaction costs
and charges. In 2001, the Partnership paid approximately $187,300 in brokerage
commissions and other transaction costs and charges.
9
Other Expenses
The Partnership incurs and pays operating expenses, such as legal,
accounting, escrow, auditing, record keeping, administration, computer, and
clerical expenses, expenses incurred in preparing, printing, and mailing
reports and tax information to Limited Partners and regulatory authorities,
expenses of printing and mailing registration statements, prospectuses, and
reports to Limited Partners, expenses for specialized administrative services,
other printing and duplication expenses, other mailing costs, and filing fees.
The General Partner, rather than the Partnership, pays solicitation costs and
the expenses of preparing registration statements and prospectuses. In 2001,
the Partnership paid approximately $152,000 in such other expenses.
The Partnership will also pay any extraordinary expenses it may incur. The
General Partner is not reimbursed by the Partnership for any costs incurred by
it relating to office space, equipment, and staff necessary for the
Partnership's operations and the administration of the sale and redemption of
Units, nor for the Continuing Offering costs paid by the General Partner.
Fees for Plan Investors
Units held by employee benefit plan investors do not pay management fees or
incentive fees because of constraints under ERISA and the Internal Revenue Code.
Break-Even Analysis
Initial selling price per Unit(1)...................................................... $1,000.00
Trading Advisor's management fee(2).................................................... 20.00
Operating expenses(3).................................................................. 10.00
Brokerage commissions and trading fees(4).............................................. 10.00
Less interest income(5)................................................................ (20.00)
Amount of Trading Profits required for the Net Asset Value of a Unit, at the end of one
year, to equal the initial selling price per Unit(6)................................... $ 20.00
Percentage of initial selling price per Unit........................................... 2.00%
- --------
(1) Investors initially purchased Units at $1,000.00 per Unit. Units are
currently purchased at the Partnership's Net Asset Value as of the opening
of business on the first day of each calendar quarter.
(2) The Trading Advisor is paid a monthly management fee of 1/12 of 2% of the
Net Assets of the Partnership (a 2% annual rate).
(3) The Partnership's annual operating expenses are estimated at up to 1% of
the average annual Net Assets of the Partnership.
(4) Annual brokerage commissions and trading fees are estimated at up to 1% of
the average annual Net Assets of the Partnership.
(5) The Partnership earns interest estimated at up to 2% of the average annual
Net Assets of the Partnership on margin deposited with its brokers and
dealers.
(6) Trading Profits are net of all of the expenses described above. Therefore,
there is no incentive fee at the break-even point.
10
INVESTMENT PROGRAM AND USE OF PROCEEDS
Investment Program
Description of Commodities Traded
The Trading Advisor monitors virtually all commodities that are actively
traded on organized exchanges throughout the world. At any given time, the
Trading Advisor normally trades between 5 and 30 types of commodities, although
this number and the types of commodities traded may vary substantially from
time to time. The Trading Advisor trades all types of commodity contracts, but
has typically concentrated its trading in currencies, currency forwards,
interest rate futures, stock index futures, energy futures, precious metals,
precious metals futures, agricultural futures, and options on or in respect of
the foregoing. The Partnership may from time to time accept or make delivery of
the commodity underlying a particular contract.
Description of Commodity Interest Contract Trading Methods and Strategies
The Trading Advisor employs the trading methods and strategies developed by
Paul Tudor Jones, II, who is the principal commodity trader for the Trading
Advisor. The Trading Advisor's trading decisions are based on the knowledge,
judgment, and experience of Mr. Jones and the Trading Advisor's other traders,
and do not adhere rigidly to any particular trading formula or system. The
trading methods are generally discretionary and subjective. In arriving at
trading decisions, the Trading Advisor may use a combination of technical
analysis, fundamental analysis and trend-following techniques. Regardless, all
trading decisions are governed by a disciplined system of risk management.
Use of Technical Analysis and Fundamental Analysis
There are generally two ways of attempting to forecast price behavior in the
commodities markets-"technical analysis" and "fundamental analysis." Technical
analysis involves the analysis of trading factors and historical trading
patterns as a way of predicting the future course of price movements. These
factors include daily, weekly, and monthly price fluctuations, volume
variations, and changes in open interest. Trading recommendations are generally
based on computer-generated signals, chart interpretation, mathematical
measurements, or a combination of these indicators.
Fundamental analysis, on the other hand, is based upon the study of external
factors that affect the supply and demand of a particular commodity. Such
factors include interest rates, weather, crop statistics, the economics of a
particular commodity interest, governmental policies, domestic and foreign
political and economic events, and changing trade prospects.
The Trading Advisor utilizes aspects of both technical and fundamental
analysis in its approach to trading in the commodities markets. In general,
fundamentals are assessed to determine the likely price direction of a
particular commodity, while computer studies in conjunction with chart
interpretation and mathematical measurements are used for market timing.
Use of Trend-Following Analysis
The Trading Advisor's trading strategy attempts to detect trends in price
movements for commodities and to take and hold positions when a market moves in
favor of the position, and to exit a market or reverse positions when the
favorable trend either reverses or does not materialize.
Emphasis on Risk Management
Risk control is a very important aspect of the Trading Advisor's trading
methods. The Trading Advisor attempts to manage risk by various means,
including limiting the overall number of trades in each market and across all
markets, predetermining a level of loss which will trigger a liquidation of a
position, and setting daily limits on market exposure.
11
Tendency for Active Trading
The Trading Advisor is a very active trader with an intentionally short-term
approach to the markets. Accordingly, trading often results in relatively high
transaction charges. Annual brokerage commissions and other transaction charges
for all of the Trading Advisor's customer accounts have, in the past, equaled
up to 4% of the average annual net asset value of such accounts. Neither the
Trading Advisor, Mr. Jones, nor any of their affiliates derive any benefit from
brokerage commissions that are generated by the Partnership's trading.
At times, the Trading Advisor initiates positions in a series of trades in a
particular commodity interest contract, each one linked to the preceding one.
Normally, after an initial position is taken, a subsequent position is not
added unless the preceding position is profitable. Liquidating stop-loss orders
are usually placed at the purchase price of the first position, i.e., an order
is placed to automatically sell if the price of the position declines to the
price at which it was purchased. Profit objectives are predetermined for a
position, and a position is usually sold once these price objectives are
reached. Typically, trades are initiated and closed out in one to five days.
The Trading Advisor's trading decisions rely, to a great extent, on the
knowledge, judgment, and experience of Mr. Jones. No one has been designated to
replace him. If Mr. Jones dies or becomes disabled, all open positions in the
accounts managed by him, including the Partnership, will be liquidated.
Description of Orders and Order Placement
Mr. Jones determines the timing and method by which orders are placed with
brokers. Mr. Jones also selects the types of orders that are placed. Executions
may be made during the day: (1) on a "stop" basis, where an order becomes a
market order when the specified stop price is reached; (2) on an "at market"
basis, where the order is executed as soon as possible after being received on
the floor of the exchange; (3) on a "limit" basis, where an order is placed to
buy or sell at a specified price or better than the specified price; or (4) on
a "closing price" basis, which is a contingent order based on the closing range
of the market.
Normally, orders for customer accounts, as well as for proprietary accounts,
are placed directly with exchange floor brokers. When an order for proprietary
accounts is placed at the same time as an order for customer accounts, the
filled order is allocated among all such accounts, including proprietary
accounts, in a neutral manner that is designed, over time, not to favor any
account.
Trading Policies
The Limited Partnership Agreement gives the General Partner the authority to
determine trading policies which the Trading Advisor is required to follow, and
to monitor the Trading Advisor's compliance with those policies. In addition,
the Limited Partnership Agreement specifies the following trading policies:
(1) Borrowing or lending money is prohibited. This policy, however, is not
meant to prohibit:
. depositing margin to trade commodity interest contacts,
. utilizing lines of credit to trade spot and forward contracts,
currency contracts, swaps, and related contracts, or guaranteeing
these transactions, and
. guaranteeing the obligations of any person or entering into any other
arrangement or agreement that is contemplated in the Limited
Partnership Agreement.
(2) "Churning" is prohibited.
(3) "Pyramiding" is prohibited. Pyramiding is when a speculator uses
unrealized profits on existing positions that result from favorable price
movements as margin specifically to buy or sell additional positions in the
same or a related commodity interest contract. This policy, however, does not
prohibit taking into account the open trade equity (i.e., the profit or loss on
an open commodity contract position) when determining the size of positions to
be taken in all commodity interest contracts. In addition, the Partnership may
add to its existing commodity interest contract positions in its portfolio
provided that such additions are not "pyramiding."
12
The General Partner will not approve any material change in these trading
policies without the prior written approval of Limited Partners owning more
than 50% of the outstanding Units.
Regulation
The CFTC is the governmental agency that is responsible for regulating
commodity exchanges and commodity trading in the United States. The function of
the CFTC is to prevent price manipulation and excessive speculation and to
promote orderly and efficient markets. In addition, the various exchanges
regulate and supervise their trading member firms.
The CFTC has issued various regulations that govern the activities of CPOs
and CTAs. For example, the CFTC requires the General Partner to keep records
about its commodity pools and to provide pool participants with disclosure
regarding the pools. The CFTC has similar authority to regulate the activities
of CTAs, such as the Trading Advisor.
The CFTC also regulates the activities of FCMs, such as the Partnership's
clearing brokers, and requires them to meet certain fitness and financial
requirements, to segregate customer funds from their own funds, to account
separately for customer funds and positions, and to keep specified books and
records open for inspection by the CFTC.
The NFA is a self-regulatory organization for commodity professionals. The
NFA issues rules governing the conduct of commodities professionals, and
disciplines those professionals who do not comply with such standards. The NFA
also arbitrates disputes between its members and their customers, conducts
registration and fitness screening of applicants for membership, and conducts
audits of its members. The General Partner, the Trading Advisor, and the
Partnership's clearing brokers are all members of the NFA and are subject to
NFA standards relating to fair trade practices, financial condition, and
consumer protection. In addition, CFTC regulations require a registered CPO,
such as the General Partner, to make annual filings with the NFA describing its
organization, capital structure, management, and controlling persons.
Registration with the CFTC or membership in the NFA does not mean that the
CFTC or the NFA has approved or endorsed the General Partner, the Trading
Advisor, or the Partnership.
The CFTC does not regulate the spot and forward contract markets in which
the Trading Advisor conducts a significant amount of currency trading. Banks
that are participants in the spot and forward markets are regulated in various
ways by the Federal Reserve Board, the Comptroller of the Currency, and other
federal and state banking authorities. However, banking regulators do not
regulate spot and forward trading. In addition, certain spot and forward
dealers (such as BPL) are not regulated.
The CFTC has no authority to regulate trading on foreign commodity exchanges
and markets. However, the CFTC regulates the marketing of foreign futures
contracts and options in the United States.
In the United Kingdom, the Financial Services Authority, a self-regulatory
organization, functions similarly to the CFTC and the NFA.
Use of Proceeds
A portion of the Partnership's cash is deposited with clearing brokers and
is used for futures and options trading. Cash for currency trading in the spot
and forward markets is deposited with BPL. The clearing brokers and BPL pay
interest to the Partnership on such cash.
The remainder of the Partnership's cash is usually invested in short-term
investments, including interest-bearing accounts at United States and foreign
money-center banks and time deposits. The General Partner attempts to earn
interest on all of the Partnership's assets, although balances held in certain
foreign currencies may not earn interest.
13
The General Partner estimates that approximately 10% to 40% of the
Partnership's Net Assets normally have been committed as initial margin for
commodity interest contracts. In addition, collateral deposited with BPL in
connection with spot and forward contract transactions normally constitutes up
to 4% of the Net Assets of the Partnership.
The CFTC requires an FCM to segregate its customers' assets from its own
assets. In addition, the CFTC permits customer funds to be invested only in a
limited range of essentially "risk-free" instruments--principally United States
Government obligations. The Partnership uses cash as margin for trading United
States exchange-traded futures and options contacts. The General Partner
anticipates that from time to time up to 50% of the Partnership's assets will
be held in segregated accounts.
Although the CFTC rules do not apply outside of the United States, funds
deposited as margin on foreign exchanges are invested in bank deposits or in
instruments of a credit standing that is generally comparable to those
authorized by the CFTC.
BPL is not subject to the CFTC requirements that are applicable to FCMs. BPL
maintains separate accounts on its books and records for the Partnership's
trading activities and the collateral deposited by the Partnership. When BPL
enters into spot and forward contract transactions with its counterparties,
which mirror transactions entered into between BPL and the Partnership, BPL
normally deposits the Partnership's collateral with BPL's counterparties, all
of which are banks, broker-dealers or their affiliates. BPL typically instructs
its counterparty to keep only a small portion of the collateral as cash and to
invest the balance in United States Treasury bills. The Partnership's
collateral that remains with BPL is typically invested by BPL in overnight
tri-party repurchase transactions.
The Partnership receives daily and monthly account statements from BPL which
detail realized and unrealized profits and losses as well as equity balances in
the Partnership's account, and provide information about the Partnership's
collateral on deposit with BPL. In addition, BPL gives the Partnership its
annual audited financial statements and the independent public accountants'
report and opinion relating thereto.
14
CAPITALIZATION
The capitalization of the Partnership as of December 31, 2000, December 31,
2001, and March 31, 2002 is shown under "Tudor Fund For Employees L.P.
Financial Statements as of December 31, 2001 and 2000 together with Auditors'
Report and Unaudited Financial Statements as of March 31, 2002."
The following table shows
. the actual capitalization of the Partnership as of May 1, 2002 based
on the Units outstanding as of that date, and
. the pro forma capitalization of the Partnership if all unsold Units
(5,947 Units) were sold at the estimated Net Asset Value thereof as
of May 1, 2002 (i.e., $9,490.51).
Pro Forma
Actual Amount if the
Amount as of Maximum Number of
Title of Class May 1, 2002 Unsold Units were Sold
-------------- ------------ ----------------------
Units of Limited Partnership Interest... $36,851,650 $93,386,618
Units of General Partnership Interest(1) 1,869,631 1,869,631
----------- -----------
TOTAL................................ $38,721,281 $95,256,249
=========== ===========
- --------
(1) The actual amount shown reflects the Net Asset Value of units of general
partnership interest outstanding as of May 1, 2002 (197 units). The Net
Asset Value of a unit of general partnership interest is equal to the Net
Asset Value of a Unit of limited partnership interest. The General Partner
has agreed to contribute such amounts to the Partnership as are necessary
from time to time to ensure that the General Partner's capital contribution
is equal to the greater of (i) $200,000 and (ii) the sum of (a) the lesser
of $100,000 or 3% of the first $10,000,000 in aggregate capital
contributions to the Partnership by all Partners and (b) 1% of the
aggregate capital contributions to the Partnership by all Partners in
excess of $10,000,000.
SELECTED FINANCIAL DATA
Following is a summary of selected financial data of the Partnership for the
periods indicated. Certain reclassifications have been made to prior year
balances to conform with current year presentations. For the complete audited
financial statements for certain of the periods indicated, see "Tudor Fund For
Employees L.P. Financial Statements as of December 31, 2001 and 2000 together
with Auditors' Report and Unaudited Financial Statements as of March 31, 2002."
For performance information of the Partnership, see "Performance Record of the
Partnership" and Statement of Additional Information--"Additional Partnership
Performance."
Three
Months
Ended Year Ended December 31,
March 31, -----------------------------------------------------------
2002 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
Revenues................. $ 1,546,627 $ 8,850,572 $ 5,538,110 $ 1,981,370 $ 5,159,521 $ 3,362,714
Expenses................. $ 324,489 $ 1,554,422 $ 1,035,471 $ 684,010 $ 962,387 $ 649,909
----------- ----------- ----------- ----------- ----------- -----------
Net Income............... $ 1,222,138 $ 7,296,150 $ 4,502,639 $ 1,297,360 $ 4,197,134 $ 2,712,805
Total Assets............. $38,471,523 $33,669,386 $27,918,377 $22,242,164 $18,265,036 $17,166,451
Partners' Capital........ $34,230,019 $31,790,384 $22,161,072 $16,332,215 $14,891,112 $ 9,495,687
Units Outstanding........ 3,705 3,560 3,123 2,847 2,786 2,383
Net Asset Value Per Unit. $ 9,238 $ 8,929 $ 7,096 $ 5,737 $ 5,344 $ 3,985
Change in Net Asset Value
Per Unit............... $ 310 $ 1,833 $ 1,359 $ 393 $ 1,359 $ 849
Net Income Per Unit...... $ 322 $ 1,898 $ 1,338 $ 379 $ 1,327 $ 845
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity
The Partnership's assets are deposited and maintained with banks, BPL, 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 and trading in derivatives. Since the Partnership's sole purpose is to
trade in futures, options, forward contracts and other commodity interests
contracts and derivatives, it is anticipated that the Partnership will continue
to maintain substantial liquid assets for margin purposes.
Net interest income for the quarter ended March 31, 2002 was $142,708
compared to $389,323 for the quarter ended March 31, 2001. The decrease was
principally due to lower interest rates. Net interest income for the years
ended December 31, 2001, 2000 and 1999 was $1,174,097, $1,203,878, and $842,756
which represented 4.0%, 6.2%, and 4.9% of average net assets, respectively.
In the context of the commodity, futures and derivatives trading industry,
cash and cash equivalents are part of the Partnership's inventory. Cash and
cash equivalents represented approximately 86%, 89%, and 91% of the
Partnership's total assets as of March 31, 2002 and December 31, 2001 and 2000,
respectively. 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 "daily price fluctuation limits" or
"daily limits." Pursuant to such regulations, during a single trading day, no
trade may be executed at a price beyond the daily 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 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. See
"Principal Risk Factors-- Commodity Interest Contract Trading May Be Illiquid."
Capital Resources
The Partnership does not have, nor does it expect to have, any fixed assets.
Redemptions and additional sales of Units in the future will impact the amount
of funds available for investment in subsequent periods. See "Investment
Program and Use of Proceeds."
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 affiliates and certain employee benefit plans, including, but not
limited to, the TIC 401(k) Plan.
Results of Operations
The following table compares Net Asset Values at year-end 2001, 2000, and
1999:
Increase During
Net Asset Year
Value ---------------
Per Unit $ %
--------- --------- -----
December 31, 2001..................................... $8,928.90 $1,833.12 25.83%
December 31, 2000..................................... 7,095.78 1,358.85 23.69
December 31, 1999..................................... 5,736.93 392.72 7.35
The following table compares Net Asset Values as of March 31, 2002 and 2001:
Increase During
Net Asset Quarter
Value --------------
Per Unit $ %
--------- ------- -----
March 31, 2002........................................ $9,238.47 $309.57 3.47%
March 31, 2001........................................ 7,810.85 715.07 10.08
16
Trading gains and losses include realized and unrealized trading gains and
losses (net of commissions) from strategies that use a variety of derivative
financial instruments. The following table summarizes trading gains and losses
by type of contract for the three months ended March 31, 2002 and 2001 and for
the years ended 2001, 2000, and 1999.
For the
Three Months
Ended For the Year
March 31, Ended December 31,
-------------- -----------------------
2002 2001 2001 2000 1999
------ ------ ------ ------ -------
($ in thousands)
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts. $1,644 $ 504 $3,167 $1,794 $ 491
Foreign Exchange Contracts................. (92) 1,845 2,578 480 (1,370)
Equity Index Futures Contracts............. (284) 1,725 1,547 1,493 (258)
Over the Counter Contracts:
Forward Currency Contracts................. 196 (210) 554 1,147 884
Commodity Swaps............................ 101 (496) (615) (125) 59
Equity Index Swaps......................... (238) (359) 73 157 (99)
Interest Rate Swaps........................ 0 18 (112) 129 236
Non-Financial Derivative Instruments.......... 8 (111) 289 (957) 981
------ ------ ------ ------ -------
Total.................................. $1,335 $2,916 $7,481 $4,118 $ 924
====== ====== ====== ====== =======
Since the Partnership is a speculative trader in the commodities markets,
current year results are not necessarily comparable to the previous years'
results.
The following table illustrates the Partnership's net trading gain as a
return on Net Assets, and also shows brokerage commissions and fees as a
percentage of Net Assets. In addition, the table shows incentive fees as a
percentage of net trading gains.
For the
Three Months
Ended For the Year
March 31, Ended December 31,
----------- -----------------
2002 2001 2001 2000 1999
---- ---- ---- ---- ----
Net Trading Gain (Loss) as a % of Net Assets............... 3.9% 10.3% 25.7% 21.3% 5.3%
Brokerage Commissions & Fees as a % of Net Assets.......... 0.2 0.3 0.6 1.1 1.2
Incentive Fees as a % of Net Trading Gains................. 4.8 9.2 9.4 8.3 6.7
In general, commission rates have remained stable during the past three
years.
Professional fees and other expenses remained stable during each of the past
three years.
Inflation is not expected to be a major factor in the Partnership's
operations, except that traditionally the commodities markets have tended to be
more active and thus potentially more profitable during times of high
inflation. Since the commencement of the Partnership's trading operations in
July 1990, inflation has not been a major factor in the Partnership's
operations.
Risk Management
The Partnership is subject to changes in value resulting from the market and
credit risk associated with the financial instruments which are traded. TIC
takes an active role in managing the Partnership's market and counterparty
risks and has established formal procedures that are reviewed on an ongoing
basis.
17
TIC has developed a set of guidelines and policies that are designed to
maintain risk within parameters that are appropriate and necessary to achieve
targeted rates of return. These guidelines and policies include quantitative
and qualitative criteria for individual risk factors as well as for aggregate
risk. TIC's Risk Management Department, in conjunction with various senior
personnel from different disciplines throughout TIC and its affiliates,
regularly assesses and evaluates the Partnership's potential exposures to
market risk based on analyses performed by the department. The Risk Management
Department's responsibilities include: evaluating the positions taken by
traders in various instruments and markets globally and assessing the market
risk associated with all of those positions.
TIC's Risk Management Department uses a statistical technique known as Value
at Risk ("VaR") to assist in measuring market risk. The VaR model is a
proprietary system, and is one of several tools used to monitor and review the
Partnership's trading portfolios. The VaR model projects potential losses of
the portfolio based on a historical simulation methodology which uses two years
of historical data, 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.
The following table illustrates the VaR for each component of market risk as
of March 31, 2002 and December 31, 2001. The dollar values represent the VaR
assuming a 1.65 standard deviation move in each of the financial instruments
indicated.
VaR
Risk Factors (95% Confidence Level)
------------ ----------------------
March 31, December 31,
2002 2001
--------- ------------
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts. $260,356 $ 53,603
Foreign Exchange Contracts................. 323,112 626,874
Equity Index Futures Contracts............. 81,028 6,109
Over the Counter Contracts:
Equity Swaps............................... -- 4,887
Foreign Exchange Contracts................. 241,741 13
Non-Financial Derivative Instruments.......... 148,688 100,465
As a writer of options, the Partnership receives a premium upon initial
settlement and then bears the risk of changes in the price of the financial
instrument underlying the option. Swaps, forward rate agreements, forward
foreign exchange contracts and over the counter foreign exchange options are
traded in unregulated markets.
Derivative instruments are bilateral agreements which result in credit
exposure between counterparties. Exchange traded derivatives settle through
clearing houses backed by multiple members and present relatively low credit
risk. Over the counter derivatives are settled with individual counterparties
and, therefore, present potential concentrated credit exposure risk. TIC
attempts to minimize credit risk exposure to over the counter trading
counterparties and brokers through the use of bilateral collateral arrangements
and through formal credit policies and monitoring procedures.
TIC has a formal Credit Committee, comprised of senior managers from
different disciplines throughout TIC and its affiliates, 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 due from brokers, are invested with
or held at top tier banks and securities dealers. TIC establishes counterparty
exposure limits and specifically designates which product types are approved
for trading. The Partnership attempts to reduce its credit risk by establishing
stringent credit terms with its counterparties. In addition, the TIC monitors
exposure levels and actively moves collateral with counterparties to reduce
exposure.
See also "Capitalization" and "Tudor Fund For Employees L.P. Financial
Statements as of December 31, 2001 and 2000 together with Auditors' Report and
Unaudited Financial Statements as of March 31, 2002."
18
THE GENERAL PARTNER
Second Management LLC ("SML" or the "General Partner") is the general
partner of the Partnership. SML is a Delaware limited liability company that
was formed in April 1996. Previously, Second Management Company, Inc. ("SMCI")
was the general partner of the Partnership. SML is the successor-in-interest to
SMCI by virtue of a merger.
Prior to the merger, SMCI had been continuously registered with the CFTC as
a CPO and CTA since November 25, 1987, and was a member of the NFA. Upon the
merger of SMCI into SML on April 4, 1996, SML succeeded to SMCI's registrations
with the CFTC and its membership in the NFA.
The principals of the General Partner are:
Paul Tudor Jones, II Chairman and Chief Executive Officer
Mark F. Dalton President
John G. Macfarlane, III Managing Director and Chief Operating Officer
Andrew S. Paul Managing Director, General Counsel, and Secretary
John R. Torell Managing Director and Chief Financial Officer
The business backgrounds of Messrs. Jones, Dalton, Macfarlane, Paul, and
Torell are described under "The Trading Advisor--Trading Advisor and
Principals." Mr. Jones is currently the only principal of the General Partner
who makes trading decisions for the Partnership.
There has been no material administrative, civil or criminal action against
the General Partner or its principals within the last five years, whether
pending or concluded. See "The Trading Advisor--Material Actions."
The General Partner has made capital contributions to the Partnership. The
General Partner may purchase additional units of general partnership interest
as well as Units of limited partnership interest. Any purchases would be for
investment purposes.
The General Partner owned 196.581 units of general partnership interest on
April 1, 2002 and the date of this Prospectus. In addition, as of such dates,
principals of the General Partner owned 252.512 Units of limited partnership
interest. There is no limitation on the number of Units that may be subscribed
for by the General Partner, its affiliates, and their principals and employees.
PERFORMANCE RECORD OF THE PARTNERSHIP
The General Partner and its predecessor, SMCI, have operated one other
commodity pool in addition to the Partnership. The other pool, Tudor Select
Futures Fund, L.P. ("Tudor Select") was a Delaware limited partnership with
several trading advisors. Tudor Select ceased operation in November 1991. The
performance of Tudor Select is not comparable to the performance of the
Partnership because Tudor Select had several trading advisors and because the
fees and commissions charged to Tudor Select were higher than those of the
Partnership.
The performance record of the Partnership from January 1, 1997 through March
31, 2002 is shown below. The Partnership's complete performance record since it
began trading (July 2, 1990 through March 31, 2002) is shown in "Statement of
Additional Information." The information below and in "Statement of Additional
Information" is the actual trading performance of the Partnership after payment
of advisory fees, transaction costs, and all other expenses and costs. The
rates of return shown below and in "Statement of Additional Information" are
representative of the rates of return experienced by each investor holding a
Unit during the period shown.
19
The information below and in "Statement of Additional Information" has not
been audited. However, the General Partner believes that such information is
accurate and fairly presented.
You should be aware that past performance information cannot predict how the
Partnership will perform in the future. It is possible that the Partnership
will incur losses in the future.
ACTUAL PERFORMANCE RECORD OF TUDOR FUND FOR EMPLOYEES L.P.
Rates of Return (1)(2)
2002 2001 2000 1999 1998 1997
---- ----- ----- ----- ----- -----
January.......................... 1.55% -0.64% -0.85% -4.05% -0.35% 2.69%
February......................... 0.64% 2.38% 5.10% 6.31% 1.27% 8.65%
March............................ 1.24% 8.21% -7.98% -6.03% 4.23% 4.96%
April(3)......................... 2.73% -4.11% -0.43% -2.46% -4.32% 0.48%
May.............................. 1.26% 5.69% -0.94% -0.74% 1.65%
June............................. 3.20% -3.87% -1.46% 1.07% -0.40%
July............................. 4.45% -0.95% 3.39% 2.72% 3.49%
August........................... 5.87% 1.81% 2.05% 11.29% 3.94%
September........................ 4.07% 6.54% 0.07% 12.82% -5.13%
October.......................... 2.05% -1.92% 4.52% -0.20% -1.55%
November......................... -4.19% 8.34% 4.49% -2.15% 4.33%
December......................... 1.40% 11.70% 2.01% 5.46% 1.74%
---- ----- ----- ----- ----- -----
Annual (Period) Rate of Return(3) 6.29% 25.83% 23.69% 7.35% 34.11% 27.05%
==== ===== ===== ===== ===== =====
Name of Fund: Tudor Fund For Employees L.P.
Type of Fund: Publicly Offered
Inception of Trading: July 2, 1990
Aggregate Subscriptions Since Inception(4): $46,377,000
Aggregate Redemptions Since Inception(4): $35,412,000
Current Net Assets(3)(4): $38,718,000
Largest Monthly Percentage Drawdown(5): March 2000 (-7.98%)
Worst Peak to Valley Percentage Drawdown(6): March 1, 1999 - June 30, 1999 (-10.53%)
THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THIS TABLE.
FOOTNOTES TO TABLE
The performance data presented above have been calculated on an accrual basis
of accounting in accordance with United States generally accepted accounting
principles.
(1) "Monthly Rate of Return" is calculated by dividing Net Performance by
Beginning Net Assets plus Additions (as such terms are defined below).
Monthly Rate of Return does not take into account Withdrawals (as such term
is defined below). Because Withdrawals occur only at month-end, their
effect on the calculation of Monthly Rate of Return is not material.
"Additions" represents all additional capital contributed during a month.
"Beginning Net Assets" represents the sum of cash and cash equivalents and
the equity in the Partnership accounts, less accrued and paid expenses as
of the beginning of a month.
"Net Performance" represents the change in Net Assets, net of Additions and
Withdrawals.
"Net Assets" means the market value of the Partnership's assets less any
accrued liabilities.
"Withdrawals" represents all withdrawals of capital during a month.
(2) "Annual (Period) Rate of Return" is calculated by determining the rate of
return for each month during the relevant period and compounding such
returns by subsequent monthly rates of return achieved during such period.
(3) Figure for this period in 2002 is estimated.
(4) As of May 1, 2002.
(5) "Largest Monthly Percentage Drawdown" represents the greatest percentage
decline in month-end Net Assets due to losses sustained during any
one-month period shown in the table.
(6) "Worst Peak to Valley Percentage Drawdown" represents the greatest
cumulative percentage decline in month-end Net Assets due to losses
sustained during any period shown in the table in which Net Assets at any
prior month-end are not equaled or exceeded by subsequent Net Assets.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
20
REPORTING TO POOL PARTICIPANTS
The General Partner is required by the CFTC and the NFA to provide each
Limited Partner with monthly statements of account and certified annual reports
of the Partnership's financial condition. Monthly reports include performance,
financial, and other required information.
In addition, the General Partner will mail a notice to each Limited Partner
within seven business days if any of the following occurs:
. the Net Asset Value of a Unit decreases to or below 50% of the value at
the previous year-end,
. there is any change in the general partner,
. there is any change in the Partnership's fiscal year, or
. the Limited Partnership Agreement is amended.
The General Partner is required to provide each Limited Partner with
certified annual reports of financial condition for the Partnership that
contain audited financial statements that are prepared in accordance with
United States generally accepted accounting principles and that are certified
by an independent public accountant (including a statement of income and a
statement of financial condition). This annual information must be provided no
later than 90 days after the close of each fiscal year. The General Partner
also endeavors to provide tax information that is necessary to prepare a
Limited Partner's return within 90 days after the close of each fiscal year.
THE TRADING ADVISOR
Trading Advisor and Principals
Tudor Investment Corporation ("TIC" or the "Trading Advisor") is the trading
advisor to the Partnership, and makes all trading decisions for the
Partnership. TIC's principal office is located at 1275 King Street, Greenwich,
Connecticut 06831. TIC was incorporated in November 1980 to be a commodity
floor broker. TIC also began providing commodities trading advice and began
managing commodities accounts in July 1984. TIC has been continuously
registered with the CFTC as a CPO and CTA since April 17, 1984, and has been a
member of the NFA since May 24, 1984. In October 1993, TIC began to provide
advisory and management services to investors that primarily trade equity
securities.
TIC and its United Kingdom affiliate, Tudor Capital (U.K.), L.P., act as
general partner and/or trading advisor or sub-advisor to other United States
and non-United States investment funds that invest in global (including
emerging market) fixed income and equity securities, currencies, commodities,
and derivatives. Tudor Capital (U.K.), L.P. is registered with the United
Kingdom Securities and Futures Authority and is also registered with the CFTC
as a CPO and CTA and is a member of the NFA in such capacities.
Bellwether Partners Inc. ("BPI") was formed in July 1986 to be a commodity
floor broker. BPI expanded its operations in June 1988 to include currency
trading operations, and then transferred its floor brokerage operations to
Bellwether Futures Corporation ("BFC"), a Delaware corporation and an affiliate
of TIC. BFC terminated substantially all of its floor brokerage operations in
January 1992. Both BPI and BFC were registered as FCMs while engaged in floor
brokerage activities.
The currency trading operations of BPI are currently conducted by Bellwether
Partners LLC ("BPL"). BPL is the Partnership's counterparty in the purchase and
sale of currency spot and forward contracts.
The Trading Advisor does not currently own any Units, although it is
permitted to do so. Any purchases made by it would be for investment purposes.
Principals and employees of the Trading Advisor have
21
previously purchased Units, and it is expected that they will continue to do
so. There is no limitation on the number of Units that may be purchased by the
Trading Advisor, its affiliates, and their principals and employees.
The principals of the Trading Advisor are:
Paul Tudor Jones,II Chairman and Chief Executive Officer
Mark F. Dalton President
John G. Macfarlane, III Managing Director and Chief Operating Officer
James J. Pallotta Managing Director and Director-Equities Group
Andrew S. Paul Managing Director, Secretary and General Counsel
John R. Torell Managing Director and Chief Financial Officer
MarkV.Houghton-Berry Managing Director of Tudor's UK affiliates
Roberrt P. Forlenza Managing Director
Richard L. Fisher Senior Vice President of Dunavant Enterprises, Inc.
Mr. Jones is currently the only principal of the Trading Advisor who makes
trading decisions for the Partnership. Each of the principals is a Director of
the Trading Advisor and, with the exception of Mr. Fisher, is employed by the
Trading Advisor and/or its affiliates. Messrs. Jones, Dalton, Macfarlane, Paul,
Torell and Houghton-Berry are also principals of Tudor Capital (U.K.), L.P.
Tudor Delaware Trust, a business trust that directly owns the Trading Advisor,
is also a principal of the Trading Advisor.
Business Backgrounds
Paul Tudor Jones, II. The Trading Advisor is and has been controlled
continuously by Mr. Jones. A staff of directors, officers, employees, and
employee traders assists Mr. Jones in the Trading Advisor's and its affiliates'
business activities.
Mr. Jones, age 47, is the Chairman and Chief Executive Officer and the
indirect controlling principal of the Trading Advisor, which is a trading
advisor and pool operator for several commodity pools and investment funds. Mr.
Jones has traded commodity interests for his proprietary accounts since
September 1977 and for customer accounts since January 1981. Mr. Jones is a
member of the Commodity Exchange, Inc., the New York Board of Trade, Inc., the
Chicago Board of Trade, and the Chicago Mercantile Exchange. In addition,
Mr. Jones is a member of the Board of Directors of the Cantor Fitzgerald
Futures Exchange. Mr. Jones served as Chairman of the New York Cotton Exchange
(which is now a division of the New York Board of Trade) from August 1992
through June 1995. Mr. Jones is the Founder and a Director of The Robin Hood
Foundation, a charitable foundation, and is a Director of the National Fish and
Wildlife Foundation and the Everglades Foundation Inc.
Mark F. Dalton. Mr. Dalton, age 51, has been the President of the Trading
Advisor since September 1988. Mr. Dalton is also a Director of Progenics
Pharmaceuticals, Inc., Cathay Investment Fund Limited and certain
not-for-profit educational and charitable organizations. Mr. Dalton does not
participate in the trading of commodity interest contracts for customer
accounts of the Trading Advisor or its affiliates.
John G. Macfarlane, III. Mr. Macfarlane, age 47, is the Chief Operating
Officer and a Managing Director of the Trading Advisor. Prior to joining the
Trading Advisor in January 1998, Mr. Macfarlane was employed by Salomon
Brothers and its affiliates where he served in various senior positions,
including Managing Director and head of United States and Asian Fixed Income
Derivatives and Treasurer. Mr. Macfarlane is a Director of the Futures Industry
Association. Mr. Macfarlane does not participate in the trading of customer
accounts of the Trading Advisor or its affiliates.
James J. Pallotta. Mr. Pallotta, age 44, is a Managing Director of the
Trading Advisor and has been the Director-U.S. Equities Group of the Trading
Advisor since November 1996. Mr. Pallotta was previously a principal portfolio
manager at Essex Investment Management, Inc. ("Essex"). He joined Essex in 1983
as a Vice President, became a Senior Vice President and the Director of
Research in 1989, and commenced actively
22
directing the management of client funds in January 1989. He became a member of
the Board of Directors of Essex in 1990. Mr. Pallotta joined the Trading
Advisor in August 1993.
Andrew S. Paul. Mr. Paul, age 49, is a Managing Director, the General
Counsel and the Secretary of the Trading Advisor. Mr. Paul joined the Trading
Advisor in July 1989. Mr. Paul does not participate in the trading of customer
accounts for the Trading Advisor or its affiliates.
John R. Torell. Mr. Torell, age 39, is a Managing Director and the Chief
Financial Officer of the Trading Advisor. Mr. Torell does not participate in
the trading of customer accounts for the Trading Advisor or its affiliates.
Mark V. Houghton-Berry. Mr. Houghton-Berry, age 43, is a Managing Director
of the affiliates of the Trading Advisor that maintain offices in Surrey,
England. Prior to joining Tudor in July 1995, Mr. Houghton-Berry was an
Executive Director and Head of Proprietary Trading in London with Goldman Sachs
International.
Robert P. Forlenza. Mr. Forlenza, age 46, is a Managing Director of the
Trading Advisor. Mr. Forlenza joined the Trading Advisor in January 1995. From
1989 until January 1995, Mr. Forlenza was a Vice President of Carlisle Capital
Corporation, a private leveraged buyout firm. Mr. Forlenza is also a director
of PRT Group Inc. and various private companies in the United States. Mr.
Forlenza does not participate in the trading of commodity interest contracts
for customer accounts of the Trading Advisor or its affiliates.
Richard L. Fisher. Mr. Fisher, age 48, is an outside Director of the
Trading Advisor. Since September 1983, Mr. Fisher has been a Senior Vice
President of Dunavant Enterprises, Inc. Mr. Fisher has been a Director of the
Trading Advisor since June 1991. Mr. Fisher does not participate in the trading
or day-to-day management of the Trading Advisor or its affiliates.
Proprietary Trading
The General Partner, the Trading Advisor, Mr. Jones, and certain of their
affiliates, principals, and employees trade commodity interest contracts for
proprietary accounts. In his proprietary trading, Mr. Jones generally has
followed the same basic trading methods and strategies since 1976. Mr. Jones
generally trades proprietary accounts in parallel with customer accounts.
However, Mr. Jones generally assumes more risk when trading proprietary
accounts than he normally assumes when trading customer accounts.
Material Actions
There has been no material administrative, civil, or criminal action against
the Trading Advisor, its affiliated entities (including the General Partner or
BPL), or their principals within the last five years, except for the following:
On October 31, 2000, a private civil lawsuit was filed in the United States
District Court for the District of Delaware against Art Technology Group, Inc.,
("ATG"), the Trading Advisor, and certain investment funds and other entities
managed by or affiliated with the Trading Advisor. The Partnership was not
named as defendant. The lawsuit alleged that certain of the defendants realized
substantial profits in transactions of equity securities of ATG that are
subject to short-swing profit recovery under Section 16(b) of the United States
Securities Exchange Act of 1934 as amended. The Trading Advisor strongly
disputed such allegations. However, on April 18, 2002, the court approved a
settlement agreement pursuant to which the defendants agreed to pay ATG $1.45
million.
23
THE MANAGEMENT AGREEMENT
The Trading Advisor has entered into a Management Agreement with the
Partnership. The Management Agreement gives the Trading Advisor sole
responsibility (except in certain limited situations) for managing the
Partnership's investment in commodity interest contracts.
Term
The Management Agreement renews automatically each year, but may be
terminated by either party upon 24 hours prior written notice to the other
party. In addition, the Management Agreement will terminate immediately if:
. the Partnership terminates or is dissolved,
. the Trading Advisor transfers or consolidates its business with another
entity,
. the Trading Advisor becomes bankrupt or insolvent,
. the Trading Advisor is unable to use its trading systems or methods for
whatever reason,
. the registration of the Trading Advisor with the CFTC as a CTA or its
membership in the NFA expires or is revoked, suspended, terminated, or
not renewed, or limited or qualified in any respect,
. the General Partner decides that a change proposed by the Trading
Advisor in the Partnership's trading is unacceptable to the General
Partner,
. the Trading Advisor materially violates any of the trading policies or
any administrative policy of the Partnership,
. the Partnership or Trading Advisor fails to perform any material
obligations under the Management Agreement,
. Paul Tudor Jones, II ceases to be the majority stockholder of the
Trading Advisor or dies or becomes disabled or incapacitated, or
. the General Partner's registration with the CFTC as a CPO or its
membership in the NFA expires or is revoked, suspended, terminated, or
not renewed, or limited or qualified in any respect.
Liability and Indemnification
The Trading Advisor and the Partnership have generally agreed to indemnify
each other against most liabilities, except that the Trading Advisor will not
be indemnified for costs and expenses that result from its willful misconduct
or gross negligence, unless it in good faith reasonably believed that it was
acting in the best interest of the Partnership.
BROKERAGE ARRANGEMENTS
Description of the Clearing Brokers
The Trading Advisor uses clearing brokers to execute and clear commodity
interest contract orders for the Partnership. The Partnership has opened
separate trading accounts with several clearing brokers and pays a fee to each
clearing broker to execute and clear trades for the Partnership's account and
to perform related administrative functions. The clearing brokers are obligated
to follow the Trading Advisor's investment instructions and have no discretion
to invest the Partnership's assets on their own. See "Investment Program and
Use of Proceeds--Description of Orders and Order Placement."
The Partnership and each clearing broker have entered into an agreement that
governs the Partnership's trading accounts. Each agreement may be terminated by
either party at any time. If an agreement is terminated, the General Partner
may have to obtain a new clearing broker to replace the terminated broker. The
General Partner will do its best to obtain a favorable fee structure with any
new clearing brokers. However, there is no assurance that the fees and terms of
a new agreement will be similar to those of current agreements.
The clearing brokers and their principals are not affiliated with the
General Partner, the Trading Advisor, BPL, or any of their principals,
affiliates, officers, or directors. The clearing brokers are not permitted to
purchase or hold Units.
24
The following table shows the clearing brokers with which the Partnership
currently holds trading accounts.
Regulatory Organization
Clearing Broker Main Business Office Memberships and Registrations
- -------------------------------------------------------------------------------------------------------
Barclays Capital Inc. 222 Broadway . Registered with CFTC as an FCM.
New York, NY 10038 . Member of NFA as an FCM.
Tel.: 212-412-6915 . Registered with SEC as a broker-dealer.
. Member of NASD as a broker-dealer.
- -------------------------------------------------------------------------------------------------------
Cargill Investor Services, Inc. Sears Tower . Registered with CFTC as an FCM.
. Subsidiary of Cargill, 233 South Wacker Drive . Member of NFA as an FCM.
Incorporated Suite 2300
. An affiliate of the Selling Chicago, Illinois 60606
Agent for the Partnership and Tel.: 312-460-4000
other partnerships sponsored
by the Trading Advisor.
- -------------------------------------------------------------------------------------------------------
Goldman, Sachs & Co. 85 Broad Street . Registered with CFTC as an FCM.
New York, New York . Member of NFA as an FCM.
10004 . Registered with SEC as a broker-dealer.
Tel.: 212-902-1000 . Member of NASD as a broker-dealer.
- -------------------------------------------------------------------------------------------------------
J.P. Morgan Futures, Inc. 60 Wall Street . Registered with CFTC as an FCM.
New York, New York . Member of NFA as an FCM.
10260
Tel.: 212-648-6560
- -------------------------------------------------------------------------------------------------------
Lehman Brothers Inc. Three World Financial . Registered with CFTC as an FCM.
. Subsidiary of Lehman Center . Member of NFA as an FCM.
Brothers Holdings Inc. New York, New York . Registered with SEC as a broker-dealer.
10285 . Member of NASD as a broker-dealer.
Tel.: 212-526-7000
- -------------------------------------------------------------------------------------------------------
Merrill Lynch Futures Inc. 250 Vesey Street . Registered with CFTC as an FCM.
23rd Floor . Member of NFA as an FCM.
New York, New York
Tel.: 212-449-1000
- -------------------------------------------------------------------------------------------------------
Morgan Stanley & Co. 1585 Broadway . Registered with CFTC as an FCM.
Incorporated New York, New York . Member of NFA as an FCM.
. Subsidiary of Morgan 10036 . Registered with SEC as a broker-dealer.
Stanley Dean Witter & Co. Tel.: 212-761-4000 . Member of NASD as a broker-dealer.
- -------------------------------------------------------------------------------------------------------
Morgan Stanley & Co. 25 Cabot Square . Member of United Kingdom Securities
International Limited Canary Wharf and Futures Authority Limited.
. Subsidiary of Morgan London E14 4QA
Stanley UK Group, which England
is a subsidiary of Morgan Tel.: 44-171-425-8000
Stanley Dean Witter & Co.
- -------------------------------------------------------------------------------------------------------
Prudential Securities One Seaport Plaza . Registered with CFTC as an FCM.
Incorporated New York, New York . Member of NFA as an FCM.
10292 . Registered with SEC as a broker-dealer.
Tel.: 212-214-1000 . Member of NASD as a broker-dealer.
- -------------------------------------------------------------------------------------------------------
Salomon Smith Barney Inc. 388 Greenwich Street . Registered with CFTC as an FCM.
New York, New York . Member of NFA as an FCM.
10013 . Registered with SEC as a broker-dealer.
Tel.: 212-816-6000 . Member of NASD as a broker-dealer.
25
Recent Material Actions Against Clearing Brokers
In the ordinary course of their businesses, some of the clearing brokers are
involved in various administrative and legal actions, some of which seek
significant damages and others that the clearing brokers believe will not have
an adverse effect on them.
The material administrative and legal actions of each clearing broker,
whether pending or concluded, during the five years preceding the date of this
Prospectus are listed in the table below with short descriptions of such
actions.
In addition to the specific actions listed in the table, certain of the
clearing brokers used by the Partnership are involved in the following actions:
Department of Justice ("DOJ") Market-Makers Antitrust Litigation
. The DOJ filed a civil complaint in the U.S. District Court for the
Southern District of New York ("DC/SDNY") against 24 broker-dealers that
quote prices in NASDAQ securities.
. The suit alleged that the defendants violated Section 1 of the Sherman
Act in connection with certain price setting practices unrelated to FCM
activity, and requested that the court force the defendants to stop the
illegal conduct.
. On July 16, 1996, the brokers settled the case by agreeing to stop the
illegal conduct and assuring future compliance with the settlement
agreement. In the settlement agreement, the brokers did not admit or
deny any of the allegations against them. The agreement was approved by
the DC/SDNY on April 23, 1997. The decision of the District Court was
affirmed by the United States Court of Appeals for the Second Circuit on
August 6, 1998.
Class Action Market-Makers Antitrust Litigation
. Beginning in May 1994, 30 broker-dealers that quote prices in NASDAQ
securities were named as defendants in several class action suits filed
in various state and federal courts. In 1998, these suits were
consolidated into a single class action before the DC/SDNY.
. The suits alleged that the defendants wrongfully agreed to set prices
for about 1,600 securities during various periods of time. The suits
alleged violations of the federal antitrust laws, and asked the court to
force the defendants to stop the illegal conduct and to grant damages.
. All of the defendants have entered into settlements with the
representatives of the classes. These settlements were approved by the
court in November 1998, and the settlement funds have been distributed.
SEC Market-Makers Investigation
. In 1994, the SEC began an investigation of major broker-dealers into
charges that the broker-dealers failed to provide the best prices for
customer orders, intentionally delayed trading reports, failed to honor
NASDAQ prices, and failed to adequately supervise traders.
. In January 1999, the broker-dealers settled the case with the SEC by
agreeing to aggregate fines of more than $26 million and the suspension
of a total of 51 traders. As part of the settlement, the broker-dealers
also agreed to have an independent consultant monitor the
broker-dealers' compliance with trading rules. In the settlement
agreement, the broker-dealers did not admit or deny any wrongdoing.
Municipal Bond Advance Refunding Investigation
. Beginning in January 1998, the SEC commenced actions against several
brokers alleging "yield burning" in municipal bond offerings. Yield
burning occurs when bonds are excessively marked up by a broker in
municipal bond advance refundings.
26
. In April 2000, ten brokers settled with the SEC and agreed to pay a
total of $124 million to settle the SEC's claims and certain tax-related
claims of the IRS. The brokers paid an additional $15 million to the
affected municipalities.
Municipal Bond Advance Refunding Litigation
. A civil class action was filed in November 1998 in the U.S. District
Court for the Middle District of Florida alleging that, pursuant to a
nationwide conspiracy, 17 brokers charged excessive mark-ups in
connection with advance refunding transactions. In October 1999, the
defendants moved to dismiss the complaint. The 17 defendants have
entered into a court-approved settlement agreement.
Class Action Underwriting Fee Litigation
. In March 1999, a civil class action was filed in the DC/SDNY against
several broker-dealers alleging that such broker-dealers conspired to
violate the federal antitrust laws by charging artificially high fees,
or gross spreads, of 7% in connection with the underwriting of initial
public offerings of securities ("IPOs") by United States companies,
involving IPOs of $20-$80 million. The claims allege that the fees
charged by the broker-dealers were fixed and maintained at
"supercompetitive" and "artificially inflated levels," because the
defendants jointly conspired and refused to compete on price in that IPO
market. The plaintiffs seek treble damages and injunctive relief.
Several additional lawsuits making the same allegations have been filed.
IPO Allocation Matters
. In March 2001, a purported class action complaint was filed in the SDNY
against seven underwriters of various IPOs, alleging that the defendants
conspired to increase underwriters' compensation and the prices at which
securities traded after the IPOs in violation of the federal antitrust
laws. The complaint also alleges that the defendants required customers
who wanted large allocations of IPO securities to pay undisclosed and
excessive underwriters' compensation in the form of increased brokerage
commissions, required customers to agree to buy shares of securities in
the aftermarket at prices higher than the IPO price, and required that
these purchases be made at escalating price levels designed to inflate
the price of the securities in the secondary market. In 2001, several
other purported class action complaints making similar claims and
alleging violations of federal and/or state antitrust laws were filed
against the defendants and numerous other underwriters in the SDNY.
These complaints have been consolidated before one judge in the SDNY.
. In addition, in 2001 numerous purported class actions were filed in the
SDNY against certain issuers of IPO securities, certain officers of
those issuers, and certain underwriters of those IPOs, purportedly on
behalf of purchasers of stock in the IPOs or the aftermarket. Many of
these complaints allege: (i) violation of Sections 11 and 12(a)(2) of
the Securities Act; (ii) violation of Section 10(b) of the Securities
Exchange Act of 1934 as amended; (iii) that continuous "buy"
recommendations by the defendants' research analysts improperly
increased or sustained the prices at which the securities traded in the
aftermarket. These various class action complaints have been coordinated
for pre-trial purposes before one judge in the SDNY (different from the
judge handling the antitrust complaints) about whom a motion for recusal
has been denied. A writ of mandamus before the U.S. Court of Appeals for
the Second Circuit is pending.
27
The clearing brokers that were named as defendants in the foregoing actions are
identified in the following table.
Clearing Broker Description
- --------------------------------------------------------------------------------------------------------------
Goldman, Sachs & Co. . Goldman Sachs & Co. is a defendant in a class-action lawsuit, filed in
September 2000 in the DC/SDNY, alleging that prospectuses issued in
connection with debentures offered during 1997 to 1999 by Laidlaw, Inc.
were false and misleading. Goldman Sachs & Co. was the lead manager
in the offerings.
. Certain affiliates of The Goldman Sachs Group, Inc. were named as
defendants in a class-action antitrust lawsuit, filed in October 1999 in the
DC/SDNY, alleging a conspiracy to preclude the multiple listing of
certain equity options on exchanges. Some of the defendants, including
an affiliate of The Goldman Sachs Group, Inc., have entered into a
settlement agreement that will require the affiliate to pay approximately
$2.5 million.
. The Goldman Sachs Group, Inc. is a defendant in class-action lawsuits
filed in the DC/SDNY and the U.S. District Court for the District of New
Jersey, alleging a conspiracy to "tie" allocations in public offerings to
higher commission rates and purchase orders in the aftermarket, and
failure to disclose such arrangements in its prospectuses. Goldman Sachs
is cooperating with governmental investigations of the allegations.
. Goldman was a defendant in the DOJ Market-Makers Antitrust
Litigation.
. Goldman was a defendant in the Class Action Market-Makers Antitrust
Litigation.
. Goldman was a defendant in the Municipal Bond Advance Refunding
Investigation.
. Goldman is a defendant in the Municipal Bond Advance Refunding
Litigation.
. Goldman was a defendant in the SEC Market Makers Investigation.
. Goldman is a defendant in the Class Action Underwriting Fee Litigation.
. Goldman is a defendant in the IPO Allocation matters.
- --------------------------------------------------------------------------------------------------------------
Lehman Brothers Inc. . Lehman was a defendant in the DOJ Market-Makers Antitrust Litigation.
. Lehman was a defendant in the Class Action Market-Makers Antitrust
Litigation.
. Lehman was a defendant in the SEC Market-Makers Investigation.
. Lehman was a defendant in the Municipal Bond Advance Refunding
Investigation.
. Lehman is a defendant in the Municipal Bond Advance Refunding
Litigation.
. Lehman is a defendant in the IPO Allocation Matters.
- --------------------------------------------------------------------------------------------------------------
Merrill Lynch Futures, Inc. . On June 24, 1997, Merrill Lynch paid a civil penalty of $175,000 and
agreed to a cease and desist order in connection with allegations by the
CFTC relating to wash sales and record keeping requirement violations.
Merrill Lynch neither admitted nor denied the allegations.
. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPFS"), an
affiliate of Merrill Lynch, is a defendant in the Class Action
Underwriting Fee Litigation.
28
Clearing Broker Description
- -------------------------------------------------------------------------------------------------------
. MLPFS was a defendant in the Municipal Bond Advance Refunding
Litigation.
. MLPFS is a defendant in the IPO Allocation Matters.
- -------------------------------------------------------------------------------------------------------
Morgan Stanley & Co. . Morgan Stanley was a defendant in the Municipal Bond Advance
Incorporated Refunding Investigation.
. Morgan Stanley is a defendant in the Municipal Bond Advance
Refunding Litigation.
. On October 25, 1996, the Market Surveillance Committee of the NASD
filed a formal complaint against Morgan Stanley that alleged violations of
certain NASD rules relating to manipulative and deceptive practices,
locked and crossed markets, and failure to supervise. In April 1998, the
Committee ruled that Morgan Stanley had engaged in manipulative and
deceptive practices and had locked and crossed markets, but not that
Morgan Stanley had failed to supervise traders. Upon appeal, in January
2000 the National Adjudicatory Counsel upheld the Committee's decision,
but reduced to $495,000 the fine imposed upon Morgan Stanley by the
Committee.
. Morgan Stanley was a defendant in the DOJ Market-Makers Antitrust
Litigation.
. Morgan Stanley was a defendant in the Class Action Market-Makers
Antitrust Litigation.
. Morgan Stanley was a defendant in the SEC Market-Makers
Investigation.
. Morgan Stanley is a defendant in the Class Action Underwriting Fee
Litigation.
. MLPFS is a defendant in the IPO Allocation Matters.
- -------------------------------------------------------------------------------------------------------
Prudential Securities . In December 1996, Prudential entered into a settlement agreement with
Incorporated the Department of Labor ("DOL") in connection with DOL allegations
that Prudential, while acting in a fiduciary capacity for the Metacor, Inc.
Profit Sharing and Retirement Savings Plan, knowingly facilitated
transfers of funds from the plan to a Metacor corporate bank account in
violation of the Employee Retirement Income Security Act of 1974 as
amended ("ERISA"). In accordance with the settlement agreement,
Prudential was assessed and paid a civil penalty in the amount of
$61,250. Prudential neither admitted nor denied the DOL's allegations.
. Prudential was a defendant in the Municipal Bond Advance Refunding
Investigation.
. Prudential is a defendant in the Municipal Bond Advance Refunding
Litigation.
. On May 20, 1997, the CFTC filed a complaint against Prudential, a
former Prudential advisor, and two of his sales assistants that alleged
that:
. the former advisor fraudulently allocated trades among his personal
account and certain customer accounts,
. failure to supervise,
29
Clearing Broker Description
- ----------------------------------------------------------------------------------------------------------
. lack of adequate policies and procedures, and
. record keeping violations.
Prudential has denied the allegations.
. Prudential was a defendant in the DOJ Market-Makers Antitrust
Litigation.
. Prudential was a defendant in the Class Action Market-Makers Antitrust
Litigation.
. Prudential was a defendant in the SEC Market-Makers Investigation.
. Prudential is a defendant in the Class Action Underwriting Fee
Litigation.
. Prudential is a defendant in the IPO Allocation Matters.
. In December 1998, the SEC alleged that Prudential failed to supervise
adequately one of its representatives in violation of the Securities Act,
and in January 2001 imposed sanctions and filed a cease-and-desist order
against Prudential. Without admitting or denying the findings, Prudential
consented to a censure and the payment of a fine of $800,000.
- ----------------------------------------------------------------------------------------------------------
Salomon Smith Barney Inc. . In September 1992, Ameritech Corporation, its pension-plan trustee, and
an officer filed a complaint against Salomon Brothers Inc and an affiliate
in the U.S. District Court for the Northern District of Illinois, alleging
that the defendants sold approximately $20.9 million of participations in
a portfolio of motels in violation of ERISA, the Racketeer Influenced and
Corruption Act, and state law. Following dismissal by several courts, in
June 2000 the U.S. Supreme Court remanded one remaining ERISA
claim back to the trial court. Both the Department of Labor and the
Internal Revenue Service are also reviewing the transactions.
. In December 1996, Orange County, California filed in the U.S.
Bankruptcy Court for the Central District of California a complaint
against numerous brokerage firms, including Salomon Smith Barney,
seeking unspecified monetary damages and alleging, among other things,
that the defendants recommended and sold to the plaintiff unsuitable
securities. In May 1999, the parties settled the matter.
. In March 1999, a complaint seeking in excess of $250 million was filed
by a hedge fund and its investment advisor against Salomon Smith
Barney in the Supreme Court of the State of New York, County of New
York. The complaint included allegations that, while acting as prime
broker for the hedge fund, Salomon Smith Barney breached its contracts
with plaintiffs, misused their monies, and engaged in tortious (wrongful)
conduct, including breaching its fiduciary duties. Salomon Smith Barney
asked the court to dismiss the complaint in full. In October 1999, the
court dismissed the tort claims, including the breach of fiduciary duty
claims. The court allowed the breach of contract and misuse of money
claims to stand. Salomon Smith Barney continues to contest this lawsuit.
. Salomon Smith Barney was a defendant in the Municipal Bond Advance
Refunding Investigation.
. Salomon Smith Barney is a defendant in the Municipal Bond Advance
Refunding Litigation.
30
Clearing Broker Description
- ---------------------------------------------------------------------------------------------
. In June 1998, complaints were filed in the United States District Court
for the Eastern District of Louisiana in two actions in which the City of
New Orleans sought a determination that Smith Barney Inc. and another
underwriter were responsible for any damages that the City may incur in
the event the IRS denies tax-exempt status to the City's General
Obligation Refunding Bonds Series 1991. The complaints were
subsequently amended. Salomon Smith Barney has asked the court to
dismiss the amended complaints. The Court denied the motion but stayed
the case. Subsequently, the City withdrew its lawsuit.
. Salomon Smith Barney was a defendant in the DOJ Market-Makers
Antitrust Litigation.
. Salomon Smith Barney was a defendant in the Class Action Market-
Makers Antitrust Litigation.
. Salomon Smith Barney was a defendant in the SEC Market-Makers
Investigation.
. Salomon Smith Barney is a defendant in the Class Action Underwriting
Fee Litigation.
. Salomon Smith Barney is a defendant in the IPO Allocation Matters.
Description of Foreign Exchange Agreement with BPL
Bellwether Partners LLC ("BPL") is the Partnership's counterparty when it
deals in currency spot and forward contracts. BPL is an affiliate of the
General Partner and the Trading Advisor. BPL's offices are located at 1275 King
Street, Greenwich, Connecticut 06831. Paul Tudor Jones, II is the Chairman and
Chief Executive Officer of BPL. The other principal officers of BPL are
generally the same as the principal officers of the General Partner. BPL does
not charge the Partnership any commissions or other fees for its services.
Under the Partnership's Foreign Exchange Agreement with BPL:
. BPL purchases and sells spot and forward contracts for currencies and
other commodity interests on behalf of the Partnership.
. BPL takes physical delivery of some currencies at prices mutually agreed
upon by BPL and the Partnership.
. The Partnership enters into a corresponding transaction with BPL for
every transaction that BPL enters into with a third party on behalf of
the Partnership.
BPL requires the Partnership to deposit and maintain collateral to engage in
this type of trading. Normally, the Partnership deposits up to 10% of the
Partnership's Net Assets as collateral. BPL has a security interest in this
collateral and may use it for any business purpose. BPL pays interest monthly
to the Partnership on any cash collateral at then-prevailing weekly 90-day
United States Treasury bill auction rate. The Partnership is credited with any
interest earned on interest-bearing collateral deposited with BPL.
Certain employees of an affiliate of the Trading Advisor located in the
United Kingdom are permitted to deal directly with BPL's counterparties to
arrange spot and forward contract transactions between BPL and such
counterparties, and between BPL and its customers.
31
During the preceding five years, neither BPL nor any of its principals, in
connection with BPL employment, has been subject to any administrative, civil,
or criminal action, whether pending or concluded, which had or would be
expected to have a material adverse effect on its business. See "The Trading
Advisor--Material Actions."
BPL does not currently own any Units, although it is permitted to do so. Any
purchases made by it would be for investment purposes. Principals, employees,
and affiliates of BPL have previously purchased Units, and it is expected that
they will continue to do so.
THE COMMODITIES MARKETS
Futures Contracts
Commodity futures contracts are standardized contracts that are traded on
commodity exchanges. A futures contract calls for the future delivery of a
specified quantity of a particular commodity at a specified time and place. The
size and term of futures contracts on a particular commodity are identical and
are not negotiated by the buyer and seller. Futures markets generally are more
liquid than the forward contract and interbank markets, because futures
contracts are standardized and largely interchangeable.
Futures contracts are traded on various commodities, including agricultural
and tropical commodities, industrial commodities, currencies, financial
instruments, securities and commodities indices and metals.
A futures contract may be satisfied either by taking (for a buyer) or making
(for a seller) physical delivery of a particular commodity or by making an
offsetting sale or purchase of an equivalent but opposite futures contract on
the same exchange prior to the designated delivery date of the commodity. For
example, if a trader sells a December 2003 gold contract, the trader can fulfil
its obligation by buying a December 2003 gold contract on the same exchange at
any time before delivery is required. The difference between the price at which
the first gold contract was sold and the price paid for the offsetting purchase
(after brokerage commissions) is the trader's profit or loss. However, certain
futures contracts, such as a futures contract linked to a stock or other
financial or economic index, are settled in cash (irrespective of whether any
attempt is made to offset such contracts).
In market terminology, a trader who purchases a futures contract is "long"
in the market, and a trader who sells a futures contract is "short" in the
market. Before a trader closes out his long or short position by an offsetting
sale or purchase, his outstanding contracts are known as "open trades" or "open
positions." The aggregate amount of open positions held by all traders in a
particular contract is referred to as the "open interest" in such contract.
Spot and Forward Contracts
Contracts for future delivery of certain commodities, such as currencies,
may also be made off the established exchanges in the "spot market" for
immediate delivery or in the "forward market" for future delivery. In spot and
forward contract trading, a bank or dealer generally acts as principal in the
transaction and includes its anticipated profit (i.e., the "spread" between the
"bid" and the "asked" prices) and in some instances a "mark-up" in the prices
it quotes for contracts.
Unlike futures contracts, spot and forward contracts are not standardized
contracts. Spot and forward contracts for a given commodity generally are
available in any size (and, in the case of forward contracts, maturity) and are
individually negotiated by the parties.
Spot and forward contracts on currencies are traded primarily in the
interbank market. The interbank market is an informal network of global
participants, primarily major commercial banks, investment banks, brokers and
dealers, institutional investors, and sophisticated individuals. Virtually all
major currencies are traded in the interbank market.
32
The interbank market is a 24-hour worldwide market. Trading is generally
conducted by telephone, with orders confirmed later in writing. The interbank
market is highly liquid, and the volume and size of trades of currencies are
much greater than on commodity exchanges.
Neither the interbank market nor participation therein is regulated by the
United States Government or by any international agency. See "Principal Risk
Factors--Trading of Spot and Forward Contracts."
Options
An option on a futures contract or on a physical commodity (a "commodity
option") gives the buyer of the option the right to take a position at a
specified price (i.e., the "striking," "strike," or "exercise" price) in the
underlying futures contract or commodity. The buyer of a "call" option acquires
the right to take a long position (i.e., the obligation to take delivery of a
specified amount of a specified commodity) in the underlying futures contract
or commodity, and the buyer of a "put" option acquires the right to take a
short position (i.e., the obligation to make delivery of a specified amount of
a specified commodity) in the underlying futures contract or commodity. The
purchase price of an option is referred to as its "premium."
The seller (or "writer") of an option is obligated to take a futures
position or physical commodity at a specified price opposite to the option
buyer if the option is exercised. Thus, the seller of a call option must stand
ready to take a short position in the underlying futures contract or commodity
at the strike price if the buyer exercises the option. The seller of a put
option, on the other hand, must stand ready to take a long position in the
underlying futures contract or commodity at the strike price if the buyer
exercises the option.
A call option is said to be "in-the-money" if the strike price is below the
current market price of the underlying futures contract or physical commodity,
and "out-of-the-money" if the strike price is above the current market price.
Similarly, a put option is said to be "in-the-money" if the strike price is
above the current market price of the underlying futures contract or commodity,
and "out-of-the-money" if the strike price is below the current market price.
Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract or commodity.
Participants
The two broad classes of persons who trade commodity interest contracts are
"hedgers" and "speculators." Hedging is used to protect against losses that may
occur because of price fluctuations. Hedging is usually done by commercial
interests (including farmers) and financial institutions. In contrast, a
speculator risks its capital with the hope of making profits from price
fluctuations in commodity interest contracts. The speculator is, in effect, the
risk bearer who assumes the risks that the hedger seeks to avoid. All trades
made by the Partnership are for speculative, rather than for hedging, purposes.
Exchanges
Commodity exchanges are centralized facilities for trading futures contracts
and options. Among the principal exchanges in the United States are the Chicago
Board of Trade, the Chicago Mercantile Exchange, the Commodity Exchange, Inc.,
and the New York Mercantile Exchange.
Each of the commodity exchanges in the United States has an associated
"clearinghouse." Once trades between members of an exchange have been
confirmed, the clearinghouse becomes substituted for each buyer or seller of a
contract. The clearinghouse becomes, in effect, the other party to each
trader's open position in the market. Thereafter, each party to a trade looks
only to the clearinghouse for performance. Clearinghouses require margin
deposits and continuously mark positions to market to provide some assurance
that their members will be able to fulfill their contractual obligations. The
exchanges also impose speculative position limits and other restrictions on
customer positions to help ensure that no single trader can amass a position
that would have a major impact on market prices.
33
In contrast to United States exchanges, many foreign exchanges are
"principals markets," where trades remain the liability of the individual
traders involved, and the exchange (or its clearinghouse) does not become
substituted for any party. Accordingly, the creditworthiness of a counterparty
is an important consideration.
Speculative Position Limits
"Speculative position limits" or "position limits" are the maximum net long
or net short speculative position which any trader (other than a hedger, which
the Partnership is not) may hold in certain futures or options contracts. These
limits are established by the CFTC or the exchanges, primarily to prevent a
"corner" on a market or undue influence on prices by any single trader or group
of traders.
Daily Price Fluctuation Limits
Most United States commodity exchanges limit the amount of price fluctuation
that is permissible during a single trading day for futures and option
contracts. These limits are referred to as "daily price fluctuation limits" or
"daily limits." The daily limits establish the maximum amount that the price of
a futures or option contract may vary either up or down from the previous day's
settlement price. Once the daily limit has been reached in a particular
commodity interest contract, no trades may be made at a price beyond the limit.
Margin
"Initial" or "original" margin is the minimum amount of funds that a trader
needs to deposit with its futures commission merchant ("FCM") to enter into a
futures contract or to maintain an open position in a contract. "Maintenance"
margin is the amount (usually a smaller amount than initial margin) to which a
trader's account may decline before he must deliver additional margin.
Margin requirements are calculated daily by an FCM. When the market value of
an open futures contract position declines to a point where the margin on
deposit does not satisfy maintenance margin requirements, a "variation" margin
call is made by the FCM. If the margin call is not met within the required
time, the FCM may close out the trader's position.
DISTRIBUTIONS
The General Partner determines the frequency and amount of distributions, if
any. Distributions are made pro rata based on the amount of each Partner's
capital account.
THE LIMITED PARTNERSHIP AGREEMENT
Following is a brief summary of the terms and provisions of the Limited
Partnership Agreement of the Partnership. A copy of the Limited Partnership
Agreement is attached as Exhibit A.
Nature of the Partnership
The Partnership was formed on November 22, 1989 as a limited partnership
under the Delaware Revised Uniform Limited Partnership Act.
The General Partner is liable for all of the Partnership's liabilities to
the extent that the assets of the Partnership (including amounts contributed by
Limited Partners or, in certain circumstances, paid out as distributions or
redemptions to Limited Partners) are insufficient to discharge such
obligations. A Limited Partner's liability is generally limited to his capital
contribution and his share of the Partnership's profits.
The General Partner may require any Limited Partner to withdraw all or any
portion of his capital contribution and profits from the Partnership at any
month-end on five business days' written notice.
34
Management of Partnership Affairs
The Limited Partners do not participate in the management or operations of
the Partnership. If a Limited Partner were to participate in the management of
the Partnership, he might jeopardize his limited liability.
The General Partner is solely responsible for the management of the
Partnership. However, the General Partner may delegate complete trading
authority, and has done so to the Trading Advisor.
Other responsibilities of the General Partner include:
. determining whether the Partnership will make distributions,
. redeeming Units,
. preparing monthly and annual reports to Limited Partners,
. preparing reports, filings, registrations, and other documents required
by regulatory authorities,
. depositing and maintaining the Partnership's assets in accounts at
banks, brokers, and dealers,
. borrowing money (in connection with depositing margin or utilizing lines
of credit for trading purposes),
. directing the investment of the Partnership's assets, and
. entering into agreements on behalf of the Partnership.
Sharing of Profits and Losses
Each Partner has a capital account. The initial balance of a capital account
is equal to the amount that the Partner paid for his Units. At the close of
business on the last day of each calendar month:
. the Partnership's Net Assets are determined,
. each capital account is allocated its proportionate share of the change
in Net Asset Value from the end of the prior month,
. each capital account (except for a 401(k) account) is charged its
proportionate share of accrued management fees and accrued incentive
fees, if any, and
. each capital account is reduced for distributions or redemptions, if any.
Each Limited Partner is required to include his pro rata share of the
Partnership's profits or losses in his personal federal income tax return.
Restrictions on Transfers or Assignments
For a description of the restrictions on the ability of a Limited Partner to
transfer his Units, see "Transfers and Redemptions."
Termination of the Partnership
The Partnership will liquidate upon the first to occur of the following:
. December 31, 2010,
. agreement of the Limited Partners owning more than 50% of the
outstanding Units to dissolve the Partnership,
. withdrawal, insolvency, termination, dissolution, or liquidation of the
General Partner,
. a decline in the Net Asset Value of a Unit to less than $500,
. a decline in the Partnership's aggregate Net Assets to less than
$125,000,
. a change in a law or regulation that would make it unlawful,
unreasonable, or imprudent for the Partnership to continue in business,
35
. agreement of the Partners to terminate the Partnership,
. the General Partner determines that the Partnership's assets in relation
to its operating expenses make it unreasonable or imprudent to continue
the Partnership, or the General Partner no longer desires to make the
Partnership available to, or operate the Partnership for, the persons
that are permitted to become Limited Partners, or
. the occurrence of any event requiring termination of the Partnership.
The General Partner may not withdraw from the Partnership unless it gives
the Limited Partners at least 90 days' prior written notice.
Amendments
The Limited Partnership Agreement may be amended with the approval of the
General Partner and Limited Partners owning more than 50% of the outstanding
Units. However, for administrative convenience, the General Partner is
authorized to amend the Limited Partnership Agreement without the consent of
the Limited Partners in certain limited circumstances.
Limited Partners owning more than 50% of the outstanding Units may take the
following actions without the consent of the General Partner:
. amend the Limited Partnership Agreement,
. dissolve the Partnership,
. remove the General Partner,
. elect a new general partner,
. terminate any contract with the General Partner or any of its
affiliates, or
. approve the sale of all or substantially all of the Partnership's assets.
Books and Records
The books and records of the Partnership are maintained at its principal
office. A Limited Partner may inspect and copy the books and records during
normal business hours, if he gives at least 24 hours' prior written notice to
the General Partner. Upon request, copies of such books and records will be
sent to any Limited Partner if he pays the costs of copying and delivering the
documents.
PLAN OF DISTRIBUTION
Units are offered and sold by the Partnership through CIS Securities, Inc.
(the "Selling Agent") on a best efforts basis. The Selling Agent is an
SEC-registered broker-dealer and an NASD member firm. The Selling Agent is not
affiliated with the General Partner, the Trading Advisor, BPL, or any of their
affiliates. The Selling Agent is an affiliate of Cargill Investor Services,
Inc., a clearing broker for the Partnership and other investment funds that are
sponsored and/or advised by the Trading Advisor and its affiliates. The Selling
Agent is not obligated to purchase any Units, but it is required to use its
best efforts to sell Units to investors.
Units may be purchased and owned only by
. employees of the General Partner or the Trading Advisor, or employees of
any present or future affiliate or successor of the General Partner or
the Trading Advisor,
. the General Partner, the Trading Advisor, or any present or future
affiliate or successor of the General Partner or the Trading Advisor, or
. the Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan.
36
Units and fractions of Units (to the fourth decimal place) are offered for
sale on the first day of each calendar quarter (January 1, April 1, July 1, and
October 1) at a price equal to 100% of the Net Asset Value thereof as of the
opening of business on that day. In addition, the General Partner has the
discretion to offer Units at other times.
The General Partner holds a subscriber's deposit for the purchase of Units
in a non-interest bearing escrow account at United States Trust Company of New
York until it either rejects or accepts the subscription.
Pursuant to a Selling Agreement among the Partnership, the General Partner
and Selling Agent, the General Partner (out of its own funds) will pay the
Selling Agent $10,000 annually for its selling efforts; provided however that
such compensation may not exceed 10% of the net proceeds of the offering of
Units.
SUBSCRIPTION PROCEDURE
The minimum subscription is $1,000. You may subscribe for fractions of Units
(to the fourth decimal place), as well as whole Units. Subscriptions in excess
of the minimum of $1,000 must be made in increments of $1,000.
To subscribe for Units, you must complete, date, and sign a Subscription
Agreement and other applicable documents (Exhibits B through E, as applicable),
and must deliver these documents to the Selling Agent, along with payment for
the Units.
Payment may be made by either:
(1) a check payable to "The Bank of New York, as Escrow Agent for Tudor
Fund for Employees L.P.," or
(2) a wire transfer of Federal Funds to the Partnership's escrow account
designated as " The Bank of New York, New York, New York, ABA No. 021000018,
Account No. GLA/111565, for Credit to Account No. 830633, Tudor Fund For
Employees L.P., Reference: [Subscriber's Name]."
A subscription may not be revoked. However, the General Partner may reject
any subscription in whole or in part.
Subscription payments must be received by the time shown in the following
table. If a subscription payment is not received within the prescribed time
period, the subscription will be held until the next quarterly subscription
date.
Days Prior to First Day
Type of Payment of a Calendar Quarter
---------------------------------------------------
Checks drawn on New York
City bank 2 business days
---------------------------------------------------
Checks drawn on
out-of-town bank 5 business days
---------------------------------------------------
Wire Transfer 1 business day
PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS
Participants in the TIC 401(k) Plan should read this document carefully
before investing any part of their account in Units. Participants should
consider the discussion under the heading "Description of Charges to the
Partnership" and should also consider:
. if the investment is prudent,
. the portfolio's diversification,
. the tax effects of the investment,
37
. the risks, conflicts of interest and charges related to the investment,
. that the number of benefit plan investors will not be significant, and
. that neither the Partnership, the General Partner, the Trading Advisor,
nor their affiliates will act as a fiduciary to benefit plan investors.
Hereinafter, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 as amended ("ERISA") are referred to as
"Plans."
The Partnership, the General Partner, the Trading Advisor, and their
affiliates do not represent that the Partnership is a suitable investment for a
Plan.
As discussed below, it is anticipated that the Partnership will not be
deemed to hold "plan assets" of Plans that own Units. If this were the case,
however, ERISA's prudence and other fiduciary standards would apply to, and
might materially affect, the Partnership's operations. Furthermore, any
transaction of the Partnership would be considered a transaction with each Plan
investor, and the General Partner and others having discretion to manage the
Partnership or its assets would become a fiduciary of each Plan. This would
subject the General Partner and the others to the conflict of interest and
other restrictions that apply to fiduciaries under ERISA and Section 4975 of
the Internal Revenue Code of 1986 as amended (the "Code"). Also, unless an
administrative exemption were available, the Partnership would not be permitted
to enter into transactions with parties in interest to a Plan investor.
If the Partnership were deemed to hold plan assets of Plans that own Units
and if the actions of the General Partner or another person with discretion to
manage the Partnership or its assets were deemed to be a breach of fiduciary
duty, then the fiduciaries of the Plans could be held liable--either directly
or as co-fiduciaries--if, for example, the Plan fiduciaries knew of the breach
or failed to comply with fiduciary standards of care when causing the Plans to
invest in the Partnership. If the Partnership were deemed to hold plan assets,
individual retirement account investors could lose their tax exempt status if
the Partnership engaged in certain transactions with the accounts'
beneficiaries.
Depending on the percentage of Units held by "benefit plan investors"
compared with those held by other investors, the underlying assets of the
Partnership may be deemed to be assets of Plans that invest in the Partnership.
The Department of Labor (the "DOL") defines "benefit plan investors" as:
. employee benefit plans as defined in Section 3(3) of ERISA, including
plans maintained both inside and outside the United States,
. plans described in Section 4975(e)(1) of the Code, and
. entities whose assets include plan assets by reason of a plan's
investment in the entity.
Under a DOL regulation, when a Plan acquires an interest in an entity like
the Partnership that is not publicly traded (such as the Units), the underlying
assets of the Partnership will not be plan assets if Plan investors hold less
than 25% of the Units.
The General Partner intends to restrict investments in, and transfers of
Units, so that investments by benefit plan investors are not significant and
the assets of the Partnership will not be deemed plan assets under the DOL
regulation. The General Partner will not permit subscriptions or transfers, and
may require redemptions, if a subscription, transfer, or holding would cause
25% or more of the value of all Units outstanding to be held by benefit plan
investors. For purposes of the 25% test, the value of equity interests held by
the General Partner, the Trading Advisor, and their respective affiliates will
not be counted.
Pursuant to the Partnership Agreement, the General Partner may, upon five
business days' written notice, require a Limited Partner to withdraw all or
part of its investment in the Partnership for any reason whatsoever, such as
because the value of Units held by benefit plan investors equals or exceeds 25%
of the value of all the outstanding Units.
38
Units may not be purchased with the assets of a Plan if the General Partner
or any of its affiliates:
. has investment power over the Plan,
. is authorized to give or regularly gives investment advice regarding the
Plan's assets for a fee and with an understanding that the advice will
serve as a primary basis for investment decisions over the Plan assets
and that the advice will be based on the particular needs of the Plan, or
. is an employer participating in the Plan.
However, under the Limited Partnership Agreement, the General Partner has
determined that, unless it decides otherwise, the TIC 401(k) Plan (and no other
Plans) will be allowed to invest in Units.
Tax Considerations
See "Federal Income Tax Aspects--Unrelated Business Taxable Income."
By accepting subscriptions from Plans, the General Partner and the
Partnership are not representing that the investment meets the legal
requirements regarding investments by plans generally, or by any specific Plan,
or that this investment is appropriate for plans generally or any particular
Plan.
TRANSFERS AND REDEMPTIONS
Transfers
Units may only be transferred (or assigned, or pledged, or encumbered) to:
. an employee of the General Partner or the Trading Advisor, or an
employee of any present or future affiliate or successor of the General
Partner or the Trading Advisor,
. the General Partner, the Trading Advisor, or any present or future
affiliate or successor of the General Partner or the Trading Advisor, or
. any other person or entity approved by the General Partner, which
currently is only the Tudor Investment Corporation 401(k) Savings and
Profit-Sharing Plan.
To transfer your Units, a transferring Limited Partner must:
. send a signed written notice to the General Partner at 1275 King Street,
Greenwich, CT 06831 at least 30 days prior to the proposed transfer,
. include in the notice the name, address, and social security number of
the proposed transferee, the numbers of Units that are to be
transferred, and a certification that the transferee is a person that is
permitted to own the Units, and
. provide a guarantee of his signature from a commercial bank, a trust
company, or a member of a United States registered national securities
exchange or the NASD (other than a sole proprietor).
The General Partner is not required to recognize a transferee as a
substitute Limited Partner for the transferring partner.
Redemptions
A Limited Partner may redeem all or part of his Units as of the last day of
any calendar quarter--March 31, June 30, September 30, and December 31--at the
Net Asset Value thereof on that date.
Redemptions may be made only in $1,000 increments or in whole Units.
Fractions of Units may only be redeemed if a Limited Partner is redeeming his
entire interest. Also, a partial redemption is not permitted if it would reduce
the Limited Partner's interest to less than $1,000, the minimum investment
allowed in the Partnership. However, any of the these restrictions may be
waived by the General Partner.
39
A "Request for Redemption" form (Annex A to the Partnership Agreement) must
be received by the General Partner at least five business days prior to the end
of the quarter in which redemption is to be effective. Additional forms may be
obtained from the General Partner by written or telephone request.
A Limited Partner receives, for each full or partial Unit redeemed, an
amount equal to the Net Asset Value of his Units as of the redemption date,
less any amount which is owed by him to the General Partner or the Partnership.
There is no redemption fee.
The General Partner attempts to pay redemptions within 20 business days of a
redemption and will liquidate positions in commodity interest contracts, if
necessary, to make such payments. However, payments may be delayed if the
Partnership is unable to liquidate positions or if there is a default or delay
in receiving payment from a bank or a broker or dealer.
The General Partner may require a Limited Partner to redeem all or some of
its capital account. The General Partner must mail notice of a mandatory
redemption at least five business days prior to month-end. Mandatory
redemptions generally will be required when a Limited Partner ceases to be an
employee of the General Partner, the Trading Advisor, or an affiliate. Also,
mandatory redemptions might be required in order to reduce assets under the
management of the General Partner or as a means of distributing trading profits.
MONEY LAUNDERING PREVENTION
"The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001" (the "Patriot Act"),
effective as of October 26, 2001, requires certain financial institutions
(including the Partnership, the General Partner, the Trading Advisor and the
Selling Agent) to establish and maintain anti-money laundering programs. On
April 23, 2002, the Treasury Department published regulations pursuant to the
Patriot Act that exempted commodity pool operators from the anti-money
laundering requirements setout thereunder for a period of no longer than six
months. In the future, the rules and regulations that support the Patriot Act
may require the Partnership to verify both the identity of any person
submitting a completed Subscription Agreement as well as the source of such
person's investment. It is also possible that, in connection with the
establishment of anti-money laundering procedures, legislation or regulation
could be promulgated that will require the General Partner, the Trading
Advisor, the Partnership, the Selling Agent, or other service providers to the
Partnership to share information with governmental authorities with respect to
investors in the Units.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
As of April 1, 2002, the only persons who owned more than 5% of the
outstanding interests in the Partnership were:
Name(1) Address No. Units Percent
- ------- ------- --------- -------
Tudor Investment Corporation 401(k) Savings and
Profit-Sharing Plan.......................... 1275 King Street 791.936 19.6%
Greenwich, Connecticut 06831
James P. Pulaski............................... c/o Tudor Investment Corporation 231.326 5.7%
1275 King Street
Greenwich, Connecticut 06831
Robert P. Forlenza............................. c/o Tudor Investment Corporation 229.498 5.7%
50 Rowes Wharf
Boston, Massachusetts 02110
- --------
(1) The persons named in this table have sole voting and investment power with
respect to all interests in the Partnership shown as beneficially owned by
them, subject to community property or similar laws where applicable.
40
Security Ownership of Management
As of April 1, 2002, the General Partner and the executive officers of the
General Partner collectively owned 11.1% of the outstanding interests in the
Partnership.
As of April 1, 2002, in addition to the persons identified in the table
above, Mark F. Dalton and Andrew S. Paul, each of whom is a principal of both
the General Partner and the Trading Advisor, owned 118.816 and 133.696 Units
(2.9% and 3.3%), respectively.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of some of the material United States
federal income tax ("federal income tax") considerations relating to an
investment in the Partnership, based upon the Internal Revenue Code of 1986 as
amended (the "Code"), rulings thereon, United States Treasury regulations
promulgated or proposed thereunder, and existing interpretations thereof, any
of which could be changed at any time, and any such change in which could be
retroactive. The summary in general relates only to the federal income tax
implications of owning an interest in the Partnership by individuals who are
citizens or residents of the United States. Except as indicated below, the
summary does not address the tax implications of owning an interest in the
Partnership by corporations, partnerships, trusts and other non-individuals.
The summary is not a full exposition of the complex tax rules involved and,
among other things, makes no attempt to review state, local, and foreign taxes.
Moreover, the summary is not intended as a substitute for careful tax planning,
particularly since certain of the tax consequences of owning an interest in the
Partnership may not be the same for all taxpayers, such as non-individuals or
foreign persons. EACH PROSPECTIVE INVESTOR SHOULD SATISFY HIMSELF AS TO THE
INCOME TAX AND OTHER TAX CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP WITH
SPECIFIC REFERENCE TO HIS OWN TAX SITUATION BY OBTAINING ADVICE FROM HIS OWN
TAX COUNSEL BEFORE PURCHASING ANY UNITS.
Partnership Status
The Partnership has been advised by its legal counsel, Shearman & Sterling,
that, under current federal income tax law, the Partnership will be taxed as a
partnership and not as a corporation for federal income tax purposes unless (i)
the Partnership is required to be characterized as an association under Code
Section 7704 (relating to publicly traded partnerships) as discussed below, or
(ii) the General Partner elects to have the Partnership treated as an
association taxable as a corporation. The General Partner has not made, and
does not intend to make, such an election.
Section 7704 of the Code provides that certain "publicly traded
partnerships" are treated as corporations for federal income tax purposes. A
publicly traded partnership will not be treated as a corporation if 90% or more
of the gross income of the partnership consists of certain types of income,
including interest, income and gains from stocks, debt securities, and, in the
case of a partnership a principal activity of which is the buying and selling
of such assets, commodities not held as inventory, or futures, forwards, and
options with respect to such items. A principal activity of the Partnership
consists of buying and selling debt securities and commodities not held as
inventory and futures, options or forward contracts with respect to such items.
The General Partner expects that more than 90% of the Partnership's gross
income will be derived from these sources. Accordingly, the Partnership will
not be treated as a corporation even if it is a publicly traded partnership
within the meaning of Code Section 7704.
Taxation of Partners on Profits and Losses of the Partnership
The Partnership, as an entity, will not be subject to federal income tax.
Except as provided below with respect to certain nonresident aliens, each
Limited Partner, in computing his federal income tax liability for a
41
taxable year, will be required to take into account his distributive share of
all items of Partnership income, gain, loss, deduction and credit for the
taxable year of the Partnership ending within or with the taxable year of such
Partner, regardless of whether such Partner has received any distributions from
the Partnership. Thus, a Partner's tax liability may exceed the cash
distributed to him in a particular year. The characterization of an item of
income or loss (e.g., as capital gain or ordinary income) will usually be
determined at the Partnership level.
Offering Expenses
Neither the Partnership nor any Partner is entitled to any deduction for
offering expenses (i.e., those amounts paid or incurred in connection with
issuing and marketing Units).
Allocation of Partnership Profits and Losses
For federal income tax purposes, a Limited Partner's distributive share of
items of Partnership income, gain, loss, deduction and credit will be
determined by the Limited Partnership Agreement, unless an allocation under the
Limited Partnership Agreement does not have "substantial economic effect," in
which case the allocations will be determined in accordance with the Partners'
interests in the Partnership. The allocations provided by the Limited
Partnership Agreement are described under "The Limited Partnership Agreement."
In general, the Limited Partnership Agreement allocates items of ordinary
income and expense pro rata among the Partners based upon their respective
capital accounts as of the end of the month in which such items are accrued.
Net realized capital gains and losses (other than in respect of the special
allocation of Trading Profits to the General Partner) are generally allocated
among all Partners based on their respective capital accounts. However, net
realized capital gain and loss is allocated first to Partners who have redeemed
Units in the Partnership during a taxable year to the extent of the difference
between the amount received on redemption and the allocation account as of the
date of redemption attributable to the redeemed Units. Net realized capital
gains for each year are allocated next among all Partners whose capital
accounts are in excess of their Units' allocation accounts to the extent of
such excess in the ratio that each such Partner's excess bears to all such
Partners' excesses. Net realized capital loss for each year is allocated next
among all Partners whose Units' allocation accounts are in excess of their
capital accounts to the extent of such excess in the ratio that each such
Partner's excess bears to all such Partners' excesses.
These allocation provisions are designed to reconcile tax allocations with
economic allocations. However, no assurance can be given that the Internal
Revenue Service (the "IRS") will not challenge such allocations. Although the
allocations may be consistent with Treasury regulations governing a "securities
partnership," the Partnership may not technically qualify as a securities
partnership. Moreover, the application of such regulations to the Partnership's
tax allocations in respect of investors that withdraw capital during a taxable
year is unclear.
If the allocations provided by the Limited Partnership Agreement are not
respected by the IRS for federal income tax purposes, the amount of income or
loss allocated to the Partners for federal income tax purposes under the
Limited Partnership Agreement may be increased or reduced or the character of
such income or loss may be modified.
Cash Distributions and Redemptions
Because of the special allocation of Partnership gain or loss upon a
withdrawal of capital pursuant to a redemption of Units, the amounts received
upon the partial or complete redemption of a Limited Partner's Units normally
will not be taxable to the Limited Partner. However, if cash distributions by
the Partnership or amounts received upon redemption by a Limited Partner exceed
such Partner's adjusted tax basis in his Units, the excess will be taxable to
him as though it were gain from a sale of the Units. A loss will be recognized
upon a redemption of Units only if, following the redemption of all of a
Limited Partner's Units, such Partner has any tax basis in his Units remaining.
In such case, the Limited Partner will recognize loss to the extent of such
remaining basis. For these purposes, any decrease in a Limited Partner's share
of nonrecourse debt of the
42
Partnership will be treated as if cash in a like amount were distributed to
such Partner. Generally, if a Limited Partner is not a "dealer" with respect to
his interest in the Partnership and he has held his interest in the Partnership
for more than one year, such gain or loss would be long-term capital gain or
loss. However, to the extent that a portion of a distribution of cash is
considered as received in exchange for a Limited Partner's share of the
Partnership's "Code Section 751 assets" (e.g., "unrealized receivables,"
including certain market discount), Section 751 might operate to transform
non-taxable distributions into taxable distributions and/or to convert capital
gain into ordinary income. An individual Limited Partner generally will be
subject to tax on net capital gains (which is defined as the excess of net
long-term capital gains over net short-term capital losses), including net
capital gain realized on the redemption of Units, at a maximum rate of 20% for
Units held for more than one year and at a maximum marginal rate of 38.6% in
2002 and 2003 (which is scheduled to be phased down to 25% by 2006) for Units
held for one year or less. In addition, special rules (and generally lower
maximum rates) apply for individuals whose taxable income is below certain
levels. The special allocation of Partnership gain or loss pursuant to a
redemption of Units, which gain or loss retains the same character as in the
hands of the Partnership, may alter the character of a redeeming Limited
Partner's income (by replacing some amount of capital gain recognized upon
receipt of redemption proceeds, which would be subject to the maximum tax rates
discussed above, with allocations of short-term capital gain or ordinary
income). See "Transfers and Redemptions" and "Tax on Capital Gains and Losses"
below.
Gain or Loss on Trading Activity
A taxpayer may be classified as (i) an investor, (ii) a trader or (iii) a
dealer, based, in part, upon the level of activity associated with its
securities and commodities trading. A trader and an investor are persons that
buy and sell securities or commodity contracts for their own accounts, although
the former category generally involves a higher threshold of activity with
respect to such transactions. A dealer is a person that purchases securities
for resale to customers rather than for investment or speculation. The
Partnership intends to act as a trader, and not as an investor or a dealer,
with respect to its trading activities.
Except with regard to certain foreign currency contracts, as discussed
below, certain periodic income from notional principal contracts (such as swap
contracts) and certain "conversion transactions" where substantially all of the
expected return on the Partnership's commodity interest contract positions is
attributable to the time value of the Partnership's net investment in such
positions, the profit and loss generated by the Partnership from its trading
activities generally is capital gain and loss, which in turn may be either
short-term, long-term, or a combination of both. For individuals, long-term
capital gain is generally taxed at a maximum rate of 20% while ordinary income
and short-term capital gains are taxed at a maximum marginal rate of 38.6% in
2002 and 2003 (which is scheduled to be phased down to 35% by 2006). Gain or
loss with respect to a "Section 1256 contract" (discussed below) is generally
treated as short-term capital gain or loss to the extent of 40% of such gain or
loss, and long-term capital gain or loss to the extent of 60% of such gain or
loss unless subject to Section 988 of the Code, as described below.
Accordingly, an individual's gains from a Section 1256 contract generally will
be taxed at a maximum rate of 27.4% in 2002 and 2003 (which is scheduled to be
phased down to 26% by 2006). Gain or loss with respect to a "Section 988
transaction" generally is treated as ordinary income or loss. Gain or loss with
respect to capital assets that are not Section 1256 contracts or Section 988
transactions (discussed below), such as stock, debt securities, non-currency
forward contracts and swap agreements, generally will be long-term only if such
property has been held for more than one year, and such gain generally will be
subject to the maximum tax rates discussed above.
If the Partnership acquires debt instruments issued at a discount and such
obligations have original maturities of more than one year, the Partnership
will be required to treat a portion of the original issue discount as ordinary
income in the years accrued, whether or not actual interest payments are
received in such years. Accordingly, during a taxable year in which little or
no profit is generated from trading activities, a Limited Partner still may
have interest income. In addition, any gain recognized by the Partnership on
the disposition of
43
an obligation acquired for less than its adjusted issue price will be treated
as ordinary income, rather than as capital gain, to the extent of accrued
market discount, unless an election is made to include the market discount in
income in the year in which it accrues. Interest expense incurred by the
Partnership to purchase or carry market discount obligations generally cannot
be deducted to the extent that the amount thereof exceeds the interest that is
currently includible in the Partnership's income; disallowed interest expense
will be deductible in the year of the obligation's disposition.
Some of the commodity interest contracts entered into pursuant to the
Partnership's trading activities are "Section 1256 contracts." A "Section 1256
contract" includes a "regulated futures contract," a "foreign currency
contract," a "non-equity option," a "dealer equity option," and a "dealer
securities futures contract." A "regulated futures contract" is a futures
contract which is traded on or subject to the rules of a national securities
exchange which is registered with the SEC, a domestic board of trade designated
as a contract market by the CFTC, or any other board of trade, exchange or
other market designated by the Secretary of the Treasury (a "qualified board or
exchange") and which is "marked-to-market" to determine the amount of margin
which must be deposited or may be withdrawn. A "foreign currency contract" is a
contract which requires delivery of, or the settlement of which depends upon
the value of, a foreign currency which is a currency in which positions are
also traded through regulated futures contracts, which is traded in the
interbank market, and which is entered into at arm's length at a price
determined by reference to the price in the interbank market. (The Secretary of
the Treasury is authorized to issue regulations excluding certain currency
forward contracts from mark-to-market treatment.) A "non-equity option" is an
option which is traded on a qualified board or exchange and the value of which
is not determined directly or indirectly by reference to any stock (or group of
stocks) or stock index unless (i) there is in effect a designation by the CFTC
of a contract market for a contract based on such group of stocks or stock
index, or (ii) the option provides for cash settlement and is based on a stock
index that the SEC has determined to be "broad based." A "dealer equity option"
is, with respect to an options dealer, any listed option which is an equity
option, is purchased or granted by such options dealer in the normal course of
its activity of dealing in options, and is listed on the qualified board or
exchange on which such options dealer is registered. Each Section 1256 contract
held at the end of the Partnership's taxable year will be treated as having
been sold for its fair market value on the last day of such taxable year, and
gain or loss will be taken into account for such year.
A "securities futures contract" is not treated as a Section 1256 contract,
except, as discussed below, in the case of a "dealer securities futures
contract." A securities futures contract is any "security future" as defined in
Section 3(a)(55)(A) of the Securities Exchange Act of 1934 as amended, which
generally provides that a security future is a contract of sale for future
delivery of a single security or a narrow-based security index. Code Section
1234B provides that any gain or loss from the sale or exchange of a securities
futures contract (except for a dealer securities futures contract) is
considered as gain or loss from the sale or exchange of property that has the
same character as the property to which the contract relates. Thus, if the
underlying security would be a capital asset in the taxpayer's hands, then gain
or loss on the security futures contract would be capital gain or loss. In
general, capital gain or loss from the sale or exchange of a securities futures
contract to sell property (i.e., the short side of such a contract) will be
treated as short-term capital gain or loss. However, the general rules
described above that apply to a securities futures contract do not apply to a
dealer securities futures contract, which instead is treated as a Section 1256
contract. A "dealer securities futures contract" is a "securities futures
contract," or an option to enter into such a contract, that (i) is entered into
by a dealer (or, in the case of an option, is purchased or granted by such
dealer) in the normal course of its trade or business activity of dealing in
such contracts, and (ii) is traded on a qualified board of trade or exchange.
Currency gain or loss from Section 988 transactions, which include
transactions in foreign currencies, debt securities denominated in a foreign
currency, and certain other financial instruments (other than regulated futures
contracts and nonequity options marked to market under Section 1256 of the
Code), generally is treated as ordinary income or loss under Section 988 of the
Code. However, gain or loss on foreign currency futures contracts or options or
foreign currency forward contracts will be capital gain or loss if (i) the
contract is a capital asset in the hands of the Partnership and is not part of
a straddle transaction, (ii) the Partnership makes an
44
election under Code Section 988(a)(1)(B) to treat the gain or loss attributable
to such contract as capital gain or loss, and (iii) the Partnership properly
identifies the contract by the close of the day the transaction is entered
into. In addition, if the election is made with respect to a Section 1256
contract, Section 1256 of the Code (and not Section 988) will govern the
character of any gain or loss recognized on such contract. The Partnership made
an election under Section 988(a)(1)(B) of the Code effective January 1, 1996.
Special rules apply to certain Section 988 transactions if an eligible
partnership elects to be treated as a qualified fund. The Partnership has not
made, and does not intend to make, a qualified fund election.
Subject to certain limitations, a Limited Partner may elect to carry back
net Section 1256 contract losses to each of the three preceding years. Net
Section 1256 contract losses carried back to prior years may only be used to
offset net Section 1256 contract gains. Generally, such losses are carried back
as 40% short-term capital losses and 60% long-term capital losses.
The Partnership may engage in "spread" and "straddle" trading (i.e., holding
offsetting positions whereby the risk of loss from holding either or both
position(s) is substantially diminished). Realized losses
with respect to any position in a spread or straddle are taken into account for
federal income tax purposes only to the extent that the losses exceed
unrecognized gain (at the end of the taxable year) from offsetting positions,
successor positions or offsetting positions to the successor positions. Thus,
spreads or straddles may not be used to defer gain from one taxable year to the
next. For purposes of applying the above rules restricting the deductibility of
losses with respect to offsetting positions, if a Partner takes into account
gain or loss with respect to a position held by the Partnership, the Partner
will be treated as holding the Partnership's position, except as otherwise
provided in regulations. Accordingly, positions held by the Partnership may
limit the deductibility of realized losses sustained by a Limited Partner with
respect to positions held for his own account, and positions held by a Limited
Partner for his own account may limit his ability to deduct realized losses
sustained by the Partnership. Reporting requirements generally require
taxpayers to disclose all unrecognized gains with respect to positions held at
the end of the taxable year. The above principle, whereby a Limited Partner may
be treated as holding Partnership positions, may also apply to require a
Limited Partner to capitalize (rather than deduct) interest and carrying
charges allocable to property held by him. A portion of the gain on a
"conversion transaction," including spread and straddle trading, may be
characterized as ordinary income where substantially all of the expected return
is attributable to the time value of the net investment in the transaction.
Pursuant to current temporary Treasury regulations, the holding period of
any positions included in a straddle does not begin until the straddle is
terminated unless the position was held for more than the long-term capital
gain and loss holding period before the straddle was established. Further, the
loss on any position included in a straddle will be treated as a long-term
capital loss if, at the time the loss position was acquired, the taxpayer held
offsetting positions with respect to such loss position that would give rise
only to long-term capital gain or loss if such offsetting positions were
disposed of on the day the loss position was acquired.
The rules discussed above do not apply to "identified straddles" involving a
non-Section 1256 position. An "identified straddle," for these purposes, is one
which was clearly identified as such on the Partnership's records on the day on
which the straddle was acquired, which is not part of a larger straddle and in
which all of the original positions were acquired on the same day and were
either disposed of on the same day during the taxable year or remained intact
as of the close of the taxable year. Any loss incurred by the Partnership with
respect to an "identified straddle" involving non-Section 1256 positions is
treated as sustained not earlier than the day on which the Partnership disposed
of all positions comprising the identified straddle. Such loss is not deferred
even though the Partnership continues to hold other positions that offset the
loss portion of the identified straddle.
Where the positions of a straddle are comprised of both Section 1256 and
non-Section 1256 contracts, the Partnership will be subject to the mixed
straddle rules of the Code and the Treasury regulations. The appropriate tax
treatment of any gains and losses from trading in mixed straddles will depend
on which of the following four alternatives the Partnership elects to pursue.
The Partnership may elect to treat Section 1256 positions as non-
45
Section 1256 positions, and the straddle would be subject to the rules
governing non-Section 1256 straddles. Alternatively, the Partnership may
identify the positions of a particular straddle as an "identified mixed
straddle" under Section 1092(b)(2) of the Code and, thereby, net the capital
gain or loss attributable to the offsetting positions. The net capital gain or
loss is treated as 60% long-term and 40% short-term capital gain or loss if
attributable to the Section 1256 positions, or all short-term capital gain or
loss if attributable to the non-Section 1256 positions.
Alternatively, the Partnership may place the positions in a "mixed straddle
account" which is marked-to-market daily. Under a special account cap, not more
than 50% of net capital gain may be long-term capital gain and not more than
40% of net capital loss may be short-term capital loss. If the Partnership does
not make any of the aforementioned three elections (and to date, it has not),
any net loss attributable to either the Section 1256 or the non-Section 1256
positions generally will be treated as 60% long-term and 40% short-term capital
loss, while any net gain would be treated as 60% long-term and 40% short-term
capital gain, or all short-term capital gain depending upon whether the net
gain was attributable to Section 1256 positions or non-Section 1256 positions.
The "wash sale" rules will prevent the recognition of a loss from the sale
of a security by the Partnership where a substantially identical security is,
or has been, acquired by the Partnership within a prescribed time period.
Losses deferred under the wash sale rules may be substantial in amount and may
be deferred for a significant period of time.
Under Section 1258 of the Code, gain recognized by the Partnership on a
"conversion transaction" will be treated as ordinary income, rather than as
capital gain, in an amount not to exceed a hypothetical yield on the
Partnership's equity investment in the transaction equal to 120% of the
"applicable federal rate" (which varies depending on prevailing interest rates
and the term of the relevant security). Conversion transactions include
straddles, transactions involving a purchase of property where, substantially
simultaneously with the purchase, a contract to sell the property for a
pre-determined price is entered into, and other transactions to be specified in
future United States Treasury regulations, but only if substantially all of the
expected return from a transaction is attributable to the time value of the
Partnership's net investment in the transaction. It is unclear which of the
Partnership's transactions, if any, will be treated as conversion transactions.
Under Section 1259 of the Code, if the Partnership enters into short sales
or futures, forwards, or offsetting notional principal contracts with respect
to appreciated stock or certain debt obligations that it holds, the Partnership
will be taxed as if the appreciated property were sold at its fair market value
on the date the Partnership entered into such short sale or contract. Section
1259 similarly may apply if the Partnership has entered into a short sale,
option, futures or forward contract or other position with respect to property,
that position has appreciated in value, and the Partnership acquires that same
or substantially identical property. In such event, the Partnership will be
taxed as if the appreciated position were sold at its fair market value on the
date of such acquisition. Transactions that are identified hedging or straddle
transactions under other provisions of the Code can be subject to the
constructive sale provisions.
Traders of securities or commodities are permitted to elect to
mark-to-market their positions in such securities or commodities, except with
respect to any securities or commodities to the extent that it is established
to the satisfaction of the Treasury Department that such securities or
commodities have no connection to the business activities of the trader and the
trader specifically identifies the securities or commodities as being held for
investment. If a trader elects to use the mark-to-market method, the trader is
required to recognize gain or loss on any security or commodity held in
connection with its business at the close of its tax year, gain or loss is
determined as if the security or commodity were sold at its fair market value
on the last business day of the tax year, and gain or loss is taken into
account by the trader for that tax year. The General Partner has not made, and
does not intend to make, the election.
46
Taxation of Limited Partners
Limitations on Deductibility of Partnership Losses
The amount of Partnership loss, including capital loss, which a Limited
Partner will be entitled to take into account for federal income tax purposes
is generally limited to the tax basis of the Limited Partner's Units (or, in
the case of certain Limited Partners, including individuals and certain
closely-held C corporations, the amounts for which the Limited Partner is "at
risk" if a lesser amount) as of the end of the Partnership's taxable year in
which such loss occurred.
Generally, a Limited Partner's initial tax basis will be the amount paid for
his Units plus his share of the nonrecourse debt of the Partnership. A Limited
Partner's adjusted tax basis will be his initial tax basis reduced by the
Limited Partner's share of Partnership distributions, losses, and deductions
and any decrease in that Partner's share of nonrecourse debt of the
Partnership, and increased by any subsequent contributions and his share of
Partnership income, including gains, and any increase in that Partner's share
of nonrecourse debt of the Partnership.
The amount for which a Limited Partner is "at-risk" with respect to his
interest in the Partnership is generally equal to such Limited Partner's tax
basis for such interest, less: (i) any amounts borrowed in connection with his
acquisition of such interest for which he is not personally liable and for
which he has pledged no property other than his interest; (ii) any amounts
borrowed from persons who have a proprietary interest in the Partnership; and
(iii) any amounts borrowed for which such Limited Partner is protected against
loss through guarantees or similar arrangements. A Limited Partner is not at
risk for his share of the Partnership's nonrecourse debt.
Passive Loss Rules
In the case of individuals and certain closely-held C corporations, the Code
restricts the deductibility of loss from a "passive activity" against certain
income which is not derived from a passive activity. Temporary Treasury
regulations provide that the trading of personal property of a type that is
actively traded, such as certain securities and commodity futures contracts,
will not be treated as a passive activity for purposes of the passive loss
rules. Accordingly, for such individuals or closely-held C corporations, a
Limited Partner's distributive share of items of income, gain, deduction, or
loss from the Partnership's trading of such property will generally not be
treated as passive income or loss, and Partnership gains attributable to such
property and allocable to such Limited Partners will not be available to offset
passive losses from sources outside the Partnership. However, income or loss
attributable to property that is not actively traded may constitute passive
activity income or loss. In this regard, certain of the assets which the
Partnership intends to trade may not be "actively traded" for these purposes.
Final Treasury regulations may modify temporary regulations, and such
regulations may be retroactive in effect.
Limited Deduction of Certain Expenses
Certain miscellaneous itemized deductions are deductible only to the extent
they exceed 2% of the adjusted gross income of an individual, trust or estate.
The Code currently imposes additional limitations (which are scheduled to be
phased out between 2006 and 2010) on the amount of certain itemized deductions
allowable to individuals, by reducing the otherwise allowable portion of such
deductions by an amount equal to the lesser of (i) 3% of the individual's
adjusted gross income in excess of certain threshold amounts, or (ii) 80% of
the amount of certain itemized deductions otherwise allowable for the taxable
year. Moreover, such miscellaneous itemized deductions are not deductible by a
non-corporate taxpayer in calculating the taxpayer's alternative minimum tax
liability. Based upon the activities of the Partnership, the Partnership takes
the position that its trading activity constitutes a trade or business for
federal income tax purposes and intends to treat expenses incurred by the
Partnership as not being subject to the 2% "floor" and 3% "phase-out" except to
the extent that the IRS promulgates regulations that so provide. However, there
can be no assurance that the IRS may not treat such expenses (including the fee
paid to the Trading Advisor) as investment expenses which are subject to these
limitations.
47
Tax on Capital Gains and Losses
For individuals, estates, and trusts, the maximum ordinary income tax rate
is 38.6% (which is scheduled to be phased down to 35% by 2006). Capital gain
generally will be subject to a maximum tax rate of 20% (rather than the higher
rate described in the previous sentence) if the capital assets disposed of were
held more than one year. Corporate taxpayers are subject to a maximum marginal
tax rate of 35% on all income.
The excess of capital losses over capital gains is deductible by an
individual against ordinary income subject to an annual limitation of $3,000
($1,500 in the case of married individuals filing a separate return). Excess
capital losses may be carried forward.
Limitation on Deductibility of Interest on Investment Indebtedness
Interest (including short sale expenses) paid or accrued on indebtedness
properly allocable to property held for investment is investment interest. Such
interest is generally deductible by non-corporate taxpayers only to the extent
it does not exceed net investment income. A non-corporate Limited Partner's
distributive share of net Partnership income and any gain from the disposition
of Units is treated as investment income for this purpose, except that a
Limited Partner's distributive share of net capital gain from the Partnership
and such Limited Partner's net capital gain from the disposition of Units is
not investment income unless the Limited Partner waives the benefit of the
applicable maximum tax rate on such net capital gain. Interest expense incurred
by a non-corporate Limited Partner to acquire his Units, as well as a
non-corporate Limited Partner's allocable share of interest expense incurred by
the Partnership, generally will be investment interest. Any investment interest
disallowed as a deduction in a taxable year solely by reason of the limitation
above is treated as investment interest paid or accrued in the succeeding
taxable year.
Taxation of Foreign Limited Partners
A Limited Partner that is a non-resident alien individual, foreign
corporation, foreign trust or foreign estate (a "Foreign Limited Partner")
generally is not subject to taxation by the United States on its share of the
Partnership's United States source capital gains from commodity or securities
trading for a taxable year, provided that such Foreign Limited Partner does not
have certain present or former connections with the United States, e.g., if the
Foreign Limited Partner (in the case of an individual) does not spend more than
182 days in the United States during his taxable year, and the Foreign Limited
Partner is not (and has not been) engaged in a trade or business within the
United States during the taxable year with which income, gain, or loss from the
Partnership is treated as effectively connected ("a U.S. Business"). If the
Partnership were engaged in a U.S. Business, each Foreign Limited Partner would
be considered to be so engaged. However, because the Partnership should not be
considered to be engaged in a U.S. Business, as explained below, an investment
in the Partnership should not, by itself, cause a Foreign Limited Partner to be
engaged in a U.S. Business.
The Code contains a statutory "safe harbor" that provides that trading in
stocks, securities, and certain commodities by a taxpayer for his own account
(whether by the taxpayer, his employees, or his agents) will not be considered
to be a U.S. Business, provided that the taxpayer is not a "dealer" in such
stocks, securities, or commodities. All activities of the Partnership, as
described herein, are intended to constitute, or to be incidental to, the
trading in stocks, securities or commodities interests for the Partnership's
own account, whether by the Partnership itself, its employees, or through
agents. There is little guidance on whether certain types of transactions, such
as certain swap transactions, are properly classified as transactions in stock,
securities, or commodities, but the Partnership believes that such transactions
should be so classified. Under proposed Treasury regulations, the safe harbor
would include trading in "derivatives" and hedging transactions by an "eligible
nondealer" (as such terms are defined in the proposed regulations). The term
"derivatives" generally would include interest rate, currency, equity, or
commodity notional principal contracts (i.e., swaps) and evidences of an
interest in or derivative financial contracts in any commodity, currency, share
of stock, partnership, debt obligation, or swap (as each is defined in the
proposed regulations). An "eligible nondealer" is a person that is not a
resident of the United States, that is not a dealer in stocks, securities, or
commodities under
48
applicable Treasury regulations, and that does not regularly offer to enter
into, assume, offset, assign, or otherwise terminate positions in derivatives
with customers in the ordinary course of a trade or business, including holding
itself out, in the ordinary course of its trade or business, as being willing
and able to enter into either side of a derivative transaction. All commodity
interests traded by the Partnership are intended to be of a kind customarily
dealt in on organized commodity exchanges, and such commodity interest
transactions are intended to be of a kind customarily consummated on such
exchanges. It is the intention of the Partnership that it is not a dealer in
stock, securities, or commodity interests, and the Partnership intends to be an
eligible nondealer within the meaning of the proposed regulations. Since it is
intended that the Partnership satisfy the safe harbor, owning Units in the
Partnership should not, by itself, cause a Foreign Limited Partner to be
engaged in a U.S. Business.
If the Partnership were a dealer in stocks, securities or commodities or
otherwise were engaged in a U.S. Business, and if income, gain or loss from the
Partnership were treated as effectively connected therewith, Foreign Limited
Partners would generally be subject to net United States income tax on their
allocable share of the Partnership's effectively connected income. Moreover,
the Partnership generally would be required to withhold tax on income allocable
to such Foreign Limited Partners and remit to the IRS an amount equal to 38.6%
(35% in the case of corporations) of the amount of such effectively connected
taxable income allocable to such Foreign Limited Partners. Any amounts remitted
would constitute a refundable credit against the Foreign Limited Partners'
federal income tax liability, which could be claimed on the Foreign Limited
Partner's federal income tax return. Foreign Limited Partners that are
corporations and derive effectively connected income from the Partnership would
also be required to pay a branch profits tax at a 30% rate, unless reduced or
eliminated by an applicable tax treaty.
A Foreign Limited Partner also can be subject to a 30% federal withholding
tax imposed on certain types of United States source income (e.g., certain
interest or dividends). The Partnership generally intends to invest in United
States source interest-producing debt instruments only if they are exempt from
United States federal withholding tax (e.g., registered straight debt
obligations or certain original issue discount obligations with an original
maturity of 183 days or less). United States source dividends derived by a
Foreign Limited Partner are (and certain other United States source income may
be) subject to federal withholding tax at a rate of 30% (or applicable lower
treaty rate). If amounts are subject to withholding, the tax must be withheld
by the person having control over the payment of such income. The Partnership
may be required to withhold tax on items of such income which are included in
the distributive share (whether or not actually distributed) of a Foreign
Limited Partner. Withholding generally is not required in respect of registered
interest-bearing obligations. If the Partnership is required to withhold tax on
such income of a Foreign Limited Partner, the General Partner may pay such tax
out of its own funds and then be reimbursed out of the proceeds of any
distribution to, or redemption of Units by, the Foreign Limited Partner.
The estate of a deceased Foreign Limited Partner may be liable for United
States estate tax, and may be required to obtain an estate tax release from the
IRS in order to transfer the Units of such Foreign Limited Partner.
Foreign persons should consult their own tax advisers before deciding
whether to invest in the Partnership.
Tax Elections
The Code provides for optional adjustments to the basis of Partnership
property upon distributions of Partnership to a Partner (Section 734) and
transfers of Units (Section 743), provided that a Partnership election has been
made pursuant to Section 754. As a result of the complexities and added expense
of the tax accounting required to implement such an election, the General
Partner may not make such an election.
Tax Returns and Information
The Partnership will file its information returns using the accrual method
accounting.
49
Partnership's Tax Accounting
The Partnership has the calendar year as its taxable year.
Alternative Minimum Tax
An alternative minimum tax may be imposed on Limited Partners, depending on
their particular circumstances. This tax, with respect to taxpayers other than
corporations, will be imposed to the extent that 26% of the first $175,000
($87,500 for married individuals filing a separate return) of "alternative
minimum taxable income" in excess of the exemption amount ($45,000 in the case
of married taxpayers filing joint returns or a surviving spouse; $33,750 in the
case of an unmarried taxpayer who is not a surviving spouse; or $22,500 in the
case of a married individual filing a separate return or an estate or trust)
plus 28% of the balance of such excess exceeds the taxpayer's regular federal
income tax liability (computed with certain special modifications) for the
year; provided, however, that the alternative minimum tax on capital gains will
not exceed the maximum rate applicable to such capital gains. The alternative
minimum tax exemption is phased-out for individual taxpayers with alternative
minimum taxable income in excess of $112,500 ($150,000 for taxpayers filing a
joint return and surviving spouses; $75,000 for married individuals filing
separate returns, estate, and trusts). Corporations are also subject to an
alternative minimum tax.
Tax Audits
The income tax returns of the Partnership may be audited, and such an audit
could lead to an audit of the Limited Partners. Such audits could result in the
determination of tax deficiencies unrelated to the Partnership. Audit changes
made to the Partnership's returns would result in corresponding changes to its
Limited Partners' returns. Such Partnership-level changes, under the tax law
rules providing for administrative and judicial proceedings at the partnership
level, may be binding on Limited Partners under certain circumstances. In
general, the General Partner, as the Tax Matters Partner, may enter into a
settlement agreement with the IRS on behalf of, and binding upon, a Limited
Partner owning less than a 1% profits interest in the Partnership. However,
prior to settlement, such a Limited Partner may file a statement with the IRS
stating that the Tax Matters Partner does not have the authority to settle on
behalf of such Limited Partner.
The General Partner may consent on behalf of the Partnership to the
extension of the period for assessing a deficiency with respect to a
Partnership item. As a result, a Limited Partner's federal income tax return
may be subject to examination and adjustment by the IRS for a Partnership item
more than three years after it has been filed.
Unrelated Business Taxable Income
Based on its present trading strategy, it is not anticipated that the
Partnership will own significant amounts of debt-financed property. As a
result, the Partnership does not expect to generate significant amounts of
unrelated business taxable income ("UBTI") under Section 511 of the Code to
Plans. However, the Partnership's trading strategy is subject to change and,
consequently, no assurance can be given that the Partnership will not generate
UBTI to Plans in future taxable periods. Potential Limited Partners that are
tax-exempt entities or that include tax-exempt entities among their investors
should consult a professional tax adviser regarding such matters.
-----------------
All of the foregoing statements are based upon the existing provisions of
the Code, the rulings thereon, the regulations promulgated thereunder, and the
existing administrative and judicial interpretations thereof. It is emphasized
that no assurance can be given that legislative, administrative, or judicial
changes will not occur which will modify such statements.
50
The foregoing statements are not intended as a substitute for careful tax
planning, particularly since certain of the federal income tax consequences of
an investment in the Partnership may not be the same for all taxpayers. There
can be no assurance that the Partnership's tax returns will not be audited by
the IRS or that no adjustments to the returns will be made as a result of such
audits. If an audit results in an adjustment, Limited Partners may be required
to file amended returns and their returns may be audited. Accordingly,
prospective purchasers of Units in the Partnership are urged to consult their
own tax advisers with specific reference to their own tax situation under
federal law and the provisions of applicable state, local, and foreign laws
before subscribing for Units.
STATE AND LOCAL INCOME TAX ASPECTS
In addition to the United States federal income tax consequences described
under "Federal Income Tax Aspects," the Partnership and the Limited Partners
may be subject to various state and local taxes. A Limited Partner's
distributive share of the realized profits of the Partnership may be required
to be included in determining such Partner's reportable income for state or
local tax purposes.
State and local taxation of gains and losses from the Partnership may not
reflect recent changes made to federal income tax law, and hence may be
inconsistent with the federal income tax treatment of such gains and losses.
Furthermore, state and local taxation of gains and losses from Section 1256
contracts may be inconsistent with the treatment of such gains and losses for
federal income tax purposes. Accordingly, prospective investors should consult
with their own tax advisers concerning the applicability of state and local
taxes to an investment in the Partnership (particularly Connecticut and New
York State and New York City taxes because certain of the activities of the
Partnership may be viewed as taking place in Connecticut and New York).
Connecticut
The Partnership has been advised by its special Connecticut tax counsel
that, as a partnership for federal income tax purposes, the Partnership will
not be liable for any tax on or measured by net income imposed by the State of
Connecticut. Natural person Limited Partners who are nonresidents of
Connecticut will not be subject to Connecticut personal income tax on their
share of Partnership income, provided that the Partnership's activities consist
solely of the purchase or sale of intangible property for its own account and
provided that neither the Partnership nor any such natural person Limited
Partner is a dealer. In the event the Partnership purchases and sells tangible
property, such as commodities, natural person Limited Partners may be subject
to Connecticut personal income tax on their share of the Partnership income
derived from such tangible property. Natural person Limited Partners who are
residents of Connecticut will be subject to Connecticut personal income tax on
their share of Partnership income. Corporate Limited Partners not otherwise
subject to Connecticut corporation business tax will not be subject to such tax
solely by virtue of their investment in the Partnership, provided that the
Partnership qualifies as an "investment partnership" under Connecticut General
Statutes Section 12-213(26). An investment partnership is defined generally as
a limited partnership that meets the gross income requirements of Section
851(b)(2) of the Code, except that income and gains from commodities that are
not described in Section 1221 of the Code or from futures, forwards, or options
with respect to such commodities are included in income which qualifies to meet
such gross income requirements. The General Partner expects that the
Partnership will meet such requirements. Even if the Partnership were not to
qualify as an investment partnership, a corporate Limited Partner not otherwise
subject to Connecticut corporation business tax will not be subject to such tax
on its share of Partnership income, provided that the Partnership's activities
consist solely of the purchase or sale of intangible property for its own
account and provided that neither the Partnership nor any such corporate
Limited Partner is a dealer. In that case, however, the corporate Limited
Partner may be subject to Connecticut corporation business tax on its share of
the capital base of the Partnership apportioned to Connecticut. In the event
the Partnership purchases and sells tangible property, such as commodities, a
corporate Limited Partner not otherwise subject to Connecticut corporation
business tax may be subject to Connecticut corporate business tax on its share
of the Partnership income derived from such tangible property. Corporate
Limited Partners otherwise subject to Connecticut corporation business tax will
be taxed on their share of
51
Partnership income and will include their share of the Partnership's
apportionment factors in computing their own apportionment fractions. Corporate
Limited Partners that are exempt from United States federal corporate income
tax will not be subject to Connecticut corporation business tax solely by
virtue of their investment in the Partnership. Connecticut imposes the
Connecticut Unrelated Business Income of Nonprofit Corporations Tax ("CUBINT")
on the UBTI of corporations and trusts that are exempt from United States
federal income tax, and an exempt corporate or trust Limited Partner that
realizes UBTI from the Partnership for federal income tax purposes will be
subject to CUBINT on the income it receives from the Partnership. See
"Purchases By Employee Benefit Plans--ERISA Considerations." Unincorporated
business entities, such as partnerships or proprietorships, will be treated as
pass-through entities, and the owners of such businesses will be taxed with
respect to an investment in the Partnership as described above in their
capacity as owners.
New York
The Partnership has been advised by its New York legal counsel that the
Partnership will not be liable for New York City unincorporated business tax.
Limited Partners who are non-residents of New York State will not be liable for
New York State personal income tax on their income from the Partnership, except
that such a Limited Partner may be liable for such tax to the extent of such
Partner's allocable share of income attributable to Partnership transactions
involving tangible personal property located in New York State. Likewise,
Limited Partners who are nonresidents of New York City should not be liable for
New York City earnings tax on their income from the Partnership. New York State
and New York City residents will be subject to New York State and New York City
personal income tax on their income from the Partnership. Because the
Partnership conducts its business, in part, in the State and City of New York,
corporate Limited Partners generally are subject to the New York State
franchise tax and the New York City general corporation tax by reason of their
investment in the Partnership, unless certain exemptions apply. However,
pursuant to regulations, the Partnership may qualify as a "portfolio investment
partnership." Accordingly, non-New York corporate Limited Partners not
otherwise subject to New York State franchise tax may not be subject to such
franchise tax solely by reason of investing in the Partnership. No ruling from
the New York State Department of Taxation and Finance or the New York City
Department of Finance has been, or will be, requested regarding such matters.
LIMITED PARTNERS MUST CONSULT THEIR OWN ADVISERS REGARDING THE POSSIBLE
APPLICABILITY OF STATE, LOCAL, OR MUNICIPAL TAXES TO AN INVESTMENT IN THE
PARTNERSHIP.
AUDITOR
The independent public accounting firm retained by the Partnership and the
General Partner is Arthur Andersen LLP, 1345 Avenue of the Americas, New York,
New York 10105.
LEGAL MATTERS
Legal matters in connection with the Units have been passed upon for the
Partnership and the General Partner by Shearman & Sterling, 599 Lexington
Avenue, New York, New York 10022. Shearman & Sterling also serves as legal
counsel for the General Partner, the Trading Advisor, BPL, and the affiliates
of the foregoing. Day, Berry & Howard LLP, City Place, Hartford, Connecticut
06103, serves as special Connecticut tax counsel to the Partnership and the
General Partner.
52
STATEMENT OF ADDITIONAL INFORMATION
Dated May [ ], 2002
To
TUDOR FUND FOR EMPLOYEES L.P.
(A Delaware Limited Partnership)
PROSPECTUS
Dated May [ ], 2002
THIS STATEMENT OF ADDITIONAL INFORMATION IS THE SECOND PART OF A TWO-PART
DISCLOSURE DOCUMENT AND SHOULD BE READ IN CONJUNCTION WITH THE TUDOR FUND
FOR EMPLOYEES L.P. PROSPECTUS DATED MAY [ ], 2002 ATTACHED HERETO AS
THE FIRST PART OF THIS TWO-PART DISCLOSURE DOCUMENT.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
-----
Additional Partnership Performance............................................................... SAI-1
Affirmation of Commodity Pool Operator........................................................... F-1
Tudor Fund for Employees L.P. Financial Statements as of December 31, 2001 and 2000 together with
Auditors' Report and Unaudited Financial Statements as of March 31, 2002....................... F-2
Second Management LLC Financial Statements as of December 31, 2001 and 2000 together with
Auditors' Report and Unaudited Statement of Financial Condition as of March 31, 2002........... F-25
Exhibit A--Second Amended and Restated Limited Partnership Agreement............................. A-1
Annex A--Form of Request for Redemption........................................................ A-36
Exhibit B--Subscription Agreement and Power of Attorney for Individuals.......................... B-1
Exhibit C--Subscription Agreement and Power of Attorney for the Tudor Investment
Corporation 401(k) Savings and Profit-Sharing Plan............................................. C-1
Exhibit D--Representations and Agreements by Plan Participants................................... D-1
Exhibit E--Subscription Agreement for Use in Making Additions to Existing Account................ E-1
ADDITIONAL PARTNERSHIP PERFORMANCE
The Partnership's complete performance record since it began trading (July
2, 1990 through March 31, 2002) is shown below.
The information below is the actual trading performance of the Partnership
after payment of advisory fees, transaction costs, and all other expenses and
costs. The rates of return shown below are representative of the rates of
return experienced by each investor holding a Unit of Limited Partnership
Interest in the Partnership during the period shown.
The information set forth below has not been audited. However, the General
Partner believes that such information is accurate and fairly presented.
You should be aware that past performance cannot predict how the Partnership
will perform in the future. It is possible that the Partnership will incur
losses in the future.
ACTUAL PERFORMANCE RECORD OF TUDOR FUND FOR EMPLOYEES L.P.
Rates of Return (1)(2)
2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
January............ 1.55% -0.64% -0.85% -4.05% -0.35% 2.69% 9.92% 4.12% 4.61% -2.80% 9.61% 3.96%
February........... 0.64% 2.38% 5.10% 6.31% 1.27% 8.65% 0.69% 3.59% -2.24% -0.83% 6.07% -8.01%
March.............. 1.24% 8.21% -7.98% -6.03% 4.23% 4.96% 1.70% 12.14% -0.23% -1.45% 8.13% 0.47%
April(3)........... 2.73% -4.11% -0.43% -2.46% -4.32% 0.48% 7.93% 0.53% -1.28% -1.39% 3.02% 5.96%
May................ 1.26% 5.69% -0.94% -0.74% 1.65% -2.50% -3.96% -1.64% -2.99% -4.03% -0.75%
June............... 3.20% -3.87% -1.46% 1.07% -0.40% -1.42% -3.19% 5.62% 0.98% -6.88% 7.95%
July............... 4.45% -0.95% 3.39% 2.72% 3.49% 0.54% 0.18% -4.37% 1.59% -4.30% -4.41% -9.62%
August............. 5.87% 1.81% 2.05% 11.29% 3.94% -0.99% 5.50% 1.04% 0.05% 1.11% 0.10% 13.44%
September.......... 4.07% 6.54% 0.07% 12.82% -5.13% -3.67% 1.49% 8.29% 1.23% 13.23% 1.55% 2.46%
October............ 2.05% -1.92% 4.52% -0.20% -1.55% -0.34% 4.73% -3.58% 2.57% 10.13% 5.78% 17.19%
November........... -4.19% 8.34% 4.49% -2.15% 4.33% -2.26% 0.50% 2.04% 1.02% -3.10% 9.07% -1.87%
December........... 1.40% 11.70% 2.01% 5.46% 1.74% 0.42% 2.08% -0.79% 4.12% -0.98% -1.76% 3.83%
- ------------------- ---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Annual (Period)
Rate of Return(3) . 6.29% 25.83% 23.69% 7.35% 34.11% 27.05% 9.52% 30.26% 6.87% 1.88% 34.01% 20.13% 25.44%
=================== ==== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Name of Fund: Tudor Fund For Employees L.P.
Type of Fund: Publicly Offered
Inception of Trading: July 2, 1990
Aggregate Subscriptions Since Inception(4): $46,377,000
Aggregate Redemptions Since Inception(4): $35,412,000
Current Net Assets(3)(4): $38,718,000
Largest Monthly Percentage Drawdown(5): July 1990 (-9.62%)
Worst Peak to Valley Percentage Drawdown(6): May 1, 1992-July 31, 1992 (-14.50%)
THE ACCOMPANYING FOOTNOTES ARE AN INTEGRAL PART OF THIS TABLE.
FOOTNOTES TO TABLE
The performance data presented above have been calculated on an accrual basis
of accounting in accordance with United States generally accepted accounting
principles.
(1)"Monthly Rate of Return" is calculated by dividing Net Performance by
Beginning Net Assets plus Additions (as such terms are defined below).
Monthly Rate of Return does not take into account Withdrawals (as such term
is defined below). Because Withdrawals occur only at month-end, their effect
on the calculation of Monthly Rate of Return is not material.
"Additions" represents all additional capital contributed during a month.
"Beginning Net Assets" represents the sum of cash and cash equivalents and
the equity in the Partnership accounts, less accrued and paid expenses as of
the beginning of a month.
SAI-1
"Net Performance" represents the change in Net Assets, net of Additions and
Withdrawals.
"Net Assets" means the market value of the Partnership's assets less any
accrued liabilities.
"Withdrawals" represents all withdrawals of capital during a month.
(2) "Annual (Period) Rate of Return" is calculated by determining the rate of
return for each month during the relevant period and compounding such
returns by subsequent monthly rates of return achieved during such period.
(3) Figure for this period in 2002 is estimated.
(4) As of May 1, 2002.
(5) "Largest Monthly Percentage Drawdown" represents the greatest percentage
decline in month-end Net Assets due to losses sustained by the Partnership
during any one-month period shown in the table.
(6) "Worst Peak to Valley Percentage Drawdown" represents the greatest
cumulative percentage decline in month-end Net Assets due to losses
sustained during any period shown in the table in which Net Assets at any
prior month-end are not equaled or exceeded by subsequent Net Assets.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SAI-2
I affirm that, to the best of my knowledge and belief, the information
contained in the attached financial statements of Tudor Fund For Employees L.P.
for the years ended December 31, 2001 and 2000, is accurate and complete.
/S/ MARK F. DALTON
----------------------------------------
Mark F. Dalton
President
Second Management LLC, General Partner
and Commodity Pool Operator of Tudor
Fund For Employees L.P.
/S/ JOHN R. TORELL
----------------------------------------
John R. Torell
Managing Director and Chief Financial
Officer
Second Management LLC, General Partner
and Commodity Pool Operator of Tudor
Fund For Employees L.P.
March 5, 2002
SECOND MANAGEMENT LLC
- --------------------------------------------------------------------------------
1275 KING STREET, GREENWICH, CT 06831 TELEPHONE (203) 863-8677 FACSIMILE (203)
863-1868
F-1
TUDOR FUND FOR EMPLOYEES L.P.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2000
TOGETHER WITH AUDITORS' REPORT
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Tudor Fund For Employees L.P.:
We have audited the accompanying statements of financial condition of Tudor
Fund For Employees L.P. (a Delaware limited partnership) as of December 31,
2001 and 2000, including the condensed schedule of investments as of December
31, 2001, and the related statements of operations and changes in partners'
capital for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tudor Fund For Employees
L.P. as of December 31, 2001 and 2000, and the results of its operations for
each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States.
/S/ ARTHUR ANDERSEN LLP
New York, New York
March 5, 2002
F-3
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND 2000
2001 2000
----------- -----------
ASSETS
Cash and cash equivalents...................................................... $29,804,258 $25,307,514
Due from brokers............................................................... 3,865,128 2,610,863
----------- -----------
Total assets............................................................ $33,669,386 $27,918,377
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Pending partner additions...................................................... $ 1,525,056 $ 4,931,369
Redemptions payable............................................................ 187,808 369,794
Incentive fee payable.......................................................... -- 339,869
Management fee payable......................................................... 85,100 29,661
Accrued professional fees and other............................................ 81,038 86,612
----------- -----------
Total liabilities........................................................... 1,879,002 5,757,305
----------- -----------
PARTNERS' CAPITAL:
Limited partners, 20,000 units authorized and 3,363.810 and 2,926.555 units
outstanding as of December 31, 2001 and 2000................................. 30,035,126 20,766,179
General Partner, 196.580 units outstanding as of December 31, 2001 and 2000.... 1,755,258 1,394,893
----------- -----------
Total partners' capital..................................................... 31,790,384 22,161,072
----------- -----------
Total liabilities and partners' capital..................................... $33,669,386 $27,918,377
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
TUDOR FUND FOR EMPLOYEES L.P.
CONDENSED SCHEDULE OF INVESTMENTS
DECEMBER 31, 2001
Percent of
North Partners'
America Asia Europe Total Capital
-------- -------- -------- ---------- ----------
OTC OPTIONS, at market value:
OTC foreign exchange option................ $ -- $352,710 -- 352,710 1.11%
-------- -------- -------- ---------- ----
Total OTC options, at market value
(cost $111,609)...................... -- 352,710 -- 352,710 1.11
-------- -------- -------- ---------- ----
FUTURES, at market value:
Index futures.............................. (24,950) (5,300) -- (30,250) (.10)
Interest rate futures...................... -- 101,645 -- 101,645 .33
Foreign exchange futures................... 220 -- -- 220 .00
Commodity futures.......................... (30,894) -- -- (30,894) (.10)
-------- -------- -------- ---------- ----
Total futures, at market value......... (55,624) 96,345 -- 40,721 .13
-------- -------- -------- ---------- ----
FOREIGN EXCHANGE FORWARDS,
at market value............................. -- 97,393 215,973 313,366 .99
-------- -------- -------- ---------- ----
EQUITY SWAPS, at market value:................ 643,367 -- -- 643,367 2.02
-------- -------- -------- ---------- ----
Total investments, at market value..... $587,743 $546,448 $215,973 $1,350,164 4.25%
======== ======== ======== ========== ====
The accompanying notes are an integral part of this schedule.
F-5
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---------- ---------- ----------
REVENUES:
Net realized trading gain................... $6,890,015 $4,697,983 $1,048,971
Change in net unrealized trading gain (loss) 778,210 (373,658) 84,556
Interest income............................. 1,182,347 1,213,785 847,843
---------- ---------- ----------
Total revenues........................... 8,850,572 5,538,110 1,981,370
---------- ---------- ----------
EXPENSES:
Brokerage commissions and fees.............. 187,282 206,690 209,689
Management fee.............................. 512,176 316,198 295,771
Incentive fee............................... 702,994 339,869 62,184
Professional fees and other................. 143,721 162,807 111,279
Interest expense............................ 8,249 9,907 5,087
---------- ---------- ----------
Total expenses........................... 1,554,422 1,035,471 684,010
---------- ---------- ----------
Net income............................... $7,296,150 $4,502,639 $1,297,360
========== ========== ==========
LIMITED PARTNERS' NET INCOME................ $6,935,785 $4,235,516 $1,220,159
GENERAL PARTNER'S NET INCOME................ 360,365 267,123 77,201
---------- ---------- ----------
Net income............................... $7,296,150 $4,502,639 $1,297,360
========== ========== ==========
Change in Net Asset Value Per Unit.......... $ 1,833.12 $ 1,358.85 $ 392.72
---------- ---------- ----------
Net Income Per Unit......................... $ 1,897.59 $ 1,337.56 $ 378.91
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-6
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Limited Partners General Partner Net Asset
----------------------- ------------------ Total Value
Units Capital Units Capital Capital Per Unit
---------- ----------- ------- ---------- ----------- ---------
PARTNERS' CAPITAL, January 1, 1999.......... 2,589.821 $13,840,543 196.580 $1,050,569 $14,891,112 $5,344.21
Net income............................... -- 1,220,159 -- 77,201 1,297,360
TIC 401(k) Plan unit adjustment (Note 3). 14.141 -- -- -- --
Capital contributions.................... 1,051.500 5,489,765 -- -- 5,489,765
Redemptions.............................. (1,005.186) (5,346,022) -- -- (5,346,022)
---------- ----------- ------- ---------- -----------
PARTNERS' CAPITAL, December 31, 1999........ 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 (Note 3). 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........ 2,926.555 $20,766,179 196.580 $1,394,893 $22,161,072 $7,095.78
Net income............................... -- 6,935,785 -- 360,365 7,296,150
TIC 401(k) Plan unit adjustment (Note 3). 32.780 -- -- -- --
Capital contributions.................... 1,295.726 9,626,183 -- -- 9,626,183
Redemptions.............................. (891.251) (7,293,021) -- -- (7,293,021)
---------- ----------- ------- ---------- -----------
PARTNERS' CAPITAL, December 31, 2001........ 3,363.810 $30,035,126 196.580 $1,755,258 $31,790,384 $8,928.90
========== =========== ======= ========== ===========
The accompanying notes are an integral part of these statements
F-7
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. ORGANIZATION AND BUSINESS
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 Advisor 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
Cash and Cash Equivalents
Cash and cash equivalents include cash held at banks and overnight time
deposits.
Due from Brokers
Due from brokers primarily consists of cash balances carried as margin
deposits with clearing brokers for the purpose of trading in securities,
futures contracts and other derivative instruments. Also included in due from
brokers are the unrealized gains and losses on open futures contracts and other
derivative instruments, as reflected on the condensed schedule of investments.
Pending Partner Additions
Pending partner additions is comprised of cash received prior to year-end
for which units were issued on January 1 of the subsequent year. Pending
partner additions did not participate in the earnings of the Partnership until
the related units were issued.
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.
F-8
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
For derivative instruments, fair value is generally based upon independent
market values when available from major exchanges or, if none are available, at
independent broker quotations. Additionally, 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 terms.
Brokerage Commissions and Fees
These expenses represent all brokerage commissions, exchange, National
Futures Association and other fees incurred in connection with the execution
and clearing of commodity interests trades. Commissions and fees associated
with open commodity interests at the end of the year are accrued.
Service Agreement
The Partnership has entered into an agreement with CITCO Fund Services USA,
Inc. (the "Service Company"), under which the Service Company provides
necessary accounting services to the Partnership, including maintenance of the
financial books and records. The Service Company has waived its right to
receive any payment for these services.
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 has waived its right to receive a management fee
attributable to units held by the TIC 401(k) Plan.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at
year-end exchange rates. Gains and losses resulting from foreign currency
transactions are calculated using daily exchange rates and are included in the
accompanying statements of operations.
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.
F-9
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
Accounting Pronouncement
In September of 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities--a replacement of FASB Statement No. 125". SFAS 140 amended 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 amended the
accounting for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. The SFAS 140 provisions did not
impact 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
that 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
The Partnership has not made any provisions for U.S. federal and state
income taxes since the partners are responsible for reporting income or loss
based upon their respective share of revenue and expense.
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
F-10
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
Partnership typically has on deposit with BPL, as collateral for forward
contracts, up to 4% of the Partnership's net assets. During 2001, 2000 and
1999, the Partnership earned interest income of $39,413, $37,163, and $30,518,
respectively, from deposits of collateral with BPL. At December 31, 2001, 2000
and 1999, the amounts on deposit with BPL were $1,187,258, $1,128,484 and
$540,796 (including $313,366, ($2,428) and $74,335, respectively, in unrealized
trading gains (losses)).
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET MARKET RISK AND CONCENTRATION
OF CREDIT RISK
The Partnership is subject to changes in value resulting from the market and
credit risk associated with the financial instruments which are traded. TIC
takes an active role in managing the Partnership's market and counterparty
risks and has established formal procedures which are reviewed on an ongoing
basis.
TIC has developed a set of guidelines and policies which are designed to
maintain risk within parameters which are appropriate and necessary to achieve
targeted rates of return. These guidelines and policies include quantitative
and qualitative criteria for individual risk factors as well as for aggregate
risk. TIC's Risk Management Department, in conjunction with various senior
personnel from different disciplines throughout TIC and its affiliates,
regularly assesses and evaluates the Partnership's potential exposures to
market risk based on analyses performed by the department.
The Risk Management Department's responsibilities include: evaluating the
positions taken by traders in various instruments and markets globally and
assessing the market risk associated with all of those positions. TIC's Risk
Management Department uses a statistical technique known as Value at Risk
("VaR") to assist in measuring market risk. The VaR model is a proprietary
system, and is one of several tools used to monitor and review the
Partnership's trading portfolios. The VaR model projects potential losses of
the portfolio based on a historical simulation methodology which uses two years
of historical data, a one-day holding period and a 99% confidence level.
As a writer of options, the Partnership receives a premium upon initial
settlement and then bears the risk of changes in the price of the financial
instrument underlying the option. Swaps, forward rate agreements, forward
currency contracts and OTC foreign currency options are traded in unregulated
markets.
Derivative instruments are bi-lateral agreements which result in credit
exposure between counterparties. Exchange traded derivatives settle through
clearing houses backed by multiple members and present relatively low credit
risk. OTC derivatives are settled with individual counterparties and,
therefore, present potential concentrated credit exposure risk. TIC attempts to
minimize credit risk exposure to trading counterparties and brokers through the
use of bi-lateral collateral agreements ("Collateral Agreements") with OTC
derivative counterparts and through formal credit policies and monitoring
procedures. TIC has a formal Credit Committee, comprised of senior managers
from different disciplines throughout TIC and its affiliates, 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 due from brokers, are invested
with or held at top tier banks and securities dealers. TIC establishes
counterparty exposure limits and specifically designates which product types
are approved for trading. The Partnership attempts to reduce its credit risk by
establishing stringent credit terms in its legal trade documentation (i.e. ISDA
agreements, master netting agreements, etc.) with its counterparties. In
addition, the TIC monitors exposure levels and actively moves collateral with
counterparties to reduce exposure.
F-11
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
Futures and forwards are typically liquidated by entering into offsetting
contracts with the same counterparty. Swaps and forward rate agreements are
either liquidated or held to maturity. For these instruments the unrealized
gain or loss, rather than the contract or notional amounts, represents the
present value of future net cash requirements.
Collateral Agreements require the Partnership and its counterparties to
monitor the fair value of its derivative transactions on a daily basis and
pledge or pull back additional collateral as necessary. As of December 31, 2001
and 2000, the Partnership has pledged $703,791 and $351,000, respectively, of
cash collateral. Under these Collateral Agreements, there was no securities
collateral pledged as of December 31, 2001 and 2000. The Partnership records
cash collateral posted as a receivable from the broker.
As of December 31, 2001 and 2000, the Partnership has received $0 and
$60,000, respectively, of cash collateral under these Collateral Agreements.
The Partnership nets this cash collateral received against the contractual
commitment asset, when legal right of offset exists. As of December 31, 2001
and 2000, the Partnership had no securities collateral pledged or received
under these Collateral Agreements.
The following table summarizes the Partnership's year-end assets and
liabilities at December 31, 2001 and 2000, resulting from unrealized gains and
losses on derivative instruments included in the accompanying statements of
financial condition (in thousands):
2001 2000
------------------ ------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Exchange traded contracts:
Interest rate contracts.......... $ 102 $ -- $182 $ --
Forward exchange contracts....... 314 -- -- 6
Equity index contracts........... -- 30 124 --
Over-the-counter contracts:
Commodity swaps.................. -- -- 94 --
Equity swaps..................... 643 -- -- --
Interest rate swaps.............. -- -- 7 --
Currency contracts............... 241 -- -- --
Non-financial derivative instruments -- 31 -- --
------ ---- ---- ----
$1,300 $ 61 $407 $ 6
====== ==== ==== ====
F-12
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
8. FINANCIAL HIGHLIGHTS
The following represents financial highlights of the Partnership for the
year ended December 31, 2001:
Per unit operating performance:
Net asset value per unit, December 31, 2000...................... $7,095.78
Net investment loss per unit................................. (98.52)
Net realized and unrealized trading gain (loss) per unit..... 1,931.64
---------
1,833.12
Net asset value per unit, December 31, 2001...................... $8,928.90
=========
Total return:
Total return before incentive fee................................ 29.72%
Incentive fee................................................ (2.75)
---------
Total return after incentive fee.......................... 26.97%
=========
Ratios to average net assets:
Net investment income before incentive fee....................... 1.09%
Incentive fee................................................ (2.29)
---------
Net investment income (loss) after incentive fee.......... (1.20)%
=========
Expenses......................................................... 2.75%
Incentive fee................................................ 2.29
---------
Total expenses and incentive fee.......................... 5.04%
=========
The per unit operating performance and ratios are computed based upon the
average units outstanding and average net assets for the Limited Partner
interests, respectively, for the year ended December 31, 2001. Total return is
calculated as the change in the net asset value of the Limited Partner
interests for the year ended December 31, 2001. The total return and ratios
assessed to an individual Limited Partner, may vary based on varying management
and/or incentive fee arrangements and the timing of capital transactions.
F-13
TUDOR FUND FOR EMPLOYEES L.P.
FINANCIAL STATEMENTS
AS OF MARCH 31, 2002
(UNAUDITED)
F-14
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
2002 2001
----------- ------------
(unaudited) (audited)
ASSETS
Cash and cash equivalents........................................ $33,021,713 $25,307,514
Due from brokers................................................. 5,169,810 2,610,863
Subscription receivable.......................................... 280,000 --
----------- -----------
Total assets.............................................. $38,471,523 $27,918,377
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable.............................................. $ 857,565 $ 369,794
Pending partner additions........................................ 3,048,505 4,931,369
Management fee payable........................................... 141,255 29,661
Incentive fee payable............................................ 64,652 339,869
Accrued professional fees and other.............................. 129,527 86,612
----------- -----------
Total liabilities......................................... 4,241,504 5,757,305
----------- -----------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,508.580 and
3,363.810 outstanding at March 31, 2002 and December 31, 2001.. 32,413,914 20,766,179
General Partner, 196.580 units outstanding at March 31, 2002 and
December 31, 2001.............................................. 1,816,105 1,394,893
----------- -----------
Total partners' capital................................... 34,230,019 22,161,072
----------- -----------
Total liabilities and partners' capital................... $38,471,523 $27,918,377
=========== ===========
The accompanying notes are an integral part of these statements.
F-15
TUDOR FUND FOR EMPLOYEES L.P.
CONDENSED SCHEDULE OF INVESTMENTS
Percent
of
North Partners'
America Asia Europe Total Capital
--------- ------- -------- --------- ---------
OPTIONS, at market value:
OTC foreign exchange option.......................... $ -- $ -- $221,731 $ 221,731 0.65%
Interest rate future option.......................... (283,244) -- -- (283,244) (0.83)
--------- ------- -------- --------- -----
Total options, at market value (cost $3,918)..... (283,244) -- 221,731 (72,503) (0.18)
--------- ------- -------- --------- -----
FUTURES, at market value:
Index futures........................................ 37,316 4,300 -- 41,616 0.12
Interest rate futures................................ (359,698) -- -- (359,698) (1.05)
Foreign exchange futures............................. (2,080) -- -- (2,080) (0.01)
Commodity futures.................................... 146,199 -- -- 146,199 0.43
--------- ------- -------- --------- -----
Total futures, at market value................... (178,263) 4,300 -- (173,963) (0.51)
--------- ------- -------- --------- -----
FORWARDS, at market value
Foreign exchange forwards............................ 41,865 (12,828) 29,037 0.08
Metal Forwards....................................... 16,973 -- -- 16,973 0.05
--------- ------- -------- --------- -----
Total forwards, at market value:................. 16,973 41,865 (12,828) 46,010 0.13
--------- ------- -------- --------- -----
Total investments, at market value............... $(444,534) $46,165 $208,903 $(189,466) (0.56)%
========= ======= ======== ========= =====
The accompanying notes are an integral part of these statements.
F-16
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(UNAUDITED)
March 31, March 31,
2002 2001
----------- ----------
REVENUES:
Net realized trading gains (losses)............ $ 2,819,416 $3,958,539
Change in net unrealized trading losses........ (1,417,221) (979,936)
Interest income................................ 144,433 389,323
----------- ----------
Total revenues.......................... 1,546,628 3,367,926
----------- ----------
EXPENSES:
Brokerage commissions and fees................. 67,474 62,554
Incentive fee.................................. 64,652 268,878
Management fee................................. 141,255 118,524
Professional fees and other.................... 51,108 34,477
----------- ----------
Total expenses.......................... 324,489 484,433
----------- ----------
Net income.............................. $ 1,222,139 $2,883,493
=========== ==========
Limited Partners' net income............ 1,161,292 2,742,924
General Partners' net income............ 60,847 140,569
----------- ----------
$ 1,222,139 $2,883,493
=========== ==========
Changes in Net Asset Value per Unit..... $ 309.57 $ 715.07
=========== ==========
Net income per Unit (Note 2)............ $ 321.96 $ 736.55
=========== ==========
The accompanying notes are an integral part of these statements.
F-17
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD ENDED MARCH 31, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
Limited Partners General Partner
---------------------- ------------------ Total Net Asset Value
Units Capital Units Capital Capital Per Unit
--------- ----------- ------- ---------- ----------- ---------------
Partners' Capital, January 1, 2001... 2,926.555 $20,766,179 196.580 $1,394,893 $22,161,072 $7,095.7774
--------- ----------- ------- ---------- -----------
Net income........................ -- 6,935,785 -- 360,365 7,296,150
TIC 401(k) Plan unit
adjustment (a).................. 32.780 -- -- -- --
Capital contributions............. 1,295.726 9,626,183 -- -- 9,626,183
Redemptions....................... (891.251 (7,293,021) -- -- (7,293,021)
--------- ----------- ------- ---------- -----------
Partners' Capital, December 31,
2001(b)............................ 3,363.810 30,035,126 196.580 1,755,258 31,790,384 8,928.9032
Net income........................ -- 1,161,292 -- 60,847 1,222,139
TIC 401(k) Plan unit
adjustment (a).................. 5.196 -- -- -- --
Capital contributions............. 232.399 2,075,061 -- -- 2,075,061
Redemptions....................... (92.825) (857,565) -- -- (857,565)
--------- ----------- ------- ---------- -----------
Partners' Capital, March 31, 2002 (b) 3,508.580 $32,413,914 196.580 $1,816,105 $34,230,019 $9,238.4727
========= =========== ======= ========== =========== ===========
- --------
(a) See Note 3--Capital Accounts
(b) See Note 4--Redemption of Units
The accompanying notes are an integral part of these statements.
F-18
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(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
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.
F-19
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
MARCH 31, 2002
(UNAUDITED)
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
March 31, 2002 and December 31, 2001 due from broker was comprised of
$5,363,193 and $2,626,582 in cash balances and foreign currencies and
($193,383) and $1,238,546 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.
F-20
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
MARCH 31, 2002
(UNAUDITED)
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
The Partnership has not made any provisions for U.S. federal and state
income taxes since the partners are responsible for reporting income or loss
based upon their respective share of revenue and expense.
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.
F-21
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
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 4% 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
The Partnership is subject to changes in value resulting from the market and
credit risk associated with the financial instruments which are traded. TIC
takes an active role in managing the Partnership's market and counterparty
risks and has established formal procedures which are reviewed on an ongoing
basis.
TIC has developed a set of guidelines and policies which are designed to
maintain risk within parameters which are appropriate and necessary to achieve
targeted rates of return. These guidelines and policies include quantitative
and qualitative criteria for individual risk factors as well as for aggregate
risk. TIC's Risk Management Department, in conjunction with various senior
personnel from different disciplines throughout TIC and its affiliates,
regularly assesses and evaluates the Partnership's potential exposures to
market risk based on analyses performed by the department.
The Risk Management Department's responsibilities include: evaluating the
positions taken by traders in various instruments and markets globally and
assessing the market risk associated with all of those positions. TIC's Risk
Management Department uses a statistical technique known as Value at Risk
("VaR") to assist in measuring market risk. The VaR model is a proprietary
system, and is one of several tools used to monitor and review the
Partnership's trading portfolios. The VaR model projects potential losses of
the portfolio based on a historical simulation methodology which uses two years
of historical data, a one-day holding period and a 99% confidence level.
As a writer of options, the Partnership receives a premium upon initial
settlement and then bears the risk of changes in the price of the financial
instrument underlying the option. Swaps, forward rate agreements, forward
currency contracts and OTC foreign currency options are traded in unregulated
markets.
Derivative instruments are bi-lateral agreements which result in credit
exposure between counterparties. Exchange traded derivatives settle through
clearing houses backed by multiple members and present relatively low credit
risk. OTC derivatives are settled with individual counterparties and,
therefore, present potential concentrated credit exposure risk. TIC attempts to
minimize credit risk exposure to trading counterparties and brokers through the
use of bilateral collateral agreements ("Collateral Agreements") with OTC
derivative counterparts and through formal credit policies and monitoring
procedures. TIC has a formal Credit Committee, comprised of senior managers
from different disciplines throughout TIC and its affiliates, 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 due from brokers, are invested
with or held
F-22
TUDOR FUND FOR EMPLOYEES L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
at top tier banks and securities dealers. TIC establishes counterparty exposure
limits and specifically designates which product types are approved for
trading. The Partnership attempts to reduce its credit risk by establishing
stringent credit terms in its legal trade documentation (i.e. ISDA agreements,
master netting agreements, etc.) with its counterparties. In addition, the TIC
monitors exposure levels and actively moves collateral with counterparties to
reduce exposure.
Futures and forwards are typically liquidated by entering into offsetting
contracts with the same counterparty. Swaps and forward rate agreements are
either liquidated or held to maturity. For these instruments the unrealized
gain or loss, rather than the contract or notional amounts, represents the
present value of future net cash requirements.
Collateral Agreements require the Partnership and its counterparties to
monitor the fair value of its derivative transactions on a daily basis and
pledge or pull back additional collateral as necessary. As of March 31, 2002,
the Partnership has pledged $10,000 of cash collateral and no cash collateral
had been received. Under these Collateral Agreements, there was no securities
collateral pledged or received as of March 31, 2002. The Partnership records
cash collateral posted as a receivable from the broker.
The following table summarizes March 31, 2002 and December 31, 2001 assets
and liabilities resulting from unrealized gains and losses on derivative
instruments included in the statements of financial condition (000's
omitted):
March 31, 2002 December 31, 2001
------------------ ------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Exchange Traded Contracts:
Interest Rate Contracts.......... $ 73 $617 $ 102 $--
Foreign Exchange Contracts....... 29 2 314 --
Equity Index Contracts........... 42 -- -- 30
Over-the-Counter Contracts:
Commodity Swaps.................. 146 -- -- --
Equity Swaps..................... -- -- 643 --
Currency Contracts............... 119 241 --
Non-Financial Derivative Instruments 17 -- -- 31
---- ---- ------ ---
Total........................ $426 $619 $1,300 $61
==== ==== ====== ===
F-23
8. FINANCIAL HIGHLIGHTS
The following represents financial highlights of the Partnership for the
quarter ended March 31, 2002:
Per unit operating performance:
Net asset value per unit, December 31, 2001...................... $8,928.90
Net investment loss per unit................................. (48.38)
Net realized and unrealized trading gain (loss) per unit..... 357.95
---------
309.57
---------
Net asset value per unit, March 31, 2002......................... $9,238.47
=========
Total return:
Total return before incentive fee................................ 3.81%
Incentive fee................................................ (0.19)
---------
Total return after incentive fee.......................... 3.62%
=========
Ratios to average net assets:
Net investment loss before incentive fee......................... (0.34)%
Incentive fee................................................ (0.19)
---------
Net investment loss after incentive fee................... (0.53)%
=========
Expenses......................................................... 0.76%
Incentive fee................................................ 0.19
---------
Total expenses and incentive fee.......................... 0.95%
=========
The per unit operating performance and ratios are computed based upon the
average units outstanding and average net assets for the Limited Partner
interests, respectively, for the quarter ended March 31, 2002. Total return is
calculated as the change in the net asset value of the Limited Partner
interests for the quarter ended March 31, 2002. The total return and ratios
assessed to an individual Limited Partner, may vary based on varying management
and/or incentive fee arrangements and the timing of capital transactions.
F-24
SECOND MANAGEMENT LLC
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2000
TOGETHER WITH AUDITORS' REPORT
F-25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Second Management LLC:
We have audited the accompanying statements of financial condition of Second
Management LLC as of December 31, 2001 and 2000, and the related statements of
income, changes in members' capital and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Second Management LLC as of
December 31, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
New York, New York
March 25, 2002
F-26
SECOND MANAGEMENT LLC
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 2001 AND 2000
2001 2000
---------- ----------
ASSETS
Cash................................................................. $ 4,645 $ 33,356
Receivables from affiliates.......................................... 4,626,758 4,566,327
Investment in investment fund, at fair value......................... 1,755,258 1,392,224
---------- ----------
Total assets...................................................... $6,386,661 $5,991,907
========== ==========
LIABILITIES AND MEMBERS' CAPITAL
LIABILITIES:
Payable to affiliate................................................. $ -- $ 25,981
Accrued expenses..................................................... 10,996 10,996
---------- ----------
Total liabilities................................................. 10,996 36,977
MEMBERS' CAPITAL..................................................... 6,375,665 5,954,930
---------- ----------
Total liabilities and members' capital............................ $6,386,661 $5,991,907
========== ==========
The accompanying notes are an integral part of these statements.
F-27
SECOND MANAGEMENT LLC
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
-------- --------
REVENUES:
Gain on investment in investment fund................................ $363,034 $264,257
Interest............................................................. 334,421 400,491
-------- --------
Total revenues................................................ 697,455 664,748
-------- --------
EXPENSES:
General and administrative........................................... 242,152 86,688
Professional fees.................................................... 34,568 71,092
-------- --------
Total expenses................................................ 276,720 157,780
-------- --------
Net income.................................................... $420,735 $506,968
======== ========
The accompanying notes are an integral part of these statements.
F-28
SECOND MANAGEMENT LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
MEMBERS' CAPITAL, January 1, 2000.......................... $5,447,962
Net income.............................................. 506,968
----------
MEMBERS' CAPITAL, December 31, 2000........................ 5,954,930
Net income.............................................. 420,735
----------
MEMBERS' CAPITAL, December 31, 2001........................ $6,375,665
==========
The accompanying notes are an integral part of these statements.
F-29
SECOND MANAGEMENT LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 420,735 $ 506,968
Adjustments to reconcile net income to net cash (used in) provided by operating
activities--
Gain on investment in investment fund........................................... (363,034) (264,257)
Increase in operating assets--
Receivables from affiliates..................................................... (60,431) (234,586)
--------- ---------
Net increase in operating assets................................................ (60,431) (234,586)
--------- ---------
Increase (decrease) in operating liabilities--
Payable to affiliate............................................................... (25,981) 25,981
Accrued expenses................................................................... -- (1,000)
--------- ---------
Net (decrease) increase in operating liabilities................................ (25,981) 24,981
--------- ---------
Net cash (used in) provided by operating activities............................. (28,711) 33,106
--------- ---------
Net (decrease) increase in cash................................................. (28,711) 33,106
CASH, beginning of the year........................................................ 33,356 250
--------- ---------
CASH, end of the year.............................................................. $ 4,645 $ 33,356
========= =========
The accompanying notes are an integral part of these statements.
F-30
SECOND MANAGEMENT LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
1. ORGANIZATION AND BUSINESS
Second Management LLC (the "Company"), a Delaware limited liability company,
commenced operations on April 4, 1996. The Company is majority owned by Tudor
Group Holdings LLC ("TGH"), a Delaware limited liability company that commenced
operations on January 1, 1996. The Company is registered with the Commodity
Futures Trading Commission as a Commodity Pool Operator and a Commodity Trading
Advisor ("CTA") and is a member of the National Futures Association in such
capacities. The Company serves as the general partner of Tudor Fund for
Employees L.P. ("TFE"). TFE was formed to engage in speculative trading of
commodity interests, including futures and forward contracts and options on
futures and forward contracts. An affiliate of the Company, Tudor Investment
Corporation ("TIC"), functions as the CTA for TFE.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Investment Fund
The investment in TFE is carried in the accompanying statements of financial
condition at fair value based upon the net asset value of TFE as determined by
the Company in its role as general partner.
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 consolidated
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing the consolidated financial statements are
reasonable and prudent; however, actual results could differ from these
estimates.
3. INVESTMENT IN INVESTMENT FUND
As of December 31, 2001 and 2000, the Company owned 197 general partnership
units of TFE valued at $1,755,258 and $1,392,224, respectively, which
represented approximately 5.5% and 6.3% of the partners' capital of TFE,
respectively.
The Company participates in the profits and losses of TFE on a pro rata
(unit-for-unit) basis with all limited partners. TIC, as the CTA for TFE,
receives a 12% incentive fee, determined quarterly, on new trading profits, as
defined in the TFE Prospectus, and a quarterly management fee paid at a rate of
2% per annum based on TFE's net assets.
TFE is a party to financial instruments with elements of off-balance sheet
credit and market risk in excess of the amounts recognized in the statements of
financial condition through its trading of financial futures, forwards and
options contracts. Risk to TFE arises from the possible adverse changes in the
market value of such interests and the potential inability of counterparties to
perform under the terms of their respective contracts. Because the Company is
the general partner of TFE, its potential liability may exceed its investment
in this partnership. In management's opinion, the settlement of these
transactions will not have a material adverse effect on the financial condition
of the Company.
F-31
SECOND MANAGEMENT LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
4. RELATED PARTY TRANSACTIONS
From time to time, the Company has advanced funds to TGH in varying amounts
and for various periods and has received interest at a rate equal to the prime
rate. During the years ended December 31, 2001 and 2000, the Company earned
$334,421 and $400,491, respectively, of interest income from this affiliate.
The Company remunerates TIC on an arm's-length basis for services provided
related to general accounting, legal, treasury and technology support and
senior management services. For the years ended December 31, 2001 and 2000, the
expense relating to these services was approximately $217,000 and $54,000,
respectively and is included in general and administrative expense on the
accompanying statements of income.
5. INCOME TAXES
The Company has not made any provisions for U.S. income tax since it is
structured as a limited liability company. For U.S. federal and state tax
purposes, a limited liability company is treated as a partnership. Accordingly,
the members of the Company are responsible for reporting income or loss based
upon their respective shares of the revenues and expenses of the Company.
F-32
SECOND MANAGEMENT LLC
STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 2002
(UNAUDITED)
F-33
SECOND MANAGEMENT LLC
STATEMENT OF FINANCIAL CONDITION
MARCH 31, 2002
(UNAUDITED)
ASSETS
Cash................................................................. $ 43,458
Investment in limited partnership.................................... 1,816,105
Receivable from affiliate............................................ 4,505,000
Other assets......................................................... 96,199
----------
Total assets...................................................... $6,460,762
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable..................................................... $ 4,998
Payable to affiliate................................................. 24,134
----------
Total liabilities................................................. 29,133
----------
MEMBERS' CAPITAL: 6,431,629
----------
Total liabilities and members' capital............................ $6,460,762
==========
F-34
SECOND MANAGEMENT LLC
NOTES TO STATEMENT OF FINANCIAL CONDITION
MARCH 31, 2002
(UNAUDITED)
(1) ORGANIZATION AND BUSINESS:
Second Management LLC (the "Company"), a Delaware limited liability company,
commenced operations on April 4, 1996. The Company is majority-owned by Tudor
Group Holdings LLC, a Delaware limited liability company ("TGH"). The Company
is registered with the Commodity Futures Trading Commission as a Commodity Pool
Operator and Commodity Trading Advisor and is a member of the National Futures
Association in such capacities. The Company serves as the general partner of
Tudor Fund For Employees L.P. (the "Employee Fund"). The Employee Fund was
formed to engage in speculative trading of commodity interests, including
futures and forward contracts and options on futures and forward contracts.
Another affiliate of the Company, Tudor Investment Corporation ("TIC"),
functions as the Commodity Trading Advisor for the Employee Fund.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investment In Limited Partnership
The investment in the Employee Fund is carried in the accompanying
statements of financial condition at fair value based upon the net asset value
of the Employee Fund as determined by the Company in its role as general
partner.
Use of Estimates
Certain estimates, as determined by management, were used in the preparation
of these financial statements.
(3) INVESTMENT IN LIMITED PARTNERSHIP:
As of March 31, 2002, the Company owned 197 general partnership units valued
at $1,816,105 which represents approximately 5% of the total net assets of the
Employee Fund, respectively.
The Company participates in the profits and losses of the Employee Fund on a
pro-rata (unit for unit) basis with all limited partners. TIC, as the commodity
trading advisor for the Employee Fund, receives a 12% incentive fee on new
trading profits determined quarterly and a 2% management fee per annum.
The Employee Fund is a party to financial instruments with elements of
off-balance sheet credit and market risk in excess of the amounts recognized in
the statements of financial condition through its trading of financial futures,
forwards and options contracts. Risk to the Employee Fund arises from the
possible adverse changes in the market value of such interests and the
potential inability of counterparties to perform under the terms of their
respective contracts. The risk to the Company, with reference to its general
partnership interest in the Employee Fund, may exceed its investment in this
partnership. In management's opinion, the settlement of these transactions will
not have a material adverse effect on the financial condition of the Company.
(4) RELATED PARTY TRANSACTIONS:
From time to time, the Company has advanced funds to TGH in varying amounts
and for various periods at rates of interest equal to the prime rate.
The Company remunerates TIC on an arm's-length basis for services provided
related to general accounting, legal, treasury and technology support and
senior management services.
F-35
SECOND MANAGEMENT LLC
NOTES TO STATEMENT OF FINANCIAL CONDITION (Continued)
MARCH 31, 2002
(UNAUDITED)
(5) INCOME TAXES:
The Company has not made any provisions for U.S. income tax since it is
structured as a limited liability company. For U.S. federal and state tax
purposes, a limited liability company is treated as a partnership. Accordingly,
the members of the Company are responsible for reporting income or loss based
upon their respective shares of the revenues and expenses of the Company.
F-36
EXHIBIT A
TUDOR FUND FOR EMPLOYEES L.P.
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF MAY 22, 1996
Page 2
TABLE OF CONTENTS
1. Name; Formation....................................................... A-1
2. Offices............................................................... A-2
3. Business.............................................................. A-2
4. Term; Dissolution..................................................... A-3
(a) Term.............................................................. A-3
(b) Dissolution....................................................... A-3
5. Fiscal Year........................................................... A-3
6. General Partner's Net Worth........................................... A-4
7. Capital Contributions................................................. A-4
8. Allocation of Profits and Losses; Accounting; Related Matters......... A-8
(a) Capital Accounts.................................................. A-8
(b) Monthly Allocations............................................... A-8
(c) Allocation of Profit and Loss for Federal Income Tax Purposes..... A-9
(d) Definitions; Accounting.......................................... A-11
(e) Expenses and Limitations Thereof................................. A-12
(f) Limited Liability of Limited Partners............................ A-13
(g) Lender as Partner................................................ A-15
(h) Return of Limited Partners' Capital Contributions................ A-15
(i) Distributions.................................................... A-15
(j) General Partner as Limited Partner............................... A-15
9. Management........................................................... A-15
(a) Management of Partnership........................................ A-15
(b) Trading Policies................................................. A-18
(c) Additional Obligations and Responsibilities of General Partner... A-19
10. Audits; Reports to Limited Partners.................................. A-22
11. Transfer and Redemption of Units..................................... A-23
(a) Transfer......................................................... A-23
(b) Redemption....................................................... A-25
12. Mandatory Redemption................................................. A-26
13. Admission of Additional Partners..................................... A-27
14. Special Power of Attorney............................................ A-27
15. Withdrawal of Partners............................................... A-28
(a) Withdrawal of General Partner.................................... A-28
(b) Withdrawal of Limited Partners................................... A-28
16. No Personal Liability for Return of Capital.......................... A-29
ii
17. Standard of Liability; Indemnification........................................................A-29
(a) Standard of Liability.....................................................................A-29
(b) Indemnification by Partnership............................................................A-29
(c) Affiliate.................................................................................A-31
(d) Indemnification by Partners...............................................................A-31
18. Amendments; Meetings; Voting..................................................................A-31
(a) Amendments and Actions With Consent of General Partner....................................A-31
(b) List of Partners; Meetings................................................................A-32
(c) Amendments and Actions Without Consent of General Partner.................................A-32
(d) Actions Without Meeting...................................................................A-33
(e) Amendments to Certificate of Limited Partnership..........................................A-33
19. Governing Law.................................................................................A-33
20. Miscellaneous.................................................................................A-34
(a) Priority Among Limited Partners...........................................................A-34
(b) Notices...................................................................................A-34
(c) Binding Effect............................................................................A-34
(d) Captions..................................................................................A-34
Annex A -- Request for Redemption.................................................................A-36
iii
TUDOR FUND FOR EMPLOYEES L.P.
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
This Second Amended and Restated Limited Partnership Agreement (this
"Agreement") of TUDOR FUND FOR EMPLOYEES L.P. (the "Partnership") made as of May
22, 1996 by and among Second Management LLC, a Delaware limited liability
company (the "General Partner"), and the other parties who have heretofore
executed or who shall hereafter execute this Agreement (whether in counterpart,
by separate instrument, or otherwise) and who have heretofore been admitted or
who shall be hereafter admitted to the Partnership as limited partners in
accordance with the provisions hereof, and whose names and addresses have
heretofore or shall hereafter, upon such admission, be added to the books and
records of the Partnership (collectively, including any Plan Investor Partners
(as defined in Section 7), the "Limited Partners"; the General Partner and the
Limited Partners may be referred to herein individually as a "Partner", and
collectively as the "Partners");
WITNESSETH:
WHEREAS, the Partnership has heretofore been formed as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act") for the purpose of speculative trading in commodity interest
contracts (as defined in Section 3) pursuant to a Limited Partnership Agreement
dated as of November 22, 1989 as amended and restated as of July 1, 1995 (the
"Prior Limited Partnership Agreement");
WHEREAS, the General Partner continues to desire to make an
investment vehicle available to (i) persons who are employees of the General
Partner, any of its present or future affiliated entities, or their successors
or assigns, (ii) such entities themselves, and (iii) such other individuals and
entities as the General Partner in its sole discretion may determine; and
WHEREAS, the Partners desire to amend and restate the Prior Limited
Partnership Agreement in its entirety as set forth herein;
NOW, THEREFORE, the parties hereto do hereby agree as follows.
1. NAME; FORMATION.
The parties heretofore formed and have operated, and hereby agree to
continue, the Partnership as a limited partnership under and pursuant to the
Partnership Act. The name of the Partnership shall remain TUDOR FUND FOR
EMPLOYEES L.P. or such other name, to the extent permitted by the Partnership
Act, as the General Partner shall hereafter designate in writing to the Limited
Partners. The General Partner heretofore executed and filed in the Office of the
Secretary of State of the State of Delaware a Certificate of Limited Partnership
(the "Certificate of Limited Partnership") in accordance with the Partnership
Act, and shall
A-1
execute, file, record, and publish as appropriate such amendments to this
Agreement, the Certificate of Limited Partnership, assumed name certificates,
and other documents as shall be necessary or advisable as determined by the
General Partner to comply with the law of any jurisdiction. Each Limited Partner
shall furnish to the General Partner a power of attorney and such additional
information as is required from such Partner to complete such documents, and
shall execute and cooperate in the filing, recording, or publishing of such
documents at the request of the General Partner.
2. OFFICES.
The principal office of the Partnership is One Liberty Plaza, 51st
Floor, New York, New York 10006, or such other place as the General Partner may
in its sole discretion designate from time to time.
The address of the registered office of the Partnership in the State
of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209
Orange Street, Wilmington, New Castle County, Delaware 19801, and the name and
address of the registered agent for service of process on the Partnership in the
State of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other
registered office or agent or address as the General Partner may in its sole
discretion designate from time to time.
3. BUSINESS.
The Partnership's business and purpose is to engage in any lawful
act or activity for which a limited partnership may be organized under the
Partnership Act, including without limitation primarily to trade, buy, sell
(including to sell short), spread, swap, acquire, hold, dispose of, and deal in,
commodities, currencies, futures contracts, forward contracts, foreign exchange
commitments, currency exchanges, money market instruments, debt obligations and
other instruments issued or guaranteed by sovereigns, governments, and
supranationals and their bodies, agencies, instrumentalities, authorities, and
similar issuers, bonds, debentures, notes, bills, commercial paper, repurchase
and reverse repurchase agreements, standby purchase and sale agreements,
financial instruments, investment contracts, investment agreements, certificates
of interest, securities interests, securities of and interests in other
corporations, companies, partnerships, trusts, and other entities and vehicles,
swaps, swaptions, caps, floors, straddles, and collars, derivative and hybrid
transactions and instruments (however designated), options on and in respect of
any of the foregoing, and rights and interests in respect of, pertaining to, and
in connection with, any of the foregoing, on or off exchanges and markets, in
publicly offered and private placement transactions, on spot, current, future,
forward, and when-issued start, delivery, settlement, and optional commitment
bases, on secured and unsecured bases, and on margin, collateral, and partial
and full payment bases (herein referred to collectively as "commodity interest
contracts"). The objective of the Partnership's business is and shall be
appreciation of its assets through speculative trading of commodity interest
contracts.
A-2
4. TERM; DISSOLUTION.
(a) TERM. The term of the Partnership commenced on November 22, 1989 upon
the filing of the Certificate of Limited Partnership in the Office of the
Secretary of State of the State of Delaware pursuant to the Partnership Act, and
shall end upon the first to occur of the following: (i) December 31, 2010; (ii)
the receipt by the General Partner of a notice setting forth an election to
dissolve the Partnership at a specified time by Limited Partners owning more
than 50% of the Units of Limited Partnership Interest in the Partnership ("Units
of Limited Partnership Interest" or "Units") then owned by Limited Partners,
which notice shall be delivered to the General Partner at least 90 days prior to
the effective date of such dissolution; (iii) the withdrawal, insolvency,
termination, dissolution, or liquidation of the General Partner and of any
successor entity thereof, unless the business of the Partnership shall be
continued by any new, remaining, or successor general partner(s) in accordance
with Sections 15(a) and 18; (iv) the Partners terminate the Partnership in
accordance with Section 18; (v) a decline in the Net Asset Value of a Unit (as
defined in Section 8(d)(ii)) as of the end of any calendar month to less than
$500; (vi) a decline in the Partnership's aggregate Net Assets (as defined in
Section 8(d)(i)) as of the end of any calendar month to less than $125,000;
(vii) a determination by the General Partner in its sole discretion either that
the Partnership's assets in relation to its operating expenses make it
unreasonable or imprudent to continue the business of the Partnership, or that
the General Partner no longer desires to make available the Partnership to, or
to operate the Partnership for, the persons permitted to become Limited Partners
pursuant to this Agreement; (viii) upon the enactment of any law or the adoption
of any rule, regulation, policy, or guideline by any regulatory authority having
jurisdiction over the Partnership which shall make it unlawful, unreasonable, or
imprudent in the sole discretion of the General Partner for the principal
business of the Partnership to be continued; or (ix) the occurrence of any event
requiring termination of the Partnership.
(b) DISSOLUTION. Upon the occurrence of an event causing the termination of
the Partnership, the Partnership shall terminate and be dissolved. Dissolution,
payment of creditors, and distribution of the Partnership's Net Assets shall be
effected as soon as practicable in accordance with the Partnership Act, except
that the General Partner and each Limited Partner (and any assignee) shall share
in the Net Assets of the Partnership pro rata in accordance with such Partner's
respective capital account less any amount owing by such Partner (or assignee)
to the Partnership.
Nothing contained in this Agreement shall impair, restrict, or limit
the rights and powers of the Partners under the Partnership Act or the law of
any other jurisdiction in which the Partnership shall be conducting business to
reform and reconstitute themselves as a limited partnership either under terms
identical to those set forth herein or any other terms which they shall deem
appropriate following the dissolution of the Partnership.
5. FISCAL YEAR.
The fiscal year of the Partnership begins on January 1st of each year and
ends on the following December 31st of such year.
A-3
6. GENERAL PARTNER'S NET WORTH.
So long as it shall remain the sole general partner of the
Partnership, the General Partner shall maintain at all times its "Net Worth" at
an amount not less than 10% of the total contributions to the Partnership by all
Partners. For the purposes of this Section 6, Net Worth shall be calculated in
accordance with United States generally accepted accounting principles applied
on a consistent basis, except as specified otherwise in this Section 6, with all
current assets based on their then current market values. Interests owned by the
General Partner in the Partnership, notes and accounts receivable from and
payable to any partnership in which the General Partner has an interest,
interests owned by the General Partner in any other partnership, secured or
unsecured notes of creditworthy obligors (including notes receivable from the
General Partner's "affiliates", as such term is defined in Regulation S-X of the
rules and regulations of the Securities and Exchange Commission (the "SEC")),
and letters of credit shall be included as assets in calculating Net Worth, and
liabilities subordinated to the claims of general creditors shall be included in
calculating Net Worth.
The General Partner shall not be a general partner of any limited
partnership other than the Partnership unless, at all times when it shall be the
sole general partner of the Partnership and the general partner of any such
other limited partnership, its Net Worth shall be at least equal to the Net
Worth required by the preceding paragraph.
The requirements of the preceding two paragraphs may be modified by
the General Partner at its sole option and without notice to or consent of the
Limited Partners, provided that the General Partner shall first obtain a written
opinion of legal counsel that such proposed modification shall not adversely
affect the classification of the Partnership as a partnership for federal income
tax purposes, shall not adversely affect the status of the Limited Partners as
limited partners under the Partnership Act, and shall not violate any applicable
state securities or Blue Sky law or any rules, regulations, guidelines, or
statements of policy promulgated or applied thereunder.
7. CAPITAL CONTRIBUTIONS.
The General Partner heretofore contributed $1,000 in cash to the capital
of the Partnership, and the Partnership issued to the General Partner one Unit
of General Partnership Interest in the Partnership ("Unit of General Partnership
Interest"). The net asset value of a Unit of General Partnership Interest has at
all times been and shall at all times be equivalent to the Net Asset Value of a
Unit of Limited Partnership Interest. At the Initial Closing (as defined below
in this Section 7), the General Partner contributed to the Partnership such
additional amount of cash as was necessary to make the General Partner's
aggregate capital contribution equal to the greater of (a) $200,000 or (b) the
sum of (i) the lesser of $100,000 or 3% of the first $10,000,000 in aggregate
capital contributions to the Partnership by all Partners and (ii) 1% of the
aggregate capital contributions to the Partnership by all Partners in excess of
$10,000,000. In return for such additional capital contribution, the Partnership
issued to the General Partner additional Units of General Partnership Interest,
each of which had an initial net asset value equivalent to the initial Net Asset
Value of a Unit of Limited
A-4
Partnership Interest. As may be required as additional Limited Partners are
admitted to the Partnership at Periodic Closings (as defined below in this
Section 7) or otherwise, the General Partner shall at all times maintain its
interest in the Partnership at no less than the amount required above. However,
the General Partner may maintain its interest in the Partnership at less than
the amount required above so long as it shall first obtain a written opinion of
legal counsel that such proposed action shall not adversely affect the
classification of the Partnership as a partnership for federal income tax
purposes, shall not adversely affect the status of the Limited Partners as
limited partners under the Partnership Act, and shall not violate any applicable
state securities or Blue Sky law or any rules, regulations, guidelines, or
statements of policy promulgated or applied thereunder. Notwithstanding the
foregoing, the General Partner, in its sole discretion, may withdraw any excess
above its required interest in the Partnership without notice to or approval by
the Limited Partners. In addition, the General Partner, in its sole discretion,
may contribute any greater amounts to the Partnership for which the Partnership
shall issue to the General Partner additional Units of General Partnership
Interest based upon the Net Asset Value of a Unit of Limited Partnership
Interest at the time of such contribution.
Interests in the Partnership, other than the Units of General
Partnership Interest issuable to the General Partner, are Units of Limited
Partnership Interest, or Units. The initial Limited Partner heretofore
contributed $1,000 in cash to the capital of the Partnership, and the
Partnership issued to the initial Limited Partner one Unit. At the Initial
Closing, the initial Limited Partner redeemed his one Unit and received $1,000
therefor (without interest), withdrew from the Partnership, and had no further
rights or obligations as a Limited Partner except to the extent he has otherwise
subscribed for Units. The remaining Partners consented to the withdrawal of the
initial Limited Partner.
The General Partner, on behalf of the Partnership, has heretofore
entered and may in the future enter into a selling agreement (a "Selling
Agreement") with one or more brokers, dealers, or banks, whether or not
affiliated with the General Partner or any of its Affiliates (as defined in
Section 17(c)) (each a "Selling Agent"), as described in the Prospectus (as
defined below in this Section 7). Pursuant to a Selling Agreement, a Selling
Agent may select such additional selling agents ("Additional Selling Agents") as
the Selling Agent in its sole discretion may determine. In accordance with the
terms of a Selling Agreement and the Prospectus, the Partnership, through a
Selling Agent and any Additional Selling Agents, shall offer Units and fractions
of Units (to the fourth decimal place) for sale solely and exclusively to (i)
persons who are employees of the General Partner, Tudor Investment Corporation,
a Delaware corporation and an Affiliate of the General Partner ("TIC"), any of
their present and future affiliated entities, and their successors and assigns,
(ii) the General Partner, TIC, any of their present and future affiliated
entities, and their successors and assigns, and (iii) such other individuals and
entities as the General Partner in its sole discretion may determine, all as
provided in this Agreement and in the Prospectus.
At an initial closing held on July 2, 1990 (the "Initial Closing"),
the Partnership issued and sold 421 Units at a price equal to $1,000 per Unit to
each subscriber whose subscription was accepted by the General Partner ($421,000
in the aggregate).
A-5
The Partnership, through the Selling Agents and any Additional
Selling Agents, continues (in the sole discretion of the General Partner) to
offer for sale Units and fractions of Units (to the fourth decimal place) at
prices per Unit, in such minimum amounts, for such periods of time, and on such
terms and conditions as the General Partner determines in its sole discretion.
The continuing offering of Units shall continue until the maximum number of
registered Units (including any newly-registered Units or any Units offered and
sold pursuant to exemptions from the registration or qualification requirements
of applicable securities laws) shall have been sold, unless the General Partner
in its sole discretion shall sooner withdraw or otherwise discontinue the
continuing offering. The Partnership generally issues and sells Units at
closings ("Periodic Closings") held as of the first day of each calendar
quarter. Notwithstanding the foregoing, the General Partner may hold Periodic
Closings at such other times as it shall determine in its sole discretion. The
initial Periodic Closing during the continuing offering was held as of August 1,
1990. At each Periodic Closing, the Partnership issues and sells Units to each
subscriber whose subscription is accepted by the General Partner at a price per
Unit determined by the General Partner in its sole discretion; provided,
however, that the sale price per Unit shall not at any time be less than 100% of
the Net Asset Value of a Unit as of the date of the applicable Periodic Closing
at which such Unit is sold.
At any time and from time to time, Units may be subscribed for, in
the sole discretion of the General Partner, by corporate pension and profit
sharing plans, 401(k) plans, Keogh plans for self-employed individuals
(including partners), simplified employee pension plans, individual retirement
accounts, and other employee benefit plans, whether or not maintained in the
United States and whether or not subject to the Internal Revenue Code of 1986 as
amended (the "Code") or the Employee Retirement Income Security Act of 1974 as
amended ("Plan Investors"), including without limitation Plan Investors owned,
sponsored by, or affiliated with the General Partner, TIC, any of their present
or future affiliated entities, or their successors or assigns. The General
Partner shall only accept subscriptions for Units from Plan Investors to the
extent that the value of each such subscription, when aggregated with the
capital accounts and subscriptions for Units of all other Plan Investors, shall
be less than 25% of the aggregate value of all outstanding Units after giving
effect to such subscriptions, and if such subscriptions shall be otherwise
timely submitted with good funds and in the proper form as described in this
Agreement, the Prospectus, and any subscription documentation. Plan Investors
whose subscriptions are accepted by the General Partner shall become Limited
Partners and "Plan Investor Partners" upon their admission to the Partnership.
At any time and from time to time, Units may be subscribed for by
the General Partner, its present and future affiliated entities, and its
successors and assigns. Subscriptions for Units by such persons or any other
person shall not preclude them from receiving compensation from the Partnership
for services rendered by them in their respective capacities as other than
Limited Partners.
All subscriptions for Units shall be irrevocable. The General
Partner may in its sole discretion reject any subscription in whole or in part
at any time prior to the acceptance thereof. No subscriber for Units shall
become a Limited Partner until the General Partner
A-6
shall accept such subscriber's subscription at a Periodic Closing, shall execute
this Agreement on behalf of such subscriber pursuant to the power of attorney in
Section 14, and shall make an entry in the books and records of the Partnership
reflecting that such subscriber has been admitted as a Limited Partner. Accepted
subscribers shall be deemed Limited Partners at such time as their admission
shall be reflected in the books and records of the Partnership.
In connection with the Partnership's offering of Units as described
in the "Prospectus" (which term shall mean the Partnership's prospectus and
disclosure document and amendments and supplements thereto, including those
constituting a part of the Partnership's registration statements under the
Securities Act of 1933 as amended (the "Securities Act")) relating to the
offering of Units or any other or subsequent prospectus and disclosure document
used from time to time in the offering of Units, the General Partner, on behalf
of the Partnership, shall: (a) cause to be filed (i) one or more registration
statements and such amendments thereto as the General Partner shall deem
advisable or as may be required by applicable law, rules, or regulations with
the Securities and Exchange Commission (the "SEC") and the National Association
of Securities Dealers, Inc. (the "NASD") for the registration and public
offering of Units in the United States of America and other jurisdictions, and
(ii) one or more Prospectuses included in such registration statements and
amendments and supplements thereto with the Commodity Futures Trading Commission
(the "CFTC") and the National Futures Association (the "NFA"); (b) qualify Units
for sale under the securities or Blue Sky laws of such states of the United
States of America or other jurisdictions as the General Partner shall in its
sole discretion deem advisable; (c) make other arrangements for the offering and
sale of Units as the General Partner shall in its sole discretion deem necessary
or appropriate, including but not limited to engaging Selling Agents and
Additional Selling Agents for Units on such terms as the General Partner may
determine in its sole discretion and agree upon with such agents, and effecting
the offering and sale of Units pursuant to exemptions from the registration or
qualification requirements of applicable securities laws; and (d) take such
action with respect to the matters described in clauses (a), (b), and (c) of
this paragraph as the General Partner shall deem advisable or necessary.
All Units subscribed for shall be issued subject to the collection
of good funds. If at any time good funds representing payment for Units shall
not be made available to the Partnership because a subscriber shall have
provided a bad check or draft, other uncollectible item, or otherwise, the
General Partner shall cancel the Units issued to such subscriber represented by
such item, and the subscriber's name shall be removed as a Limited Partner from
the books and records of the Partnership. Any losses or profits sustained by the
Partnership in connection with the Partnership's business allocable to such
canceled Units shall be deemed an increase or decrease in Net Assets and
allocated among the remaining Partners as described in Section 8. Each Limited
Partner shall reimburse the Partnership for any expense and loss (including any
trading loss) incurred in connection with the issuance and cancellation of any
Units issued to such Partner.
Capital contributions to the Partnership shall be made upon
execution, acknowledgment, and delivery of documents in form and substance
satisfactory to the General Partner in its sole discretion.
A-7
No additional contributions of capital shall be required of any
Limited Partner during the term of the Partnership. The aggregate of all capital
contributions shall be available to the Partnership to carry on its business,
and no interest shall be paid by the Partnership on any such contribution.
The General Partner is authorized, in its sole discretion at any
time and from time to time, to terminate and discontinue any offering of Units,
in whole or in part or in respect of any particular jurisdiction.
8. ALLOCATION OF PROFITS AND LOSSES; ACCOUNTING; RELATED MATTERS.
(a) CAPITAL ACCOUNTS. A capital account shall be established for
each Partner. The initial balance of each Partner's capital account shall be the
amount of his initial capital contribution to the Partnership.
(b) MONTHLY ALLOCATIONS. As of the close of business (as determined
by the General Partner in its sole discretion) on the last day of each calendar
month during each fiscal year of the Partnership, the following determinations
and allocations shall be made:
(i) the Partnership's Net Assets, before accrual of
management fees and incentive fees payable to any Affiliate of the General
Partner since the next previous determination of Net Assets, shall be determined
("Adjusted Net Assets");
(ii) any increase or decrease in Adjusted Net Assets as
compared to the next previous determination of Net Assets shall then be credited
or charged to the capital accounts of the Partners in the ratio that the balance
of each Partner's capital account bears to the balance of all Partners' capital
accounts;
(iii) any accrued management fees payable to any
Affiliate of the General Partner and any accrued incentive fees payable to any
Affiliate of the General Partner shall then be charged to the capital accounts
of the Partners other than Plan Investor Partners in the ratio that the balance
of each such Partner's capital account bears to the balance of all Partners'
capital accounts other than Plan Investor Partners' capital accounts;
(iv) the number of Units held by each Plan Investor
Partner shall then be restated to equate the per Unit value of a Plan Investor
Partner's capital account with the per Unit value of the non-Plan Investor
Partners' capital accounts, by increasing the number of Units held by a Plan
Investor Partner by a number of Units equal to (aa) the product of (1) the
number of Units held by all Partners other than the Plan Investor Partners and
(2) the ratio of the balance of such Plan Investor Partner's capital account to
the aggregate balance of all non-Plan Investor Partners' capital accounts,
divided by (bb) the number of Units then held by such Plan Investor Partner; and
A-8
(v) the amount of any distribution to a Partner, any
amount paid to a Partner on redemption of Units, and any amount paid to the
General Partner upon withdrawal of its interest in the Partnership shall then be
charged to that Partner's capital account.
(c) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES.
As of the end of each calendar month of the Partnership, the Partnership's
recognized profit and loss shall be allocated among the Partners pursuant to the
following subparagraphs for United States federal income tax purposes (with any
allocation of recognized gains or recognized losses consisting of pro rata
shares of each item of capital or ordinary gain or loss).
(i) Any management fees payable to any Affiliate of the
General Partner and any incentive fees payable to any Affiliate of the General
Partner shall be allocated pro rata among the Units of Partners other than the
Plan Investor Partners based on such Units outstanding as of the beginning of
the month in which such items accrued.
(ii) With the exception of items allocated pursuant to
subparagraph (i) above, items of ordinary income (such as interest) and ordinary
expense shall be allocated pro rata among the Units of Partners based on such
Units outstanding as of the beginning of the month in which the items of
ordinary income and ordinary expense accrued.
(iii) Net recognized capital gain or loss from the
Partnership's trading activities shall be allocated as follows.
(aa) For the purpose of allocating the
Partnership's net realized capital gain and loss among
the Partners, there shall be established an allocation
account with respect to each outstanding Unit. The
initial balance of each allocation account shall be the
amount paid by the Partner for the Unit. The initial
balance of the allocation account of any Unit created
pursuant to the Unit restatement provision in Section
8(b)(iv) shall be equal to a pro rata portion of the
aggregate allocation accounts of the other Units owned
by the relevant Plan Investor Partner immediately prior
to such Unit restatement, and the allocation accounts of
such pre-existing Units held by such Plan Investor
Partner shall be correspondingly reduced pro rata.
Allocation accounts shall be adjusted as of the end of
each month as follows:
(1) each allocation account shall be
increased by the amount of income and gain which
shall have been allocated to the Partner who holds
the Unit pursuant to subparagraph (c)(ii) above
and subparagraph (bb) below;
(2) each allocation account shall be
decreased by the amount of expense and loss which
shall have been allocated to the Partner who holds
the Unit pursuant to subparagraphs (c)(i) and
(c)(ii) above and subparagraph (dd) below and by
the amount
A-9
of any distribution which shall have been received
by the Partner with respect to the Unit (other
than on redemption of the Unit); and
(3) when a Unit shall be redeemed, the
allocation account with respect to such Unit
shall be eliminated.
(bb) Net recognized capital gain realized on or
prior to the date a Partner redeems a Unit shall be
allocated to such redeeming Partner up to the excess, if
any, of the amount received upon redemption of the Unit
over the allocation account attributable to the redeemed
Unit. In the event the aggregate amount of net capital
gain available to be allocated pursuant to this
subparagraph (bb) shall be less than the aggregate
amount of capital gain required to be so allocated, (1)
the aggregate amount of available capital gain shall be
allocated among all such Partners in the ratio which
each such Partner's excess bears to the aggregate excess
of all such Partners, and (2) each Partner who has not
been allocated the full amount of net recognized capital
gain required to be allocated pursuant to the first
sentence of this subparagraph (bb) shall be allocated,
after any allocations required by the first sentence of
this subparagraph (bb) in respect of Partners who redeem
Units on subsequent redemption dates, net capital gain
realized after such Partner's date of redemption up to
the amount of any such deficiency.
(cc) Net recognized capital gain remaining after
the allocation thereof pursuant to subparagraph (bb)
above shall be allocated next among all Partners whose
capital accounts shall be in excess of their Units'
allocation accounts (after the adjustments in
subparagraph (bb) above) in the ratio that each such
Partner's excess shall bear to all such Partners'
excesses. In the event that gain to be allocated
pursuant to this subparagraph (cc) shall be greater than
the excess of all such Partners' capital accounts over
all such allocation accounts, the excess gain shall be
allocated among all Partners in the ratio that each
Partner's capital account shall bear to all Partners'
capital accounts.
(dd) Net recognized capital loss realized on or
prior to the date a Partner redeems a Unit shall be
allocated to such redeeming Partner up to the excess, if
any, of the allocation account attributable to the
redeemed Unit over the amount which shall have been
received upon redemption of the Unit. In the event the
aggregate amount of net capital loss available to be
allocated pursuant to this subparagraph (dd) shall be
less than the aggregate amount of net capital loss
required to be so allocated, (1) the aggregate amount of
available capital loss shall be allocated among all such
Partners in the ratio which each such Partner's excess
bears to all such Partners' excesses, and (2) each
Partner who has
A-10
not previously been allocated the full amount of
net recognized capital loss required to be allocated
pursuant to the first sentence of this subparagraph (dd)
shall be allocated, after any allocations required by
the first sentence of this subparagraph (dd) in respect
of Partners who redeem Units on subsequent redemption
dates, net capital loss realized after such Partner's
date of redemption up to the amount of any such
deficiency.
(ee) Net recognized capital loss remaining after
the allocation thereof pursuant to subparagraph (dd)
above shall be allocated next among all Partners whose
Units' allocation accounts shall be in excess of their
capital accounts (after the adjustments in subparagraph
(dd) above) in the ratio that each such Partner's excess
shall bear to all such Partners' excesses. In the event
that loss to be allocated pursuant to this subparagraph
(ee) shall be greater than the excess of all such
allocation accounts over all such Partners' capital
accounts, the excess loss shall be allocated among all
Partners in the ratio that each Partner's capital
account shall bear to all Partners' capital accounts.
(iv) The tax allocations prescribed by this Section 8(c)
shall be made to each holder of a Unit, whether or not the holder is a
substituted Limited Partner. In the event that a Unit shall have been
transferred pursuant to Section 11(a), the allocations prescribed by this
Section 8(c) shall be made with respect to such Unit without regard to the
transfer, except that in the month of transfer the allocations prescribed by
this Section 8(c) shall be divided between the transferor and the transferee
based on the number of calendar days each held the transferred Unit during such
month. For purposes of this Section 8(c), tax allocations shall be made to the
General Partner's Units of General Partnership Interest on a Unit of Limited
Partnership Interest-equivalent basis.
(v) The allocation of profit and loss for federal income
tax purposes set forth in this Section 8(c) is intended to allocate taxable
profits and losses among Partners generally in the ratio and to the extent that
net profit and net loss shall be allocated to such Partners under Section 8(b),
so as to eliminate to the extent possible any disparity between a Partner's
capital account and his allocation account, consistent with the principles set
forth in Section 704 of the Code and the regulations promulgated thereunder.
(d) DEFINITIONS; ACCOUNTING.
(i) The Partnership's "Net Assets" shall mean the total
assets of the Partnership (including but not limited to all cash and cash
equivalents (valued at cost), accrued interest and amortization of original
issue discount, and the market value of all open commodity interest contract
positions and all other assets of the Partnership) less the total liabilities of
the Partnership (including but not limited to legal, accounting, and auditing
fees, organizational and offering expenses, brokerage commissions and fees and
other transaction costs, management fees and incentive fees payable to trading
A-11
advisors, and extraordinary expenses, whether incurred or accrued), determined
in accordance with the principles specified in this Section 8(d)(i) or, where no
principle is specified, in accordance with United States generally accepted
accounting principles consistently applied under the accrual basis of
accounting. The market value of a commodity interest contract traded on a United
States exchange or market shall mean the settlement price on the exchange or
market on which such contract is traded by the Partnership on the day with
respect to which Net Assets shall be determined; provided, however, that if a
commodity interest contract could not have been liquidated on such day due to
the operation of daily limits or other rules of the exchange or market upon
which such contract was traded or otherwise, the settlement price on the first
subsequent day on which such contract could have been liquidated shall be the
market value of such contract for such day. The market value of a forward
contract, a futures contract traded on a foreign exchange or market, a swap
contract, or other off-exchange contract, instrument, or transaction shall mean
its market value as determined by the General Partner in its sole discretion on
a basis consistently applied.
(ii) The "Net Asset Value" of a Unit shall mean the Net
Assets allocated to capital accounts represented by Units of Limited Partnership
Interest divided by the number of such Units outstanding on the date of
calculation; and the "Net Asset Value" of a Unit of General Partnership Interest
shall mean the Net Assets allocated to capital accounts represented by Units of
General Partnership Interest divided by the number of such Units of General
Partnership Interest outstanding at the time of calculation.
(e) EXPENSES AND LIMITATIONS THEREOF. The General Partner, out of
its own funds, heretofore paid all of the costs incurred in connection with the
organization of the Partnership and the initial offering of Units. Such costs
included all expenses incurred during the initial offering in connection with
and directly and indirectly relating to the formation, qualification, and
registration of the Partnership and the Units, the preparation of any
registration statements and Prospectuses relating to the Partnership and the
Units, and the offering, distribution, and processing of the Units under
applicable federal, state, and foreign law, including but not limited to legal,
accounting, and auditing fees, printing costs, filing fees, escrow fees, sales
and marketing expenses, and other related expenses. The General Partner also
heretofore paid and shall continue to pay the costs of printing and mailing
registration statements, Prospectuses, and reports for solicitation purposes,
and the costs of preparing such registration statements and Prospectuses.
The Partnership heretofore paid and shall continue to pay its
ordinary operating expenses, including expenses for services provided by third
parties (whether or not affiliated with the General Partner or any of its
Affiliates) selected by the General Partner. Such expenses shall include without
limitation management fees and incentive fees, legal, accounting, auditing,
escrow, recordkeeping, administration, computer, research, and clerical fees and
expenses, expenses incurred in preparing reports and tax information to Limited
Partners and regulatory authorities, expenses of printing and mailing
registration statements, Prospectuses, and reports to Limited Partners (but not
for solicitation purposes), expenses for
A-12
specialized administrative services, other printing and duplication expenses,
other mailing costs, and filing fees. The Partnership shall also be obligated to
pay any extraordinary expenses it may incur. The General Partner shall not be
reimbursed by the Partnership for any costs incurred by it relating to office
space, equipment, and staff necessary for the Partnership's operations and
administration of the sale and redemption of Units.
The Partnership shall also pay any taxes and all expenses incurred
in connection with its trading activities, including but not limited to all
margins, option premiums, brokerage, floor, exchange, clearing, clearinghouse,
principal, and NFA commissions and fees, other transaction costs and expenses,
delivery, insurance, and storage expenses, costs of transmission equipment for
trading activities, and related expenses.
Appropriate reserves may, in the sole discretion of the General
Partner, be created, accrued, and charged against the Partnership's assets for
contingent liabilities, if any, as of the date any such contingent liability
becomes known to the General Partner.
If the Partnership shall be deemed to be an entity separately
subject to federal, state, local, or foreign income tax (whether or not such tax
shall be payable or shall have been paid by the Partnership or the General
Partner, although the General Partner shall not be obligated to do so), each
Limited Partner (or assignee, if any) shall be liable for and shall pay to the
Partnership or the General Partner any income taxes due and payable or paid to
such jurisdiction, within ten days after the General Partner's request therefor,
in an amount equal to the ratio by which the number of Units held by each
Limited Partner (or assignee) shall bear to the number of Units held by all
Limited Partners as of the close of business (as determined by the General
Partner in its sole discretion) on the last day of the period for which such tax
shall have been assessed. Alternatively, if the Partnership and/or the General
Partner shall have paid any such tax out of its/their own funds (although the
General Partner shall not be obligated to do so), upon a distribution of funds
to a Limited Partner (or assignee) or a redemption of Unit by a Limited Partner
(or assignee), all amounts of such taxes may be deducted from the proceeds from
such distribution or redemption and reimbursed to the Partnership and/or the
General Partner.
(f) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when issued to
a Partner, shall be fully paid and nonassessable. A Limited Partner's capital
contribution shall be subject to the risks of the Partnership's business.
However, except as provided otherwise in this Agreement, the General Partner
shall be liable for all debts, losses, and other obligations of the Partnership
to the extent that the Partnership's assets (which shall include amounts
contributed by Limited Partners and paid out in distributions, redemptions, or
otherwise to them together with interest thereon, but shall not include any
right of contribution from the General Partner except to the extent previously
made by it in accordance with this Agreement) shall be insufficient to discharge
such debts, losses, and other obligations.
Except as provided otherwise in this Agreement, no Limited Partner
shall be liable for the Partnership's debts, losses, or other obligations in
excess of his unredeemed capital contribution and undistributed profits, if any;
provided, however, that if the Partnership
A-13
shall be unable to pay its debts, losses, and other obligations, a Limited
Partner may be required to repay to the Partnership amounts which shall have
been paid to him in compliance with the Partnership Act, other applicable laws,
rules, and regulations, and this Agreement and amounts which shall have been
paid to him in violation of the Partnership Act, other applicable law, rule, or
regulation, or this Agreement by way of redemption, distribution, or otherwise,
together with interest thereon which shall represent a return of capital and
which shall be necessary to discharge the Partnership's liability to creditors
who shall have extended credit to the Partnership during the period in which the
capital contribution shall have been held by the Partnership. The Partnership
shall make a claim against a Limited Partner with respect to amounts of his
capital distributed to him, received by him upon redemption of Units, or
otherwise paid to him in compliance with the Partnership Act, other applicable
laws, rules, and regulations, and this Agreement only within one year following
the date that such payments shall have been made to him or on his behalf (or to
the extent provided otherwise under the Partnership Act or other applicable law,
rule, or regulation) and only if the assets of the Partnership (which shall
include amounts contributed by Limited Partners and paid out in distributions,
redemptions, or otherwise to them together with interest thereon, but shall not
include any right of contribution from the General Partner except to the extent
previously made by it in accordance with this Agreement) shall be insufficient
to discharge the liabilities of the Partnership which shall have arisen prior to
the payment of such amounts. The Partnership shall make a claim against a
Limited Partner with respect to amounts of his capital distributed to him,
received by him upon redemption of Units, or otherwise paid to him in violation
of the Partnership Act, other applicable law, rule, or regulation, or this
Agreement only within six years following the date that such payments shall have
been made to him (or to the extent provided otherwise under the Partnership Act
or other applicable law, rule, or regulation) and only if the assets of the
Partnership (which shall include amounts contributed by Limited Partners and
paid out in distributions, redemptions, or otherwise to them together with
interest thereon, but shall not include any right of contribution of the General
Partner except to the extent previously made by it in accordance with this
Agreement) shall be insufficient to discharge the liabilities of the Partnership
which shall have arisen prior to the payment of such amounts.
In addition to the foregoing, Limited Partners may incur liability,
for which there shall be no limitation thereon: (i) if a Limited Partner fails
to provide good funds as payment for his Units and such Partner's Units shall be
canceled by the Partnership and losses or expenses shall be incurred as a result
thereof as provided in Section 7; (ii) if the Partnership shall be deemed an
entity separately subject to federal, state, local, or foreign taxes, with
Partners bearing such tax liability pro rata in accordance with the respective
capital accounts of the Partners as provided in Section 8(e); (iii) if the
Partnership shall be required to withhold tax on certain income of the
Partnership allocable to a Partner (or assignee thereof) or the Partnership as
provided in Section 9(c); (iv) if a Limited Partner is required to indemnify the
Partnership in accordance with Section 17(d); or (v) if the subscription
documentation delivered by a Limited Partner in connection with his purchase of
Units shall contain any misstatements or omissions.
A-14
(g) LENDER AS PARTNER. No creditor who shall make a loan to the
Partnership may have or acquire, at any time as a result of making the loan, any
direct or indirect interest in the profits, capital, or property of the
Partnership, other than as a secured creditor or other than as a result of the
exercise of the rights thereof.
(h) RETURN OF LIMITED PARTNERS' CAPITAL CONTRIBUTIONS. Except to the
extent that a Limited Partner shall have the right to withdraw capital through
redemption of Units in accordance with Section ll(b), no Limited Partner shall
have any right to demand the return of his capital contribution and any profits
added thereto except upon termination and dissolution of the Partnership. No
Partner shall be paid interest on any capital contribution to the Partnership or
on such Partner's capital account. In no event shall a Limited Partner be
entitled to demand or receive from the Partnership property other than cash. No
Partner shall have the right to bring an action for partition against the
Partnership.
(i) DISTRIBUTIONS. The General Partner shall have sole discretion in
determining the amount and frequency of distributions (other than on voluntary
redemption of Units), if any, the Partnership shall make to its Partners;
provided, however, that no Partner shall receive a distribution to the extent
that, after giving effect to such distribution, all liabilities of the
Partnership (other than liabilities to Partners on account of their Partnership
interests) shall exceed the fair market value of the Partnership's assets. All
distributions shall be pro rata in accordance with the respective capital
accounts of the Partners.
If, pursuant to applicable law, the Partnership shall have been
required to pay or withhold tax on certain income of the Partnership allocable
to a Limited Partner (or assignee thereof) and the Partnership and/or the
General Partner shall have paid out of its/their own funds such tax in
accordance with Sections 8(e) or 9(c) (although the General Partner shall not be
obligated to do so), upon a distribution to such Limited Partner (or assignee)
all amounts of such taxes may be deducted from the amount of such distribution
and reimbursed to the Partnership and/or the General Partner.
(j) GENERAL PARTNER AS LIMITED PARTNER. The General Partner shall
also be a Limited Partner to the extent that the General Partner purchases Units
of Limited Partnership Interest or purchases or becomes a transferee of all or
any part of the Units held by a Limited Partner, and to such extent shall be
treated in all respects as a Limited Partner and the consent of Limited Partners
to such transfer to a General Partner shall not be required.
9. MANAGEMENT.
(a) MANAGEMENT OF PARTNERSHIP. Except as provided otherwise in this
Agreement, the General Partner, to the exclusion of the Limited Partners, shall
conduct and manage the business of the Partnership, including without limitation
the investment of the Partnership's assets and the negotiation, execution,
delivery, and performance of agreements necessary or desirable to carry out the
purposes, business, and objectives of the Partnership, and otherwise effectuate
the provisions of this Agreement. No Limited Partner, in its/his
A-15
capacity as such, shall have the power to transact business for, represent, act
for, sign for, or bind the General Partner or the Partnership. Except as
provided otherwise in this Agreement, no Limited Partner, in its/his capacity as
such, shall be entitled to any salary, draw, or other compensation from the
Partnership on account of any investment in the Partnership. Each Limited
Partner shall furnish to the General Partner such information as may be
determined by the General Partner to be required or appropriate for the
Partnership to open and maintain accounts with brokerage firms for the purpose
of the Partnership's trading activities.
In addition to and not in limitation of any rights and powers
conferred by law or by this Agreement and except as limited, restricted, or
prohibited by this Agreement, the General Partner shall have and may exercise,
for and on behalf of the Partnership, and the Limited Partners, all powers and
rights necessary, proper, convenient, and advisable to effectuate and carry out
the purposes, business, and objectives of the Partnership, and shall have and
possess the same rights and powers as a general partner in a partnership without
limited partners formed under the law of the State of Delaware.
The General Partner shall have fiduciary responsibility for the
safekeeping of all of the funds and assets of the Partnership, whether or not in
the General Partner's immediate possession or control. Except as provided
otherwise in this Agreement, the General Partner shall neither employ nor permit
another person to employ the Partnership's funds or assets in any manner other
than for the benefit of the Partnership.
The General Partner, for and on behalf of the Partnership, may
retain one or more trading advisors (which may include officers, employees, and
Affiliates of the General Partner or of its Affiliates, or the General Partner
itself) to make trading decisions for the Partnership, and may delegate complete
trading discretion to such advisor or advisors; provided, however, that the
General Partner may override any trading instructions which it in its sole
discretion shall determine to be in violation of any trading policy of the
Partnership or as or to the extent necessary to fund distributions or
redemptions, to effect the allocation or reallocation of the Partnership's
assets among trading advisors if more than one trading advisor shall be retained
by the General Partner, or to pay the Partnership's expenses; and provided
further that the General Partner may make trading decisions at any time at which
a trading advisor for the Partnership shall become incapacitated or unavailable
or some other emergency shall arise as a result of which such advisor shall be
unable or unwilling to act or no trading advisor shall then be retained by the
Partnership and the General Partner shall not have yet retained a successor
trading advisor. Notwithstanding the foregoing, the General Partner may consult
with and receive recommendations from its Affiliates and their employees
regarding the allocation and reallocation of assets among and the retention and
termination of trading advisors for the Partnership; provided, however, that the
General Partner in its sole discretion and judgment shall be responsible for
making all final determinations regarding such matters.
The General Partner, on behalf of the Partnership, shall be
authorized and directed: (i) to enter into the advisory agreement with TIC
described in the Prospectus and to cause the Partnership to pay TIC the fees
described in the Prospectus and in such advisory
A-16
agreement; (ii) to modify (including changing the form and amount of
compensation and other arrangements and terms) or terminate such advisory
agreement in its sole discretion in accordance with the terms of such agreement,
and to employ from time to time other trading advisors for the Partnership
(which may include officers, employees, and Affiliates of the General Partner or
of its Affiliates, or the General Partner itself) pursuant to advisory
agreements having such terms and conditions and providing for such form and
amount of compensation as the General Partner in its sole discretion shall deem
to be in the best interests of the Partnership and consistent with applicable
laws, rules, and regulations, which terms may include provision for the payment
of a fixed management fee and/or an incentive fee to new or replacement trading
advisors, and any such incentive fee may be based upon trading profits which
shall be earned by such trading advisors irrespective of whether such profits
shall exceed trading losses which shall have been previously incurred or shall
be concurrently incurred by other trading advisors or by the Partnership as a
whole; (iii) to enter into a customer agreement with Bellwether Partners LLC, a
Delaware limited liability company and an Affiliate of the General Partner
("BPL"), as described in the Prospectus; (iv) to enter into customer agreements
with such futures commission merchants, introducing brokers, clearing brokers,
floor brokers, foreign exchange brokers and dealers, broker-dealers, and
brokerage firms as described in the Prospectus; (v) to cause the Partnership to
pay BPL and such other brokers, dealers, and firms the commissions, fees,
charges, mark-ups, and other transaction costs as described in the Prospectus
and in the agreements with such persons or as agreed upon from time to time
between the General Partner and BPL and such other brokers, dealers, and firms;
(vi) to modify (including changing the form and amount of compensation and other
arrangements and terms) and terminate such customer agreements in the sole
discretion of the General Partner in accordance with the terms of such
agreements; (vii) to employ from time to time other futures commission
merchants, clearing brokers, introducing brokers, floor brokers, foreign
exchange brokers and dealers, broker-dealers, and brokerage firms (which may
include Affiliates of the General Partner or of its Affiliates, or the General
Partner itself) pursuant to agreements having such terms and conditions and
providing for such term and amount of compensation as the General Partner in its
sole discretion shall deem to be in the best interests of the Partnership; and
(viii) in furtherance of the Partnership's trading activities, purposes,
business, and objectives, to provide guarantees, indemnities, margin,
collateral, undertakings, credit support and enhancement, and similar assurances
to banks, financial institutions, counterparties, brokers, dealers, customers,
and other persons (including but not limited to BPL, other Affiliates of the
General Partner, principals, stockholders, directors, officers, or employees of
the General Partner or any of its Affiliates, or partnerships, corporations,
companies, trusts, or other entities for which the General Partner or any of its
Affiliates acts as general partner, operator, sponsor, or advisor or otherwise
manages or controls ("Interested Persons")) with regard to obligations incurred
by futures commission merchants, clearing brokers, introducing brokers, floor
brokers, foreign exchange brokers and dealers, broker-dealers, and brokerage
firms employed by the Partnership or its counterparties or agents or employed by
other persons (including but not limited to Interested Persons), and to enter
into related agreements (including but not limited to contribution, indemnity,
margin, collateral, credit support and enhancement, and other similar agreements
with Interested Persons), it being understood and agreed that, pursuant to such
guarantees, arrangements, and agreements, the Partnership may make and take
actual physical delivery of the items
A-17
underlying commodity interest contracts, may be subject to risks of defaults and
failures and other risks, and may be liable (primarily, secondarily, or
contingently) for the obligations of other persons (including but not limited to
Interested Persons), provided in each such case that the General Partner shall
first determine in its sole discretion that such guarantees, arrangements, and
agreements may result in better trade execution or pricing or increased
confidentiality with respect to the Partnership's trading activities or is
otherwise beneficial to the Partnership.
The General Partner shall review from time to time, and at least
once a year, the commission rates and other transaction fees charged to the
Partnership. Based upon such review, comparisons to the commission rates and
fees charged by other major futures commission merchants, introducing brokers,
clearing brokers, floor brokers, foreign exchange brokers and dealers,
broker-dealers, and brokerage firms for similar services rendered to accounts
the size and type of the partnership's account, the General Partner's knowledge
of the reasonableness of commission rates generally, the trading volume of the
Partnership, and the circumstances of the Partnership, the General Partner shall
ensure that the rates and fees being charged to the Partnership are reasonable
and competitive in relation to rates and fees charged by other brokers and
dealers for similar services to entities comparable in size and trading activity
to the Partnership.
(b) TRADING POLICIES. The General Partner shall require the
Partnership's trading advisors to follow, and shall monitor their compliance
with, such trading policies as the General Partner may determine in its sole
discretion from time to time, as well as the following trading policies.
(i) The Partnership shall not borrow or lend money to any
Partner or other person, except that the foregoing shall not prohibit: (aa)
depositing margin and collateral with respect to the initiation and maintenance
of commodity interest contract positions; (bb) obtaining and utilizing lines of
credit and settlement and delivery lines for the trading of forward contracts,
currency contracts, swaps, and related contracts and entering into guarantees,
arrangements, and agreements in connection therewith; or (cc) guaranteeing
obligations of any person or entering into any other arrangement or agreement
contemplated by clause (viii) of the fifth paragraph of Section 9(a).
(ii) The Partnership shall not permit "churning" of its assets.
(iii) The Partnership shall not employ the trading technique
commonly known as "pyramiding", in which the speculator uses unrealized profits
on existing positions in a given commodity interest contract due to favorable
price movement as margin specifically to buy or sell additional positions in the
same or a related commodity interest contract. However, open trade equity may be
taken into account when determining the size of positions to be taken in all
commodity interest contracts, and the Partnership may add to existing commodity
interest contract positions in its portfolio provided that such action shall be
consistent with the foregoing restriction.
A-18
The General Partner shall not approve any material change in the
foregoing three trading policies without obtaining prior written approval of
Limited Partners owning more than 50% of the Units then owned by Limited
Partners.
(c) ADDITIONAL OBLIGATIONS AND RESPONSIBILITIES OF GENERAL PARTNER.
The General Partner shall take such other actions as it may deem necessary or
desirable in its sole discretion to manage the business of the Partnership,
including but not limited to: (i) entering into, executing, delivering, and
maintaining contracts and agreements, including without limitation account
opening agreements and documents, applications, subscriptions, investment
letters, investment agreements, management agreements, advisory agreements,
powers of attorney, trading and investment authorizations, appointments of
agents, purchase agreements, sale agreements, brokerage and clearing agreements,
margin agreements, escrow agreements, custody agreements, solicitation
agreements, swap agreements, collateral, pledge, and security agreements,
financing statements, assignments, guarantees, indemnities, contribution
agreements, keep-well agreements, credit support and enhancement agreements,
incumbency certificates, confirmations, underwriting and selling agreements,
consulting agreements, letters of liquidation, arbitration agreements, hedging
certifications and agreements, risk disclosure statements, give-up agreements,
disclosure documents, settlement agreements, court, arbitration, and regulatory
authority agreements, applications, certifications, documents, and instruments,
authorizations to close accounts, authorizations to transfer funds, securities,
commodities, currencies, and other property, and any and all other instruments,
(ii) doing and performing all such things as shall be in furtherance of the
Partnership's purposes or necessary or appropriate for the conduct of the
Partnership's business, including without limitation opening, maintaining, and
closing brokerage accounts, clearing accounts, mutual fund accounts, bank
accounts, margin, collateral, and security accounts, escrow accounts, custodial
accounts, and other accounts; (iii) transferring the care and custody of
securities, commodities, currencies, and funds to banks, brokers, dealers,
clearing agencies, custodians, and other depositories and agents pursuant to
bank, brokerage, clearing, safekeeping, custody, escrow, and other arrangements;
(iv) making withdrawals, transfers, payments, and additions of funds,
securities, commodities, currencies, and other property and instruments from and
to said accounts; (v) collecting and receiving confirmation statements,
statements of account, reports, and other communications from brokers, dealers,
counterparties, banks, agents, mutual funds, custodians, and agents; (vi)
making, executing, certifying, signing, endorsing, pledging, hypothecating, and
delivering checks, drafts, notes, acceptances, bills of exchange, deposits,
bills of lading, warehouse receipts, letters of credit, lines of credit, and
negotiable instruments; (vii) depositing, withdrawing, paying, retaining, and
distributing the Partnership's assets in any manner consistent with this
Agreement; (viii) investing and directing the investment and reinvestment of
assets of the Partnership; (ix) paying and authorizing the payment of
distributions to Partners and expenses of the Partnership; and (x) preparing and
filing in a timely manner all reports, filings, and registrations which shall be
required from time to time by applicable legal, governmental, and regulatory
authorities.
The Partnership's assets are and shall be deposited with such banks,
futures commission merchants, clearing brokers, foreign exchange brokers and
dealers, broker-
A-19
dealers, brokerage firms, custodians, and/or other depositories as the General
Partner in its sole discretion may determine from time to time, and such assets
shall be used for the Partnership's trading. The General Partner shall endeavor
to place as much of the Partnership's assets as is practicable in governmental
debt securities and other interest-bearing securities, investments, and accounts
for the account of the Partnership or otherwise arrange for interest and other
amounts to be credited to such assets. The Partnership shall receive all
interest income and other amounts earned on such securities, investments, and
accounts.
The General Partner shall make any and all elections on behalf of
the Partnership under the Code and any other applicable federal, state, local,
or foreign tax law as the General Partner shall determine to be in the best
interests of the Partnership. The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any extension thereof any
federal, state, local, or foreign tax returns which shall be required to be
filed by the Partnership. The General Partner shall cause the Partnership to pay
any taxes payable by the Partnership; provided, however, that the General
Partner shall not be required to cause the Partnership to pay any tax so long as
the General Partner or the Partnership shall in good faith and by appropriate
legal proceedings be contesting the validity, applicability, or amount of such
tax without materially endangering any rights or interests of the Partnership.
The General Partner shall be authorized to perform all duties
imposed by Sections 6221 through 6232 of the Code on the General Partner as "tax
matters partner" of the Partnership, including but not limited to (i) conducting
all audits and other administrative proceedings with respect to Partnership tax
items; (ii) extending the statute of limitations for all Limited Partners with
respect to Partnership tax items; (iii) filing petitions with appropriate
federal courts for review of final Partnership administrative adjustments; and
(iv) entering into a settlement with the Internal Revenue Service on behalf of
and binding upon those Limited Partners having less than a 1% interest in the
Partnership, unless a Limited Partner shall have notified the Internal Revenue
Service and the General Partner that the General Partner shall not act on such
Partner's behalf. The General Partner shall be authorized to retain and
compensate attorneys, accountants, and auditors to assist the General Partner in
carrying out its obligations as tax matters partner.
If, pursuant to applicable law, the Partnership shall be required to
withhold tax on certain income of the Partnership allocable to a Partner (or
assignee thereof), whether or not such tax shall be payable or shall have been
paid by the Partnership or the General Partner (although the General Partner
shall not be obligated to do so), each Limited Partner (or assignee, if any)
shall be liable for and shall pay to the Partnership or the General Partner such
amount of tax, within ten days after the General Partner's request therefor.
Alternatively, if the Partnership and/or the General Partner shall have paid any
such tax out of its/their own funds (although the General Partner shall not be
obligated to do so), upon a distribution of funds to such Partner (or assignee)
or a redemption of Units by such Partner (or assignee), all amounts of such
taxes may be deducted from the proceeds from such distribution or redemption and
reimbursed to the Partnership and/or the General Partner.
A-20
The General Partner shall keep at the principal office of the
Partnership such books and records relating to the business of the Partnership
(including subscription documentation and records necessary to substantiate that
Units were sold to subscribers for whom such securities were suitable at the
time of purchase) as the General Partner deems necessary or advisable in its
sole discretion or as shall be required by applicable regulatory authorities. To
the extent required by CFTC regulations and for any purpose related to a Limited
Partner's interest as a limited partner in the Partnership, such books and
records shall be available to a Limited Partner or his authorized attorney or
agent for inspection and copying during normal business hours of the
Partnership, and upon request the General Partner shall send copies of the same
to any Limited Partner upon payment by him of reasonable reproduction and
distribution costs. A Limited Partner shall give the General Partner at least 24
hours' prior written notice for such inspection and copying by such Partner or
his authorized attorney or agent. Any subscription documentation shall be
retained by the Partnership for not less than six years.
The General Partner shall submit to any state securities or Blue Sky
authority any information required to be filed with such authority, including
without limitation reports and statements required to be distributed to Limited
Partners.
Except as provided or permitted otherwise in this Agreement or with
the approval of the General Partner and in accordance with applicable laws,
rules, and regulations, no person shall receive, directly or indirectly, any
advisory, management, or incentive fee for investment advice furnished to the
Partnership who shall also share or participate in brokerage, floor, exchange,
clearing, clearinghouse, or principal commissions or fees paid by the
Partnership, and no broker or dealer for the Partnership shall pay, directly or
indirectly, rebates or give-ups to the General Partner or any other trading
advisor for the Partnership. Such prohibitions shall not be circumvented by any
reciprocal business arrangements. Assets of the Partnership shall not be
commingled with assets of any other person. The Partnership's deposit of margin,
collateral, and assets with banks, futures commission merchants, clearing
brokers, foreign exchange brokers or dealers, broker-dealers, brokerage firms,
custodians, escrow agents, or other depositories and the segregation of any such
amounts by such persons in accordance with CFTC regulations, and the
Partnership's entry into, and performance under, any guarantee, arrangement, or
other agreement contemplated by clause (viii) of the fifth paragraph of Section
9(a) shall not constitute commingling.
The General Partner shall devote such time and resources to the
Partnership's business and affairs as it in its sole discretion shall deem
necessary or advisable to effectively manage the Partnership. Subject to Section
6, any Partner or affiliate of any Partner may engage in or possess any interest
in other business ventures of any kind, nature, or description, independently or
with others, whether such ventures are competitive with the Partnership or
otherwise. Neither the Partnership nor any Partners shall have any rights or
obligations by virtue of this Agreement or the partnership relationship created
hereby in or to such other ventures or the income or profits or losses derived
therefrom, and the pursuit of such ventures, even if competitive with the
business of the Partnership, shall not be deemed wrongful or
A-21
improper, and no Partner shall be required to refrain from any other venture or
disgorge any profits derived from any other venture.
The General Partner may, consistent with applicable laws, rules, and
regulations, engage and compensate, on behalf of the Partnership and from the
Partnership's funds, such persons and entities (including attorneys,
accountants, and auditors, persons and entities affiliated with the General
Partner, and officers, employees, and Affiliates of the General Partner) as the
General Partner in its sole discretion shall deem necessary or advisable for the
conduct and operation of the business of the Partnership.
The General Partner in its sole discretion shall prosecute, defend,
settle, or compromise actions or claims at law or in equity at the Partnership's
expense as may be necessary or proper to enforce or protect the Partnership's
interests. The General Partner shall satisfy any judgment, decree, or decision
of any court or governmental or regulatory authority or any settlement of any
suit or claim prior to judgment or final decision thereon, first out of any
insurance proceeds available therefor, next out of the Partnership's assets, and
thereafter out of the General Partner's assets.
Persons dealing with the General Partner shall not be required to
determine its authority to make any undertaking on behalf of the Partnership,
nor to determine any fact or circumstances bearing upon the existence of its
authority.
10. AUDITS; REPORTS TO LIMITED PARTNERS.
The Partnership's books shall be audited annually by an independent
public accounting firm selected by the General Partner in its sole discretion.
The General Partner shall use its best efforts to cause each Partner to receive:
(a) within 90 days after the close of each fiscal year of the Partnership a
certified annual report containing audited financial statements (including a
statement of income and a statement of financial condition) of the Partnership
for the fiscal year last ended, prepared in accordance with generally accepted
accounting principles applied on a consistent basis and accompanied by a report
of the accounting firm which audited such statements, and such other information
as the CFTC and the NFA from time to time shall require in annual reports; (b)
within 90 days after the close of each fiscal year of the Partnership such tax
information relating to the Partnership as shall be necessary for such Partner
to complete such Partner's federal income tax return; (c) within 30 days after
the close of each calendar month, such financial and other information with
respect to the Partnership as the CFTC and the NFA from time to time shall
require in monthly reports (including without limitation a statement showing the
individual and aggregate amounts of fees, compensation, brokerage commissions
and fees, and other expenses and costs paid by the Partnership); and (d) at such
times as shall be necessary or advisable in the General Partner's sole
discretion, such other information as the CFTC and the NFA from time to time
shall require under the Commodity Exchange Act as amended to be given to
participants in commodity pools.
If any of the following events occurs, notice of such event shall be
mailed to each Limited Partner within seven business days after the occurrence
of such event: (i) any
A-22
amendment to this Agreement which shall have been made in accordance with
Section 18; (ii) a decrease in the Net Asset Value of a Unit to or below 50% of
the Net Asset Value for the fiscal year-end most recently reported to Limited
Partners; (iii) any change in general partners; or (iv) any change in the
Partnership's fiscal year. Such notice shall describe any voting rights of the
Limited Partners as set forth in Section 18.
The approximate Net Asset Value of a Unit shall be determined daily
by the General Partner, and the most recent approximate Net Asset Value shall be
promptly supplied in writing to any Limited Partner after the General Partner
shall have received a written request therefor from such Partner.
11. TRANSFER AND REDEMPTION OF UNITS.
(a) TRANSFER. A Limited Partner may transfer, assign, pledge, or
encumber his Units only as provided in this Section 11(a). A Limited Partner may
transfer, assign, pledge, or encumber his Units solely and exclusively to or for
the benefit of (i) another person who is an employee of the General Partner,
TIC, any of their present or future affiliated entities, or their successors or
assigns, (ii) the General Partner, TIC, any of their present or future
affiliated entities, or their successors or assigns, or (iii) such other person
or entity as the General Partner in its sole discretion may determine. A Limited
Partner may not make a partial transfer, assignment, pledge, or encumbrance of
his Units which would reduce the Net Asset Value of the Units retained by such
Partner (after giving effect to such transfer, assignment, pledge, or
encumbrance) to less than the amount of the minimum investment required by the
Partnership of new Limited Partners at the time of such transfer, assignment,
pledge, or encumbrance, and any proposed partial transfer, assignment, pledge,
or encumbrance, if permitted under this Agreement, shall be honored only to the
extent it complies with such limitation. No transferee, assignee, pledgee, or
secured creditor of Units may become a substituted Limited Partner unless the
General Partner first consents to such substitution in writing, which consent
the General Partner may withhold in its sole discretion. Notwithstanding the
foregoing, the General Partner may in its sole discretion waive any of the
foregoing restrictions and limitations.
Any transfer, assignment, pledge, or encumbrance of Units which
shall be permitted hereunder shall be effective as of the close of business (as
determined by the General Partner its sole discretion) on the last day of the
calendar month in which such transaction shall have occurred; provided, however,
that the Partnership need not recognize any transfer, assignment, pledge, or
encumbrance until the General Partner shall have received at its principal
office at least 30 days' prior written notice of such proposed transaction from
the transferring Limited Partner. Such notice shall be signed by the
transferring Limited Partner and shall set forth the name, residence address,
and social security or taxpayer identification number of the proposed
transferee, assignee, pledgee, or secured creditor, the number of Units that
shall be proposed to be transferred, assigned, pledged, or encumbered, and a
certification that the proposed transferee, assignee, pledgee, or secured
creditor is a person permitted to own and hold Units as provided in the first
paragraph of this Section ll(a). The transferring Limited Partner's signature
shall be guaranteed by a commercial bank which is a member of
A-23
the Federal Deposit Insurance Corporation, a trust company, or a member of
either a United States registered national securities exchange or the NASD,
other than a sole proprietor. The guarantees shall be signed by an authorized
signatory of the bank, trust company, or member firm, and "Signature Guaranteed"
shall appear with the signature. Signature guarantees by savings banks, savings
and loan associations, and notaries public shall not be accepted. Signature
guarantees may be waived by the General Partner in its sole discretion. The
General Partner may request further documentation from entities, executors,
administrators, trustees, or guardians. Prior to the General Partner's actual
receipt at its principal office of the foregoing notice from a Limited Partner,
the General Partner shall be entitled to recognize the exclusive right of the
person registered in the Partnership's books and records as the owner of Units,
and shall not be liable for any actions taken by it in reliance upon the
Partnership's books and records (including transmitting reports, tax
information, and notices as provided under Section 10, reporting tax information
to governmental and regulatory authorities, and making distributions).
No transfer, assignment, pledge or encumbrance of Units shall be
permitted unless the General Partner shall be satisfied that such transaction:
(i) shall not involve a transfer, assignment, pledge, or encumbrance to or for
the benefit of a minor or incompetent, or a person who shall be insolvent after
such transaction, or a person who is not permitted to own and hold Units as
provided in the first paragraph of this Section ll(a); (ii) shall not violate
this Section 11(a); (iii) shall not violate the Partnership Act; (iv) shall not
violate the Securities Act, any applicable state securities or Blue Sky laws, or
any applicable foreign laws; (v) shall not adversely affect the classification
of the Partnership as a partnership for federal income tax purposes; or (vi)
shall not adversely affect the status of Limited Partners as limited partners
under the Partnership Act. Any such purported or attempted transfer, assignment,
pledge, or encumbrance in violation of the preceding provisions shall be null,
void, and ineffectual, and need not be recognized by the Partnership.
A Limited Partner who shall transfer, assign, pledge, or encumber
his Units shall remain liable to the Partnership as provided under the
Partnership Act, regardless of whether his transferee, assignee, pledgee, or
creditor shall become a substituted Limited Partner. Any transferee, assignee,
pledgee, or creditor of Units who shall not have been admitted to the
Partnership as a substituted Limited Partner shall not have any of the rights of
a Limited Partner, except that such person shall receive that share of capital
and profits and shall have that right of redemption to which his transferor,
assignor, pledgor, or debtor shall have been entitled, and shall remain subject
to the other terms of this Agreement binding upon Limited Partners. A Limited
Partner shall bear all costs (including attorneys', accountants', and other
fees) related to a transfer, assignment, pledge, or encumbrance of his Units.
If a transferee, assignee, pledgee, or creditor shall become a
substituted Limited Partner in accordance with this Section 11(a), the General
Partner shall be authorized to execute, file, record, and publish, for and on
behalf of the Partnership and each Partner, such amendments to this Agreement
and the Certificate of Limited Partnership as may be necessary or desirable to
reflect such substitution. No transferee, assignee, pledgee, or creditor shall
become a Limited Partner until the General Partner shall execute this Agreement
on behalf of
A-24
such person pursuant to the power of attorney in Section 14 and shall make an
entry in the books and records of the Partnership reflecting that such person
has been admitted as a Limited Partner. Such person shall be deemed a Limited
Partner at such time as such admission shall be reflected in the books and
records of the Partnership.
(b) REDEMPTION. Except as provided otherwise below in this Section
1l(b), a Limited Partner (or any assignee thereof) may withdraw, effective as of
the last day of any calendar quarter, all or a portion of such Partner's
unredeemed capital contribution and undistributed profits, if any, by requiring
the Partnership to redeem all or a portion of such Partner's Units at 100% of
the Net Asset Value thereof, reduced as hereinafter described (such withdrawal
being herein referred to as "Redemption"); provided, however, that (i) a Limited
Partner may only redeem Units (or fractions thereof) in $1,000 increments,
except that other amounts of Units may be redeemed if a Limited Partner is
redeeming his entire interest in the Partnership, and (ii) a Limited Partner may
not make a partial Redemption of his Units which would reduce the Net Asset
Value of the Units retained by such Partner (after giving effect to such
Redemption) to less than the amount of the minimum investment required of new
Limited Partners by the Partnership at the time of such Redemption, and any
request for partial redemption shall be honored only to the extent it complies
with such limitation. Notwithstanding the foregoing, the General Partner may in
its sole discretion waive any of the foregoing restrictions and limitations.
Redemption of a Limited Partner's Units shall be effective as of the
close of business (as determined by the General Partner in its sole discretion)
on the last day of the calendar quarter ending after a Request for Redemption in
proper form has been received by the General Partner ("Redemption Date"),
provided that all liabilities (contingent or otherwise) of the Partnership,
except any liability to Partners on account of their capital contributions,
shall have been paid or there shall remain assets of the Partnership sufficient
to pay them. As used herein, a "Request for Redemption" shall mean a letter in
the form specified by the General Partner, sent by a Limited Partner (or any
assignee thereof and received by the General Partner at least five business days
prior to the date on which Redemption is to be effective. If the General Partner
shall receive a Request for Redemption on a date less than five business days
prior to the date on which Redemption is to be effective, unless the General
Partner in its sole discretion shall waive the untimeliness of such Request,
such Redemption shall be effective as of the close of business (as determined by
the General Partner in its sole discretion) on the last day of the calendar
quarter that immediately follows the calendar quarter in which the General
Partner received such untimely Request. A Request for Redemption is annexed
hereto as Annex A. Additional Requests for Redemption may be obtained by written
request to the General Partner. A Request for Redemption shall be endorsed by
each Partner requesting such redemption, or by such Partner's assignee.
Upon Redemption, a Limited Partner (or any assignee thereof) shall
receive for each Unit redeemed an amount equal to 100% of the Net Asset Value of
a Unit as of the Redemption Date, less any amount which shall be owed by such
Partner (and his assignee, if any) to the Partnership or the General Partner as
provided below in this paragraph or any amount which shall be owed by such
Partner (and his assignee, if any) to the Partnership in
A-25
accordance with Section 17(d). If, pursuant to applicable law, the Partnership
shall have been required to pay or withhold tax on certain income of the
Partnership allocable to a redeeming Limited Partner (or any assignee thereof),
and the Partnership and/or the General Partner shall have paid out of its/their
own funds such tax in accordance with Sections 8(e) or 9(c) (although the
General Partner shall not be obligated to do so), upon Redemption of Units by
such Limited Partner (or assignee), all amounts of such taxes may be deducted
from the Net Asset Value of such Units and reimbursed to the Partnership and/or
the General Partner.
The right to obtain Redemption shall be contingent upon (i) the
Partnership having assets sufficient to discharge its liabilities on the
Redemption Date, (ii) the timely receipt by the General Partner of a Request for
Redemption as described herein, and (iii) the other terms and conditions set
forth in this Section 11(b). The General Partner shall endeavor to pay
Redemptions within 20 business days after the Redemption Date, except that under
certain circumstances (including but not limited to the inability on the part of
the Partnership to liquidate commodity interest contract positions or the
default or delay in payments which shall be due the Partnership from banks,
brokers, dealers, or other persons), the Partnership may delay payment to
Partners requesting Redemption of Units of the proportionate part of the Net
Asset Value of the Units represented by the sums which shall be the subject of
such default or delay
The General Partner shall be authorized to execute, file, record,
and publish, on behalf of the Partnership and each Partner, such amendments to
this Agreement and the Certificate of Limited Partnership as may be necessary to
reflect any Redemption.
12. MANDATORY REDEMPTION.
The General Partner may, in its sole discretion at any time and from
time to time, require a Limited Partner (or his assignee if any) to withdraw
entirely from the Partnership or to withdraw a portion of such Limited Partner's
unredeemed capital contribution and undistributed profits, if any, by giving
notice in writing to the Limited Partner (or assignee) thus designated. The
Limited Partner (or assignee) thus designated shall redeem all or a portion of
his Units from the Partnership as specified in such notice as of the last day of
the calendar month specified in such notice, which notice shall be delivered to
the Limited Partner (or assignee) thus designated at least five business days
prior to such month-end. Such Limited Partner (or assignee) shall be deemed to
have redeemed all or a portion of his Units, as the case may be, as of the end
of such month without further action on the part of the Limited Partner (or
assignee). The General Partner is authorized to cancel the appropriate number of
Units issued to the Limited Partner (or assignee) in respect of such redemption
and pay to the Limited Partner (or assignee) an amount equal to the Net Asset
Value of such Units less any amounts specified in Section ll(b).
Without limiting the foregoing or the circumstances under which the
General Partner may require withdrawal of a Limited Partner, the General Partner
intends generally to require the withdrawal of a Limited Partner: (a) who ceases
to be an employee or Affiliate of the General Partner, TIC, any of their present
or future affiliated entities, or their successors
A-26
or assigns; (b) if the value of Units held by Plan Investor Partners equals or
exceeds 25% of the aggregate value of all Units then outstanding; or (c) if
Units may be deemed to constitute assets of Plan Investor Partners.
The General Partner is authorized to execute, file, record, and
publish, for and on behalf of the Partnership and each Partner, such amendments
to this Agreement and the Certificate of Limited Partnership as may be necessary
to reflect any required withdrawal of a Limited Partner.
13. ADMISSION OF ADDITIONAL PARTNERS.
At any time and from time to time in its sole discretion, the
General Partner may admit additional Limited Partners, each of which newly-
admitted Limited Partners shall contribute cash to the capital of the
Partnership for each Unit acquired in the amount determined in accordance with
Section 7 (which amount shall not be less than 100% of the Net Asset Value of
the Unit acquired). At any time and from time to time in its sole discretion,
the General Partner may admit any transferee, assignee, pledgee, or secured
creditor of Units as a substituted Limited Partner in accordance with Section
ll(a). Additional general partners shall not be admitted to the Partnership
except as provided in Section 18; provided, however, that at any time and from
time to time in its sole discretion, the General Partner may admit additional
general partners that are affiliated with the General Partner, TIC, any of their
present or future affiliated entities, or their successors or assigns. No
Limited Partner shall have any preemptive, preferential or other rights with
respect to the issuance of any additional Units.
The General Partner is authorized to execute, file, record, and
publish, on behalf of the Partnership and each Partner, such amendments to this
Agreement and to the Certificate of Limited Partnership as may be necessary to
reflect the admission or substitution of a Partner.
14. SPECIAL POWER OF ATTORNEY.
Each Limited Partner, by the execution of this Agreement, hereby
irrevocably constitutes and appoints the General Partner and any successor
general partner, with full power of substitution, as such Partner's true and
lawful agent and attorney-in-fact, in his name, place, and stead, to do all
things necessary: (a) to admit a person as a Limited Partner and to admit other
persons as additional or substituted Limited Partners so long as such admission
or substitution shall be in accordance with this Agreement; (b) to file,
prosecute, defend, settle, or compromise any and all actions at law or in equity
for or on behalf of the Partnership in connection with any claim, demand, or
liability asserted or threatened by or against the Partnership; and (c) to
execute, acknowledge, swear to, deliver, file, record, and publish: (i) this
Agreement, the Certificate of Limited Partnership, and amendments thereto; (ii)
instruments which the General Partner shall deem necessary or appropriate to
reflect any amendment, change, or modification of this Agreement or the
Certificate of Limited Partnership made in accordance with this Agreement; (iii)
certificates of assumed name; and (d) instruments which the General Partner
shall deem necessary or appropriate to qualify or
A-27
maintain the qualifications of the Partnership to do business as a foreign
limited partnership in other jurisdictions.
This Power of Attorney shall be irrevocable and deemed to be a power
coupled with an interest, and shall survive the incapacity, insolvency,
disability, legal incompetency, death, dissolution, liquidation, or termination
of a Limited Partner.
Each Limited Partner shall be bound by any representation made by
the General Partner and by any successor thereto acting in good faith pursuant
to this Power of Attorney. Each Limited Partner hereby waives any and all
defenses which may be available to contest, negate, or disaffirm the action of
the General Partner and any successor thereto taken in good faith under this
Power of Attorney.
Each Limited Partner shall execute a special power of attorney on a
document separate from this Agreement, generally contained in subscription
documentation. In the event of any conflict between this Agreement and any
instruments executed, delivered, or filed by the General Partner and any
successor thereto pursuant to this Power of Attorney, this Agreement shall
control.
The General Partner may exercise this Power of Attorney by listing
all of the Limited Partners executing any agreement, certificate, instrument, or
document with the single signature of the General Partner as attorney-in-fact
for all such Limited Partners.
15. WITHDRAWAL OF PARTNERS.
(a) WITHDRAWAL OF GENERAL PARTNER. The General Partner shall not
withdraw from the Partnership unless it shall have given the Limited Partners at
least 90 days' prior written notice of its intention to withdraw. Subject to
Sections 4 and 18, upon the withdrawal insolvency, dissolution, liquidation, or
termination of the General Partner, the Partnership shall terminate and dissolve
unless a remaining or new general partner or partners shall have been elected to
continue the business of the Partnership, which any remaining or new general
partner(s) shall have the right to do.
(b) WITHDRAWAL OF LIMITED PARTNERS. The withdrawal, insolvency,
disability, legal incompetency, death, liquidation, termination, or dissolution
of a Limited Partner shall not terminate or dissolve the Partnership, and such
Limited Partner and his estate, custodian, or legal representative shall have no
right to withdraw or value such Limited Partner's interest in the Partnership
except as provided in Section 11. Each Limited Partner (and any assignee or
representative thereof) agrees that, in the event of his death, he waives on
behalf of himself and his estate, and directs the legal representatives of his
estate and any person interested therein to waive, the furnishing of any
inventory, accounting, or appraisal of the assets of the Partnership and any
right to an audit or examination of the books and records of the Partnership.
A-28
16. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL.
Except as provided otherwise in this Agreement, the General Partner
shall not be personally liable for the return or repayment of all or any portion
of the capital or profits of any Partner (or assignee), it being agreed by all
Partners that any such return or repayment of capital or profits made pursuant
to this Agreement shall be made solely from the assets of the Partnership (which
shall include amounts contributed by Limited Partners and paid out in
distributions, redemptions, or otherwise together with interest thereon, but
shall not include any right of contribution from the General Partner except to
the extent previously made by it pursuant to this Agreement).
17. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) STANDARD OF LIABILITY. Neither the General Partner nor any of
its Affiliates (as defined in Section 17(c)) shall be liable, responsible, or
accountable in damages or otherwise to the Partnership or any Partner for any
loss, liability, damage, cost, or expense incurred by the Partnership or such
Partner by reason of any act, omission, activity, or conduct by the General
Partner or any of its Affiliates (either on behalf of the Partnership or in the
furtherance of the interests of the Partnership) in good faith, in a manner
reasonably believed by such person to be within the scope of the authority
granted to such person by this Agreement or by law or by the consent of the
Limited Partners, and in the best interests of the Partnership, provided that
the General Partner's or such Affiliate's act, omission, activity, or conduct
did not constitute negligence, misconduct, or breach of fiduciary duty.
(b) INDEMNIFICATION BY PARTNERSHIP. The Partnership, out of its
assets to the fullest extent permitted by applicable law, shall indemnify,
defend, and hold harmless the General Partner and its Affiliates from and
against any loss, liability, damage, cost, and expense (including attorneys' and
accountants' fees and expenses incurred in defense of any demands, claims and
lawsuits) actually and reasonably incurred by the General Partner or Affiliate
arising from acts, omissions, activities, or conduct concerning the business or
activities undertaken by or on behalf of the Partnership, including without
limitation any demands, claims, or lawsuits initiated by a Limited Partner or
assignee thereof, provided that a court of competent jurisdiction upon entry of
final judgment shall find (or, if no final judgment shall be entered,
independent legal counsel, who shall be other than counsel to the Partnership or
the General Partner or Affiliate, shall in writing opine) that such loss,
liability, damage, cost, or expense did not arise out of an act, omission,
activity, or conduct of the General Partner or Affiliate which constituted
misconduct, negligence, or breach of fiduciary duty and such act, omission,
activity, or conduct was done in good faith, in the reasonable belief that it
was within the scope of the authority granted to the General Partner or
Affiliate by this Agreement or by law or by the consent of the Limited Partners,
and was in the best interests of the Partnership. Notwithstanding the foregoing,
no indemnification of the General Partner or its Affiliates by the Partnership
shall be permitted for any loss, liability, damage, cost, or expense resulting
from liabilities incurred for violation of federal or state securities laws. The
General Partner and its Affiliates shall be indemnified for settlements and
related expenses of lawsuits alleging securities law violations and for expenses
incurred in successfully defending
A-29
such lawsuits, provided that a court, after having been apprised as to the
current position of the SEC and any other applicable state securities or Blue
Sky regulatory authority regarding indemnification for violations of securities
laws, either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made, or (ii) approves indemnification of
litigation costs if a successful defense is made. Notwithstanding the foregoing,
in any action or proceeding brought by a Limited Partner in the right of the
Partnership to which the General Partner or any of its Affiliates is a party
defendant, any such person or entity shall be indemnified only to the extent and
subject to the conditions specified in the Partnership Act.
Expenses incurred in connection with the preparation and
presentation of a defense to any claim, action, suit, or proceeding of the
character described above shall be paid by the Partnership from time to time in
advance prior to final disposition thereof upon receipt of an undertaking by or
on behalf of the General Partner or Affiliate thereof, as applicable, that such
amount shall be repaid by the General Partner or Affiliate to the Partnership if
it shall be ultimately determined that the General Partner or Affiliate shall
not be entitled to indemnification under this Section 17(b), provided that
either (i) the General Partner or Affiliate provides appropriate security for
such undertaking, (ii) the General Partner or Affiliate is insured against
losses arising out of any such advance payments, or (iii) independent legal
counsel, who shall be other than counsel to the Partnership or the General
Partner or Affiliate, shall in writing opine that, based upon a review of
readily available facts (as opposed to a full trial-type inquiry), there is
reason to believe that the General Partner or Affiliate shall be found entitled
to indemnification hereunder. Notwithstanding the foregoing, no such advances
shall be made to the General Partner or its Affiliates when an action shall have
been initiated by a Limited Partner.
Nothing contained in this Section 17(b) shall increase the liability
of any Limited Partner to the Partnership beyond the amount of his unredeemed
capital contribution, undistributed profits if any, and any distributions and
amounts received upon redemption of Units together with interest thereon, as
provided in Section 8(f). All rights to indemnification and payment of
attorneys' and accountants' fees and expenses shall not be affected by the
termination of the Partnership or the withdrawal, insolvency, dissolution,
liquidation, or termination of the General Partner.
The Partnership shall not incur the cost of that portion of any
liability insurance which insures the General Partner and its Affiliates for any
liability as to which the General Partner and its Affiliates are prohibited from
being indemnified hereunder; provided, however, that nothing contained herein
shall preclude the Partnership from purchasing and paying for such types of
insurance, including extended coverage liability and casualty and workers'
compensation, as would be customary for any person owning comparable assets and
engaged in similar business, or from naming the General Partner and its
Affiliates as additional named insured parties thereunder, provided that such
addition does not add to the amount of the premiums payable by the Partnership.
A-30
Nothing contained herein shall constitute a waiver by any Limited
Partner of any right which he may have against any party under federal or state
securities laws.
(c) AFFILIATE. As used in this Agreement, except as provided
otherwise herein, the term "Affiliate" of the General Partner shall mean: (i)
any natural person, partnership, corporation, company, association, or other
legal entity directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of the General Partner;
(ii) any natural person, partnership, corporation, company, association, or
other legal entity 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote by the
General Partner; (iii) any natural person, partnership, corporation, company,
association, or other legal entity directly or indirectly controlling,
controlled by, or under common control with the General Partner; or (iv) any
officer or director of the General Partner. Notwithstanding the foregoing,
"Affiliate" for the purpose of this Section 17 shall include only those persons
acting on behalf of the General Partner within the scope of the authority of the
General Partner as provided in this Agreement.
(d) INDEMNIFICATION BY PARTNERS. In the event that the Partnership
shall be made a party to any claim, demand, dispute, or litigation or otherwise
shall incur any loss, liability, damage, cost, or expense as a result of or in
connection with any Partner's (or assignee's) obligations or liabilities
unrelated to the Partnership's business, such Partner (or assignees
cumulatively) shall indemnify, defend, hold harmless, and reimburse the
Partnership for such loss, liability, damage, cost, and expense to which the
Partnership shall become subject (including attorneys' and accountants' fees).
18. AMENDMENTS; MEETINGS; VOTING.
(a) AMENDMENTS AND ACTIONS WITH CONSENT OF GENERAL PARTNER. If, at
any time during the term of the Partnership, the General Partner shall deem it
necessary or desirable to amend this Agreement, such amendment shall be
effective only if such amendment shall be approved (in person or by proxy and
embodied in an instrument signed personally or by an attorney-in-fact) by the
General Partner and by Limited Partners owning more than 50% of the Units then
owned by Limited Partners, and only if such amendment shall be made in
accordance with and to the extent permissible under the Partnership Act.
Approval by Limited Partners may be obtained by the General Partner after
written notice to Limited Partners requiring them to respond in the negative
within a specified time or be deemed to have provided their approval. Any
amendment to this Agreement which shall have been approved by the percentage of
outstanding Units prescribed above shall be deemed to have been approved by all
Partners and all outstanding Units of Limited Partnership Interest and Units of
General Partnership Interest.
Notwithstanding the foregoing, the General Partner shall be
authorized to amend this Agreement, without the consent of any Limited Partner,
in order: (i) to change the name of the Partnership; (ii) to clarify any
ambiguity; (iii) to supplement or clarify any inconsistent provisions; (iv) to
effect the intent of the allocation provisions to the maximum
A-31
extent possible in the event of a change in the Code or the interpretations
thereof affecting such allocations; (v) to attempt to ensure that the
Partnership is not taxed as an association taxable as a corporation for federal
income tax purposes; (vi) to attempt to ensure that the Partnership is not
classified as a "publicly traded partnership" for federal income tax purposes;
(vii) to make any other amendment that is not adverse to the Limited Partners;
or (viii) to make any amendment that the General Partner deems advisable or
considers necessary to comply with any applicable law, rule, regulation, policy,
guideline or interpretation, provided that such amendment is not adverse to the
Limited Partners. Any amendment to this Agreement shall be adhered to and have
the same force and effect from and after its effective date as if the same shall
have been originally embodied in and formed a part of this Agreement.
Notwithstanding the foregoing, without the consent of all Partners, no such
amendment to this Agreement shall change or alter the provisions of this
proviso, reduce the capital account of any Partner, or modify the percentage of
profits, losses, or distributions to which any Partner is entitled.
(b) LIST OF PARTNERS; MEETINGS. Any Limited Partner, upon written
request addressed to the General Partner and at such Limited Partner's expense,
shall be entitled to obtain from the General Partner a list of the names and
addresses of record of all Limited Partners and the number of Units owned by
each, provided that such request shall be made in order to allow such Limited
Partner to communicate with other Limited Partners concerning the business of
the Partnership. The General Partner in its discretion may require a Limited
Partner requesting a list of Limited Partners to furnish to the General Partner
an affidavit that the Limited Partner's request shall not be desired for a
purpose which is in the interest of a business or object other than the business
of the Partnership.
Upon the General Partner's receipt of a written request that a
meeting of the Partnership be called to vote upon any matter upon which the
Limited Partners may vote pursuant to this Agreement (which request shall be
signed by Limited Partners owning at least 10% of the Units then owned by
Limited Partners), the General Partner, by written notice to each Limited
Partner of record mailed within 15 days after receipt of such request, shall
call a meeting of the Partnership. Such meeting shall be held at least 30, but
not more than 60, days after the mailing of such notice, and such notice shall
specify the date, a reasonable place and time, and the purpose of such meeting.
(c) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF GENERAL PARTNER. Upon
the affirmative vote (in person or by proxy) of Limited Partners owning more
than 50% of the Units then owned by Limited Partners (excluding any Units owned
by the General Partner), the following actions may be taken by the Partnership:
(i) this Agreement may be amended in accordance with and to the extent
permissible under the Partnership Act, provided, however, that, without the
consent of all Partners, no such amendment shall change or alter the provisions
of this proviso, reduce the capital account of any Partner, or modify the
percentage of profits, losses, or distributions to which any Partner shall be
entitled; (ii) the Partnership may be dissolved; (iii) the General Partner may
be removed and a new general partner or partners may be elected to replace the
General Partner; (iv) a new general partner or partners may be elected prior to
the withdrawal of the General
A-32
Partner from the Partnership; (v) any contracts with the General Partner or any
of its Affiliates may be terminated without penalty on 60 days' prior written
notice; and (vi) the sale of all or substantially all of the assets of the
Partnership may be approved; provided, however, that none of the foregoing
actions shall be taken unless legal counsel approved by Limited Partners owning
more than 50% of the Units then owned by Limited Partners shall render a written
opinion to the effect that the action to be taken shall not adversely affect the
status of the Limited Partners as limited partners under the Partnership Act or
the classification of the Partnership as a "partnership" under the federal
income tax laws and is permitted under the Partnership Act (or, in lieu of such
an opinion, a court of competent jurisdiction shall render a final order to such
effects). The term "final order" shall mean an order that is not subject to any
further court proceedings for appeal, review, or modification. Any action which
shall have been approved by the percentage of outstanding Units prescribed above
shall be deemed to have been approved by all Partners and all outstanding Units
of Limited Partnership Interests and Units of General Partnership Interest. Any
amendment to this Agreement shall be adhered to and have the same force and
effect from and after its effective date as if the same shall have been
originally embodied in and formed a part of this Agreement.
(d) ACTIONS WITHOUT MEETING. Notwithstanding contrary provisions of
this Section 18 covering notices to, meetings of, and voting by Limited
Partners, any action required or permitted to be taken by Limited Partners at a
meeting or otherwise may be taken by Limited Partners without a meeting, without
prior notice, and without a vote if a consent in writing setting forth the
action so taken shall be signed by Limited Partners owning Units having not
fewer than the minimum number of votes that would be necessary to authorize or
take such action at a meeting of Limited Partners at which all outstanding Units
shall have been present and voted. Notice of the taking of action by Limited
Partners without a meeting by less than unanimous written consent of Limited
Partners shall be given to those Limited Partners who shall not have consented
in writing without seven business days after the occurrence thereof.
(e) AMENDMENTS TO CERTIFICATE OF LIMITED PARTNERSHIP. If an
amendment to this Agreement shall be made pursuant to this Section 18, the
General Partner shall be authorized to execute, file, record, and publish, on
behalf of the Partnership and each Partner, such amendments to the Certificate
of Limited Partnership as shall be necessary or desirable to reflect such
amendment.
19. GOVERNING LAW.
The validity, construction, and enforcement of this Agreement shall
be governed by and in accordance with the substantive law of the State of
Delaware (excluding the law thereof which requires the application of or
reference to the law of any other jurisdiction).
A-33
20. MISCELLANEOUS.
(a) PRIORITY AMONG LIMITED PARTNERS. Except as provided otherwise
in this Agreement, no Limited Partner shall be entitled to any priority or
preference over any other Limited Partner in regard to the affairs of the
Partnership.
(b) NOTICES. All notices under this Agreement (other than Requests
for Redemption of Units, notices of assignment, transfer, pledge, or encumbrance
of Units, and reports and notices by the General Partner to the Limited
Partners) shall be in writing and shall be effective upon personal delivery or
(if sent by mail, postage prepaid, addressed to the last known address of the
party to whom such notice is to be given) upon the deposit of such notice in the
United States mail. Requests for Redemption of Units and notices of assignment,
transfer, pledge, or encumbrance of Units shall be effective upon timely receipt
by the General Partner at its principal office. Reports and notices by the
General Partner to the Limited Partners shall be in writing and shall be sent by
first-class United States mail to the last known address of each Limited
Partner.
(c) BINDING EFFECT. This Agreement shall inure to the benefit of,
and be binding upon, all of the Partners, their successors, assigns as permitted
herein, custodians, estates, heirs, and legal representatives. For purposes of
determining the rights of any Partner or assignee hereunder, the General Partner
may rely upon the Partnership's books and records as to whom are Partners and
assignees, and all Partners and assignees agree that their rights shall be
determined and they shall be bound thereby, including but not limited to all
rights which they may have under Section 18.
(d) CAPTIONS. Captions in no way define, limit, extend, or describe
the scope of this Agreement nor the effect of any of its provisions.
A-34
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
General Partner:
SECOND MANAGEMENT LLC
By: /s/ Mark F. Dalton
----------------------------
Mark F. Dalton
President and Chief Operating Officer
Existing Limited Partners:
By: SECOND MANAGEMENT LLC
General Partner, as Authorized Agent
and Attorney-in-Fact
By: /s/ Mark F. Dalton
----------------------------
Mark F. Dalton
President and Chief Operating
Officer
Additional Limited Partners:
By: SECOND MANAGEMENT LLC
General Partner, as Authorized Agent
and Attorney-in-Fact
By:
----------------------------
Mark F. Dalton
President and Chief Operating
Officer
A-35
ANNEX A
TUDOR FUND FOR EMPLOYEES L.P.
REQUEST FOR REDEMPTION
__________________, 19__
(Today's date)
Submitted for Redemption Effective the Calendar Quarter Ending_________, 19__
TUDOR FUND FOR EMPLOYEES L.P.
c/o Second Management LLC,
General Partner
One Liberty Plaza, 51st Floor
New York, New York 10006
Ladies and Gentlemen:
I hereby request Redemption (as defined in and subject to the terms
and conditions of the First Amended and Restated Limited Partnership Agreement
of Tudor Fund For Employees L.P. (the "Partnership")) of (i) if a partial
redemption, the equivalent number of Units of Limited Partnership Interest in
the Partnership representing $_____________ [insert dollar amount in $1,000
increments], or (2) if a full redemption, _____________ Units [insert number of
Units held] of Limited Partnership Interest in the Partnership, less any amounts
specified below and in Section ll(b) of the First Amended and Restated Limited
Partnership Agreement of the Partnership.
Redemption will be effective as of the close of business (as
determined by the General Partner in its sole discretion) on the last day of the
calendar quarter ending after this Request for Redemption has been received by
the General Partner, provided that this request for Redemption is received by
the General Partner at its principal office at least five business days prior to
the date on which this Redemption is to be effective. I understand that: (i) I
may redeem Units only in $1,000 increments, except that other amounts of Units
may be redeemed if I am redeeming my entire interest in the Partnership; and
(ii) I may not make a partial Redemption of Units which would reduce the Net
Asset Value of the Units retained by me (after giving effect to this Redemption)
to less than $1,000, and any request for partial redemption will be honored only
to the extent it complies with such limitation.
I (either in my individual capacity or as an authorized
representative of an entity if applicable) hereby represent and warrant that I
am the true, lawful, and beneficial owner of the Units (or fractions thereof) to
which this Request for Redemption relates, with full power and authority to
request Redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion.
A-36
Please remit Redemption proceeds as follows (Check one):
____ By check payable to the Limited Partner mailed to the following address:
------------------------------------------------------------------------
------------------------------------------------------------------------
OR
____ By wire transfer* to the Limited Partner's bank account as follows:
* It is the General Partner's policy to transfer Redemption
proceeds by wire only for amounts of $3,000 or more.
Bank Name:
City and State:
ABA Number:
For the Account of:
Account Number:
Early payment based on the estimated quarter-end Net Asset Value per Unit (check
one):
____ Is required by the Limited Partner
____ Is not required by the Limited Partner
---
SIGNATURE MUST BE IDENTICAL TO NAME IN WHICH UNITS
OF LIMITED PARTNERSHIP INTEREST ARE REGISTERED
Name of Partner: ________________________________
Account Number: ________________________________
For execution by an individual partner For execution by an entity
X X
- ----------------------------------------- --------------------------------
Signature of Limited Partner Signature of authorized officer,
partner, trustee, or custodian
THIS REQUEST FOR REDEMPTION MUST BE EXECUTED BEFORE A NOTARY PUBLIC AND RECEIVED
BY THE GENERAL PARTNER AT ITS PRINCIPAL OFFICE AT LEAST FIVE FULL BUSINESS DAYS
PRIOR TO THE DATE ON WHICH REDEMPTION IS TO BE EFFECTIVE.
A-37
THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC
FOR USE BY INDIVIDUAL
STATE OF )
:ss.:
COUNTY OF )
On the _____ day of__________, 19__, before me personally appeared
_________________________________________, to me known, who, being by me duly
sworn, did depose and say that he/she resides at
_______________________________________________________________________________
[Full residence address]; that he/she is the person described in and who
executed the foregoing instrument; and he/she duly acknowledged to me that
he/she executed the same.
_______________________________________
Notary Public
My commission expires on_______________
FOR USE BY TRUSTEE
STATE OF )
:ss.:
COUNTY OF )
On the ________ day of ______________, 19__, before me
personally appeared_______________________________________, to me known, who,
being by me duly sworn, did depose and say that he/she resides at
______________________________________________________________________________
[Full residence address]; that he/she is the person described in and who
executed the foregoing instrument, and he/she duly acknowledged to me that
he/she executed the same as trustee on behalf of _____________________________
____________________________________________________ [Name of individual or
entity].
_______________________________________
Notary Public
My commission expires on_______________
A-38
EXHIBIT B
TUDOR FUND FOR EMPLOYEES L.P.
SUBSCRIPTION AGREEMENT
AND
POWER OF ATTORNEY
(FOR USE ONLY BY INDIVIDUALS)
These securities may only be purchased and held by persons who are employees of
Second Management LLC (the "General Partner"), any of its present or future
affiliated entities, or their successors or assigns, or by the Tudor Investment
Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k) Plan").
INSTRUCTIONS - PLEASE READ CAREFULLY
1. Carefully read this document to make sure that you understand it
thoroughly and that it is the appropriate Subscription Agreement for you
to use.
2. Using a typewriter or printing in ink, fill in the blanks as directed
under the captions "Subscriber" and "Subscription", and include the
appropriate signature and date under the caption "Signature".
3. Reread this document to make sure that you understand it and that all
necessary blanks are filled in, and return it to CIS Securities, Inc.
(the "Selling Agent"), at 233 South Wacker Drive, Suite 2300, Chicago,
Illinois 60606, Attention: Quinn McSorley
- --------------------------------------------------------------------------------
SUBSCRIBER (MUST BE COMPLETED IN FULL)
(a) Full Name (Do Not Use Initials):
-------------------------------------------------------
First Middle Last
(b) Social Security Number:
--------------------------------
(c) Residence Address (P.O. Box Alone Not Acceptable):
______________________________________________________________________
Street
----------------------------------------------------------------------
City State Zip Code
(d) Home Telephone Number (____)___________________________
(e) Have you previously subscribed for Units? Yes___ No___
- --------------------------------------------------------------------------------
B-1
SUBSCRIPTION (MUST BE COMPLETED IN FULL)
Pursuant to the accompanying Prospectus dated May , 2002
(the "Prospectus"), subscriptions are solicited for Units of Limited Partnership
Interest ("Units") in Tudor Fund For Employees L.P. (the "Partnership"),
including fractions of Units (to the fourth decimal place), on a continuing
basis (the "Continuing Offering") for sale at periodic closings held as of
January 1, April 1, July 1, and October 1 of each year or at such other times as
the General Partner determines in its sole discretion ("Periodic Closings"), at
an offering price per Unit equal to 100% of the Net Asset Value (as defined in
the Prospectus) of a Unit as of the opening of business on the date of the
Periodic Closing at which such Unit is sold.
The minimum subscription is $1,000, and whole Units and fractions of Units
(to the fourth decimal place) may be subscribed for. A subscriber may subscribe
for amounts in excess of the foregoing minimum in increments of $1,000. All
subscriptions for Units are irrevocable. The General Partner in its sole
discretion may reject any subscription in whole or in part at any time prior to
acceptance.
In order to subscribe for Units, a subscriber must deliver to the Selling
Agent: (1) a fully completed, dated, and signed Subscription Agreement and Power
of Attorney; and (2) either (a) a check payable to "THE BANK OF NEW YORK, AS
ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", or (b) a wire transfer of
Federal Funds to "THE BANK OF NEW YORK, NEW YORK, NEW YORK, ABA NO. 021000018,
ACCOUNT NO. GLA/111565 FOR CREDIT TO ACCOUNT NO. 830633, TUDOR FUND FOR
EMPLOYEES L.P., REFERENCE: [SUBSCRIBER'S NAME]", in either case representing the
full purchase price for such subscription. The Escrow Agent requires 2 full
business days to clear checks drawn on New York City banks, 5 full business days
to clear checks drawn on all other banks, and 1 full business day to clear wire
transfers of funds.
The undersigned subscriber hereby irrevocably subscribes for
$_______________ of Units for the Periodic Closing to be held as of the first
day of _____________, 200__ (insert date).
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
The undersigned subscriber hereby represents and warrants to, and agrees
with, the General Partner and the Partnership as follows.
(1) The address as set forth above under the caption "Subscriber" is the
subscriber's true, correct, and complete residence address, and the
subscriber has no present intention of becoming a resident of any other
state or country. The information provided above under that caption is
true, correct, and complete as of the date of this Subscription Agreement,
and if there should be any change in such information prior to the
acceptance of the subscriber's subscription for Units at a Periodic
Closing, the subscriber will immediately furnish such revised or corrected
information to the General Partner.
B-2
(2) The subscriber is over 21 years old, is legally competent, and is permitted
by applicable law to execute and deliver this Subscription Agreement and to
purchase Units.
(3) As of the date of this Subscription Agreement, the amount of the
subscriber's subscription for Units, made directly by the subscriber in
his/her individual capacity and/or indirectly by the subscriber through the
TIC 401(k) Plan, when added to the amount of all other subscriptions made
by the subscriber (directly or indirectly) for Units, is and will be 25% or
less of the subscriber's net worth or, if married, the subscriber's joint
net worth with spouse (exclusive of home, furnishings, and automobiles).
(4) The subscriber understands that, during the Continuing Offering, the number
of whole Units and fractions of Units which will be issued to a subscriber
will be determined by dividing the subscription amount tendered by the
subscriber by the Net Asset Value of a Unit as of the date of the
applicable Periodic Closing at which the subscription is accepted. The
subscriber understands that the Net Asset Value of a Unit may increase or
decrease substantially between the date of a subscription and the date of
the Periodic Closing at which the subscription is accepted; consequently,
the subscriber may receive at a Periodic Closing more or fewer Units and/or
fractions of Units than would be received if the Periodic Closing were held
on the date of the subscription.
(5) The subscriber can afford to bear the risks of an investment in the
Partnership, including the risk of losing the entire investment.
(6) The subscriber's subscription is made with the subscriber's own funds for
the subscriber's own account, and not as trustee, custodian, nominee, or
agent for, or partner with, any other person.
(7) The subscriber understands that there exist significant actual and
potential conflicts of interest in the structure and operation of the
Partnership, all as described in the Prospectus.
(8) The subscriber understands that Tudor Investment Corporation ("TIC"), an
affiliate of the General Partner, serves as the trading advisor for the
Partnership and, except as described otherwise in the Prospectus, receives
management and incentive fees for such services, and that Bellwether
Partners LLC, an affiliate of the General Partner and TIC, serves as
counterparty to and agent for the Partnership in the trading of spot and
forward contracts and over-the-counter options, all as described in the
Prospectus.
(9) The subscriber understands that neither the Partnership nor any investor
will pay any selling commissions to the Selling Agent in connection with
subscriptions for Units. However, the General Partner (out of its own
funds) will reimburse the Selling Agent for certain of its out-of-pocket
administrative expenses and may otherwise compensate the Selling Agent for
its selling efforts, to the extent permitted by applicable law.
B-3
(10) The subscriber understands that the performance and financial information
included in the Prospectus and in any supplement to the Prospectus referred
to below under the caption "Receipt of Documentation" should be read only
in conjunction with the notes and accompanying text, and that such
information should not be interpreted to mean that the Partnership, the
General Partner, or TIC will have similar results in the future or will
realize any profits whatsoever.
(11) The subscriber understands that Units cannot be redeemed or transferred,
assigned, pledged, or encumbered except as set forth in the Second Amended
and Restated Limited Partnership Agreement of the Partnership as amended to
date, annexed as EXHIBIT A to the Prospectus (the "Limited Partnership
Agreement").
(12) The subscriber is currently an employee of the General Partner or of an
entity affiliated with the General Partner. Upon the termination of the
subscriber's employment for any reason whatsoever (including voluntary
termination) with the General Partner, or any of its affiliated entities,
or their successors or assigns, the subscriber's Units purchased hereby
will be subject to mandatory redemption upon 5 business days' written
notice from the General Partner, all as described in the Prospectus and the
Limited Partnership Agreement.
BY MAKING THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, SUBSCRIBERS
SHOULD BE AWARE THAT THEY HAVE NOT WAIVED ANY RIGHTS OF ACTION WHICH THEY MAY
HAVE UNDER APPLICABLE FEDERAL SECURITIES LAW. FEDERAL SECURITIES LAW PROVIDES
THAT ANY SUCH WAIVER WOULD BE UNENFORCEABLE. SUBSCRIBERS SHOULD BE AWARE,
HOWEVER, THAT THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN MAY BE
ASSERTED IN THE DEFENSE OF THE PARTNERSHIP OR OTHERS IN ANY SUBSEQUENT
LITIGATION OR OTHER PROCEEDING.
________________________________________________________________________________
ACCEPTANCE OF LIMITED PARTNERSHIP AGREEMENT
The undersigned subscriber hereby agrees that, as of the date that the
subscriber is admitted to the Partnership as a Limited Partner, the subscriber
will be bound by the terms of the Limited Partnership Agreement, as amended to
date and from time to time hereafter in accordance with the terms thereof, as if
the subscriber's signature was actually subscribed thereto.
- --------------------------------------------------------------------------------
B-4
POWER OF ATTORNEY
The undersigned subscriber irrevocably constitutes and appoints the General
Partner and any successor general partner, with the power of substitution, as
the subscriber's true and lawful agent and attorney-in-fact, in the subscriber's
name, place, and stead, to do all things necessary: (1) to admit the subscriber
as a limited partner of the Partnership and to admit others as additional or
substituted limited partners to the Partnership so long as such admission is in
accordance with the terms of the Limited Partnership Agreement or any amendment
thereto; (2) to file, prosecute, defend, settle, or compromise any and all
actions at law or in equity for or on behalf of the Partnership in connection
with any claim, demand, or liability asserted or threatened by or against the
Partnership; and (3) to execute, acknowledge, swear to, deliver, file, record,
and publish on the subscriber's behalf (a) the Limited Partnership Agreement,
the Certificate of Limited Partnership of the Partnership, as amended to date
and from time to time hereafter (the "Certificate of Limited Partnership"), (b)
instruments which the General Partner shall deem necessary or appropriate to
reflect any amendment, change, or modification of the Limited Partnership
Agreement or the Certificate of Limited Partnership made in accordance with the
terms of the Limited Partnership Agreement, (c) certificates of assumed name,
and (d) instruments which the General Partner shall deem necessary or
appropriate to qualify or maintain the qualifications of the Partnership to
conduct business as a foreign limited partnership in other jurisdictions.
This Power of Attorney shall be irrevocable and deemed to be a power
coupled with an interest, and shall survive the incapacity, insolvency,
disability, legal incompetency, death, dissolution, liquidation, or termination
of the subscriber.
The subscriber shall be bound by any representation made by the General
Partner and by any successor thereto acting in good faith pursuant to this Power
of Attorney. The subscriber hereby waives any and all defenses which may be
available to contest, negate, or disaffirm the action of the General Partner and
any successor thereto taken in good faith under this Power of Attorney.
The General Partner may exercise this Power of Attorney by listing all of
the Limited Partners executing any agreement, certificate, instrument, or
document with the single signature of the General Partner as attorney-in-fact
for all such Limited Partners.
- --------------------------------------------------------------------------------
RECEIPT OF DOCUMENTATION
The regulations of the Commodity Futures Trading Commission require that
the undersigned subscriber be given a copy of the Partnership's Prospectus as
well as certain additional documentation if available. Such additional
documentation includes: (1) a supplement to the Prospectus, which may be given
to the subscriber at any time that additional information is being provided to
subscribers, and which must be given to the subscriber if the Prospectus or any
supplement thereto is dated more than six
B-5
months prior to the date that the subscriber first receives the Prospectus or
supplement; (2) the most current monthly account statement for the Partnership,
which must be distributed within 30 calendar days after the end of each calendar
month; and (3) the most current annual report for the Partnership, which must be
distributed within 90 calendar days after the end of the Partnership's fiscal
year (December 31st). The subscriber hereby acknowledges receipt of the
Partnership's Prospectus and the additional documentation referred to above, if
any.
- --------------------------------------------------------------------------------
SIGNATURE
X
- ----------------------------------------- --------------------------------
(Signature of Subscriber) Date
B-6
- --------------------------------------------------------------------------------
NON-UNITED STATES INVESTORS ONLY
Under penalties of perjury, by signature above the subscriber hereby certifies
that the subscriber is not a citizen or resident of the United States.
---
- --------------------------------------------------------------------------------
Account Executive Use Only (Must Be Completed In Full And, Except For Signature,
Must Be Typed Or Printed In Ink By Account Executive)
The undersigned AE hereby certifies that: (1) the AE has informed the person
named above under the caption "Subscriber" of all pertinent facts relating to
the liquidity and marketability of the Units as set forth in the Prospectus; and
(2) the AE has reasonable grounds to believe (on the basis of information
obtained from the person named above under the caption "Subscriber" concerning
such person's investment objectives, other investments, financial situation and
needs, and any other information known by the AE) that (a) such person is or
will be in a financial position appropriate to enable such person to realize to
a significant extent the benefits described in the Prospectus, (b) such person
has a fair market net worth sufficient to sustain the risks inherent in the
Partnership (including loss of investment and lack of liquidity), and (c) the
Partnership is otherwise a suitable investment for such person.
(a) AE's Signature:________________________________________
(b) Full Name of AE:_______________________________________
(c) Full Name of AE's Firm: CIS Securities, Inc.
(d) Account Code of Subscriber: ____________________________
THE AE MUST ENSURE THAT THE DOCUMENTATION REFERRED TO ABOVE UNDER THE CAPTION
"RECEIPT OR DOCUMENTATION" HAS BEEN FURNISHED TO THE PERSON NAMED ABOVE UNDER
THE CAPTION "SUBSCRIBER".
THE AE ALSO MUST ENSURE THAT ALL INFORMATION REQUIRED TO BE PROVIDED UNDER THIS
CAPTION AND UNDER THE CAPTIONS "SUBSCRIBER", "SUBSCRIPTION", AND "SIGNATURE" HAS
BEEN COMPLETED IN FULL AND IS LEGIBLE. AN INCOMPLETE OR ILLEGIBLE SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY WILL BE REJECTED AND THE SUBSCRIBER WILL NOT BE
ALLOWED TO BECOME A LIMITED PARTNER.
B-7
THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC
FOR USE ONLY BY INDIVIDUALS
STATE OF )
)ss.:
COUNTY OF )
On this _____ day of _______________, 200__, before me personally appeared
__________________________________, to me known, who, being by me duly sworn,
did depose and say that he/she resides at
_______________________________________________________ [include full residence
address]; that he/she is the person described in and who executed the foregoing
instrument; and he/she duly acknowledged to me that he/she executed the same.
_______________________________________
Notary Public
My commission expires on ______________
B-8
EXHIBIT C
TUDOR FUND FOR EMPLOYEES L.P.
SUBSCRIPTION AGREEMENT
AND
POWER OF ATTORNEY
(FOR USE ONLY BY THE TUDOR INVESTMENT
CORPORATION 401(K) SAVINGS AND PROFIT-SHARING PLAN)
This Subscription Agreement and Power of Attorney shall only be used by, and
must be executed by, one of the trustees (each a "Trustee") of the Tudor
Investment Corporation 401(k) Savings and Profit-Sharing Plan (the "TIC 401(k)
Plan"). In addition, each plan participant of the TIC 401(k) Plan on whose
behalf this Subscription Agreement and Power of Attorney is being submitted
(each a "Plan Participant") must execute the form of Representations and
Agreements by Plan Participants annexed to the Prospectus as Exhibit D. All
other subscribers must use the form of Subscription Agreement and Power of
Attorney for individuals annexed to the Prospectus as Exhibit B.
INSTRUCTIONS - PLEASE READ CAREFULLY
1. Carefully read this document to make sure that you understand it
thoroughly and that it is the appropriate Subscription Agreement for you
to use.
2. Using a typewriter or printing in ink, fill in the blanks as directed
under the caption "Subscription", and include the appropriate signature
and date under the caption "Signature".
3. Reread this document to make sure that you understand it and that all
necessary blanks are filled in, and return it to CIS Securities, Inc.
(the "Selling Agent"), at 233 South Wacker Drive, Suite 2300, Chicago,
Illinois 60606, Attention: Quinn McSorley.
"Subscriber" means the trust under the TIC 401(k) Plan acting through one or
more of its Trustees.
C-1
- --------------------------------------------------------------------------------
SUBSCRIBER (MUST BE COMPLETED IN FULL)
1. (a) Full Name of Trust: Tudor Investment Corporation 401(k)
-----------------------------------
Savings and Profit-Sharing Plan.
-------------------------------------------------------
(b) Taxpayer I.D. Number: 13-3841088
---------------------------------
2. (a) Full Names of Trustees: Filomena Di Sisto and
-------------------------------
John R. Torell
-------------------------------------------------------
(b) Principal Business Address (P.O. Box Alone Not Acceptable):
1275 King Street
-------------------------------------------------------
Street
Greenwich Connecticut 06831
--------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
SUBSCRIPTION (MUST BE COMPLETED IN FULL)
Pursuant to the accompanying Prospectus dated May , 2002 (the
"Prospectus"), subscriptions are solicited for Units of Limited Partnership
Interest ("Units") in Tudor Fund For Employees L.P. (the "Partnership"),
including fractions of Units (to the fourth decimal place), on a continuing
basis (the "Continuing Offering") for sale at periodic closings held as of
January 1, April 1, July 1, and October 1 of each year or at such other times as
Second Management LLC (the "General Partner") determines in its sole discretion
(the "Periodic Closings"), at an offering price per Unit equal to 100% of the
Net Asset Value (as defined in the Prospectus) of a Unit as of the opening of
business on the date of the Periodic Closing at which such Unit is sold. The
minimum subscription is $1,000, and whole Units and fractions of Units (to the
fourth decimal place) may be subscribed for. A subscriber may subscribe for
amounts in excess of the foregoing minimum in increments of $1,000. All
subscriptions for Units are irrevocable. The General Partner in its sole
discretion may reject any subscription in whole or in part at any time prior to
acceptance.
In order to subscribe for Units, a subscriber must deliver to the Selling
Agent: (1) a fully completed, dated, and signed Subscription Agreement and Power
of Attorney; and (2) either (a) a check payable to "THE BANK OF NEW YORK, AS
ESCROW AGENT FOR TUDOR FUND FOR EMPLOYEES L.P.", or (b) a wire
C-2
transfer of Federal Funds to "THE BANK OF NEW YORK, NEW YORK, NEW YORK, ABA NO.
021000018, ACCOUNT NO. GLA/111565 FOR CREDIT TO ACCOUNT NO. 830633, TUDOR FUND
FOR EMPLOYEES L.P. REFERENCE: TUDOR INVESTMENT CORPORATION 401(K) SAVINGS AND
PROFIT-SHARING PLAN", in either case representing the full purchase price for
such subscription. The Escrow Agent requires 2 full business days to clear
checks drawn on New York City banks, 5 full business days to clear checks drawn
on all other banks, and 1 full business day to clear wire transfers of funds.
Acceptance of a subscription by the TIC 401(k) Plan is in no respect a
representation by the Partnership or the General Partner that this investment
meets all relevant legal requirements with respect to investments by the TIC
401(k) Plan, or that this investment is appropriate for the TIC 401(k) Plan or
any Plan Participant.
The undersigned subscriber hereby irrevocably subscribes for $_______________
of Units for the Periodic Closing to be held as of the first day of
_____________, 200__ (insert date).
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
The undersigned Trustee on behalf of the TIC 401(k) Plan hereby represents
and warrants to, and agrees with, the General Partner and the Partnership as
follows.
(1) The undersigned Trustee understands that, during the Continuing Offering,
the number of whole Units and fractions of Units which will be issued to the TIC
401(k) Plan will be determined by dividing the subscription amount tendered by
the subscriber by the Net Asset Value of a Unit as of the date of the applicable
Periodic Closing at which the subscription is accepted. The undersigned Trustee
understands that the Net Asset Value of a Unit may increase or decrease
substantially between the date of a subscription and the date of the Periodic
Closing at which the subscription is accepted; consequently, the TIC 401(k) Plan
may receive at a Periodic Closing more or fewer Units and/or fractions of Units
than would be received if the Periodic Closing were held on the date of the
subscription.
(2) The undersigned Trustee understands that there exist significant actual and
potential conflicts of interest in the structure and operation of the
Partnership, all as described in the Prospectus.
(3) The undersigned Trustee understands that Tudor Investment Corporation
("TIC"), an affiliate of the General
C-3
Partner, acts as the trading advisor for the Partnership and, except as
described otherwise in the Prospectus, receives management and incentive fees
for such services, and that Bellwether Partners LLC, an affiliate of the General
Partner and TIC, acts as a counterparty to and agent for the Partnership in the
trading of spot and forward contracts and over-the-counter options, all as
described in the Prospectus.
(4) The undersigned Trustee understands that neither the Partnership nor any
investor will pay any selling commissions to the Selling Agent in connection
with subscriptions for Units. However, the General Partner (out of its own
funds) will reimburse the Selling Agent for certain of its out-of-pocket
administrative expenses and may otherwise compensate the Selling Agent for its
selling efforts, to the extent permitted by applicable law.
(5) The undersigned Trustee understands that the performance and financial
information included in the Prospectus and in any supplement to the Prospectus
referred to below under the caption "Receipt of Documentation" should be read
only in conjunction with the notes and accompanying text, and that such
information should not be interpreted to mean that the Partnership, the General
Partner, or TIC will have similar results in the future or will realize any
profits whatsoever.
(6) The undersigned Trustee understands that Units cannot be redeemed or
transferred, assigned, pledged, or encumbered except as set forth in the Second
Amended and Restated Limited Partnership Agreement of the Partnership as amended
to date, annexed as EXHIBIT A to the Prospectus (the "Limited Partnership
Agreement").
BY MAKING THE REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN, THE UNDERSIGNED
TRUSTEE SHOULD BE AWARE THAT NEITHER HE/SHE NOR THE TIC 401(K) PLAN HAS WAIVED
ANY RIGHTS OF ACTION WHICH EITHER MAY HAVE UNDER APPLICABLE FEDERAL SECURITIES
LAW. FEDERAL SECURITIES LAW PROVIDES THAT ANY SUCH WAIVER WOULD BE
UNENFORCEABLE. THE UNDERSIGNED TRUSTEE SHOULD BE AWARE, HOWEVER, THAT THE
REPRESENTATIONS AND WARRANTIES SET FORTH HEREIN MAY BE ASSERTED IN THE DEFENSE
OF THE PARTNERSHIP OR OTHERS IN ANY SUBSEQUENT LITIGATION OR OTHER PROCEEDING.
________________________________________________________________________________
ACCEPTANCE OF LIMITED PARTNERSHIP AGREEMENT
The undersigned Trustee hereby agrees that, as of the date that the trust
account is admitted to the Partnership as a Limited Partner, the Trustees and
the TIC 401(k) Plan will be bound by the terms of the Limited Partnership
Agreement, as amended to date and from time to time hereafter in accordance with
the terms thereof, as if a Trustee's signature was actually subscribed thereto.
C-4
- --------------------------------------------------------------------------------
POWER OF ATTORNEY
The undersigned Trustee irrevocably constitutes and appoints the General
Partner and any successor general partner, with the power of substitution, as
its true and lawful agent and attorney-in-fact, in each of the undersigned's
name, place, and stead, to do all things necessary: (1) to admit the TIC 401(k)
Plan as a limited partner of the Partnership and to admit others as additional
or substituted limited partners to the Partnership so long as such admission is
in accordance with the terms of the Limited Partnership Agreement or any
amendment thereto; (2) to file, prosecute, defend, settle, or compromise any and
all actions at law or in equity for or on behalf of the Partnership in
connection with any claim, demand, or liability asserted or threatened by or
against the Partnership; and (3) and to execute, acknowledge, swear to, deliver,
file, record, and publish on the subscriber's behalf (a) the Limited Partnership
Agreement, the Certificate of Limited Partnership of the Partnership, as amended
to date and from time to time hereafter (the "Certificate of Limited
Partnership"), (b) instruments which the General Partner shall deem necessary or
appropriate to reflect any amendment, change, or modification of the Limited
Partnership Agreement or the Certificate of Limited Partnership made in
accordance with the terms of the Limited Partnership Agreement, (c) certificates
of assumed name, and (d) instruments which the General Partner shall deem
necessary or appropriate to qualify or maintain the qualification of the
Partnership to conduct business as a foreign limited partnership in other
jurisdictions.
This Power of Attorney shall be irrevocable and deemed to be a power coupled
with an interest, and shall survive the incapacity, disability, legal
incompetency, or death of a Trustee or the insolvency, dissolution, liquidation,
or termination of the TIC 401(k) Plan.
The Trustees and the TIC 401(k) Plan shall be bound by any representation
made by the General Partner and by any successor thereto acting in good faith
pursuant to this Power of Attorney.
The Trustees and the TIC 401(k) Plan hereby waive any and all defenses which
may be available to contest, negate, or disaffirm the action of the General
Partner and any successor thereto taken in good faith under this Power of
Attorney.
The General Partner may exercise this Power of Attorney by listing all of the
Limited Partners executing any agreement, certificate, instrument, or document
with the single signature of the General Partner as attorney-in-fact for all
such Limited Partners.
C-5
- --------------------------------------------------------------------------------
RECEIPT OF DOCUMENTATION
The regulations of the Commodity Futures Trading Commission require that the
undersigned be given a copy of the Partnership's Prospectus as well as certain
additional documentation if available. Such additional documentation includes:
(1) a supplement to the Prospectus, which may be given to the undersigned at any
time that additional information is being provided to subscribers, and which
must be given to the undersigned if the Prospectus or any supplement thereto is
dated more than six months prior to the date that the undersigned first receives
the Prospectus or supplement; (2) the most current monthly account statement for
the Partnership, which must be distributed within 30 calendar days after the end
of each calendar month; and (3) the most current annual report for the
Partnership, which must be distributed within 90 calendar days after the end of
the Partnership's fiscal year (December 31st). The undersigned Trustee hereby
acknowledges receipt of the Partnership's Prospectus and the additional
documentation referred to above, if any.
- --------------------------------------------------------------------------------
SIGNATURE
The undersigned Trustee hereby certifies and warrants the he/she has full
power and authority from and on behalf of the TIC 401(k) Plan to complete,
execute, and deliver this Subscription Agreement and Power of Attorney on its
behalf, and to make the statements, representations, and warranties made herein,
and that an investment in the Partnership is not prohibited by law or by the
governing documents of the TIC 401(k) Plan, and is legally permissible.
Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan
- -------------------------------------------------------------------
(Type or Print Name of Trust Account)
By: ____________________________________________________________
(Type or Print Name of Trustee)
______________________________ ___________________________
(Signature of Trustee) Date
C-6
ACCOUNT EXECUTIVE USE ONLY (MUST BE COMPLETED IN FULL AND, EXCEPT FOR SIGNATURE,
MUST BE TYPED OR PRINTED IN INK BY ACCOUNT EXECUTIVE)
The undersigned AE hereby certifies that: (1) the AE has informed the person
named above under the caption "Subscriber" of all pertinent facts relating to
the liquidity and marketability of the Units as set forth in the Prospectus; and
(2) the AE has reasonable grounds to believe (on the basis of information
obtained from the person named above under the caption "Subscriber" concerning
such person's investment objectives, other investments, financial situation and
needs, and any other information known by the AE) that (a) such person is or
will be in a financial position appropriate to enable such person to realize to
a significant extent the benefits described in the Prospectus, (b) such person
has a fair market net worth sufficient to sustain the risks inherent in the
Partnership (including loss of investment and lack of liquidity), and (c) the
Partnership is otherwise a suitable investment for such person.
(a) AE's Signature: ________________________________________
(b) Full Name of AE: _______________________________________
(c) Full Name of AE's Firm: CIS Securities, Inc.
(d) Account Code of Subscriber: _____________________________
THE AE MUST ENSURE THAT THE DOCUMENTATION REFERRED TO ABOVE UNDER THE CAPTION
"RECEIPT OR DOCUMENTATION" HAS BEEN FURNISHED TO THE PERSON NAMED ABOVE UNDER
THE CAPTION "SUBSCRIBER".
THE AE ALSO MUST ENSURE THAT ALL INFORMATION REQUIRED TO BE PROVIDED UNDER THIS
CAPTION AND UNDER THE CAPTIONS "SUBSCRIBER", "SUBSCRIPTION", AND "SIGNATURE" HAS
BEEN COMPLETED IN FULL AND IS LEGIBLE. AN INCOMPLETE OR ILLEGIBLE SUBSCRIPTION
AGREEMENT AND POWER OF ATTORNEY WILL BE REJECTED AND THE SUBSCRIBER WILL NOT BE
ALLOWED TO BECOME A LIMITED PARTNER.
C-7
THIS DOCUMENT MUST BE ACKNOWLEDGED BEFORE A NOTARY PUBLIC
FOR USE BY TRUSTEES
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this _____ day of _______________, 200__, before me personally appeared
__________________________________, to me known, who, being by me duly sworn,
did depose and say that he/she resides at ______________________________________
[include full residence address]; that he/she is the Trustee described in and
who executed the foregoing instrument for and on behalf of the Tudor Investment
Corporation 401(k) Savings and Profit-Sharing Plan; he/she duly acknowledged to
me that he/she executed the same; and he/she executed the same by order of and
pursuant to authority in the trust instrument of such trust account.
_______________________________________
Notary Public
My commission expires ________________
C-8
EXHIBIT D
REPRESENTATIONS AND AGREEMENTS BY PLAN PARTICIPANTS
In connection with the election by the undersigned plan participant
("Plan Participant") of the Tudor Investment Corporation 401(k) Savings and
Profit-Sharing Plan (the "TIC 401(k) Plan") to make an investment of
contributions by the TIC 401(k) Plan on behalf of the Plan Participant in Tudor
Fund For Employees L.P. (the "Partnership"), the Plan Participant hereby
represents and warrants to, and agrees with, the trustees of the TIC 401(k) Plan
(the "Trustees"), the Partnership, and Second Management LLC (the "General
Partner") as follows.
(1) As of the date hereof and at all times during the calendar year to
which the current Plan Participant's investment election form applies, the
amount of the Plan's investment on behalf of the Plan Participant in Units of
Limited Partnership Interest in the Partnership ("Units"), taking into account
all investments in Units that will be made by the Plan on behalf of the Plan
Participant during such calendar year, when added to the amount of all other
investments in Units made by the Plan on behalf of the Plan Participant or by
the Plan Participant directly and in his/her individual capacity, is and will be
25% or less of the Plan Participant's net worth or, if married, the Plan
Participant's joint net worth with spouse (exclusive of home, furnishings, and
automobiles). The Plan Participant can afford to bear the risks of an investment
in the Partnership, including the risk of losing the entire investment.
(2) The Plan Participant has received and thoroughly read the Prospectus
dated May ___, 2002 (the "Prospectus") relating to the Partnership and Units.
(3) The Plan Participant understands that there exist significant actual
and potential conflicts of interest in the structure and operation of the
Partnership, all as described in the Prospectus.
(4) The Plan Participant understands that the performance and financial
information included in the Prospectus and in any supplement to the Prospectus
provided to the Plan Participant should be read only in conjunction with the
notes and accompanying text, and that such information should not be interpreted
to mean that the Partnership, the General Partner, or Tudor Investment
Corporation, the trading advisor for the Partnership, will
D-1
have similar results in the future or will realize any profits whatsoever.
(5) The Plan Participant understands that, upon termination of the Plan
Participant's employment for any reason whatsoever (including voluntary
termination) with the General Partner, or any of its affiliated entities, or
their successors or assigns, any investment in the Partnership of the Plan
Participant under the TIC 401(k) Plan will be subject to mandatory reallocation
to other investment elections under the TIC 401(k) Plan (as specified by the
Plan Participant) or, if no other investment election is specified, the
Nationwide Money Market Fund.
X
- ------------------------------- ---------------------
(Signature of Plan Participant) Date
D-2
EXHIBIT E
_________________
Today's Date
TUDOR FUND FOR EMPLOYEES L.P.
SUBSCRIPTION AGREEMENT
FOR USE IN MAKING ADDITIONS TO EXISTING ACCOUNTS
(FOR USE ONLY BY INDIVIDUALS)
Units of Limited Partnership Interest ("Units") in Tudor Fund For Employees L.P.
(the "Partnership") may only be purchased and held by persons who are employees
of Second Management LLC (the "General Partner"), Tudor Investment Corporation,
any of their present or future affiliated entities, or their successors or
assigns, or by the Tudor Investment Corporation 401(k) Savings and
Profit-Sharing Plan (the "TIC 401(k) Plan").
The undersigned subscriber ("Subscriber") hereby irrevocably subscribes for
$_________________________ [insert dollar amount in even $1,000 increments] of
Units for the periodic closing to be held as of the first day of _____________,
199_ [insert month and year].
As of the date of this Subscription Agreement, the amount of the Subscriber's
subscription for Units, made directly by the Subscriber in his/her individual
capacity and/or indirectly by the Subscriber through the TIC 401(k) Plan, when
added to the amount of all other subscriptions made by the Subscriber (directly
or indirectly) for Units, is and will be 25% or less of the Subscriber's net
worth or, if married, the Subscriber's joint net worth with spouse (exclusive of
home, furnishings, and automobiles).
By the signing below, the Subscriber hereby reaffirms all representations and
warranties made by Subscriber to the General Partner and the Partnership in
Subscriber's original subscription agreement and any subsequent subscription
agreements. In addition, Subscriber acknowledges receipt of the Partnership's
Prospectus dated May ___, 2002.
Subscriber's Name:______________________________________________________________
First Middle Initial Last
E-1
Address Information: [ ] Maintain current address information
(check one) Or
[ ] Change mailing address as follows:
________________________________________
Street
________________________________________
City State Zip Code
Telephone Number: ________________________
SIGNATURE
X____________________________ _________________________
(Signature of Subscriber) Date
E-2
Dealer Prospectus Delivery Obligation
All dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.*
Printing.......................................... $ 30,000
Legal fees and expenses........................... 100,000
Accounting fees and expenses...................... 45,000
Escrow Agent fees................................. 3,500
Blue Sky fees and expenses, including legal fees.. 20,000
Miscellaneous..................................... 5,000
--------
Total.......................................... $203,500
========
- --------
* The amounts represent an estimate of the specified expenses in connection
with the issuance and distribution of the securities covered by this
Registration Statement during the next 12 months, and do not represent
cumulative expenses to date or any future expenses in respect of the
Registrant or any securities previously issued, or which may in the future be
issued, by the Registrant.
Item 14. Indemnification of Directors and Officers.
Section 17 of the Second Amended and Restated Limited Partnership Agreement
(a form of which is included as Exhibit A to the Prospectus) provides for
indemnification of Second Management LLC (the General Partner of the
Registrant) and its affiliates by the Registrant, and for indemnification of
the Registrant by the Partners in certain circumstances. Section 8 of the
Management Agreement (a form of which was previously filed as Exhibit 10.03(a))
provides for the indemnification of Tudor Investment Corporation (the Trading
Advisor for the Registrant) and its stockholders, directors, officers,
principals, employees, and their respective successors and assigns in certain
circumstances. Section 6 of the Selling Agreement (a form of which is filed as
Exhibit 1.02) provides for indemnification of the Registrant by CIS Securities,
Inc. (the Selling Agent for the Registrant) in certain circumstances, and for
indemnification of the Selling Agent by the Registrant and the General Partner
in certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statements.
(a) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
1.01 Form of Selling Agreement among Cargill Investor Services, Inc., Second Management LLC, and
the Registrant.
1.02** Form of Selling Agreement among CIS Securities, Inc., Second Management LLC, and the
Registrant.
3.01** Form of Second Amended and Restated Limited Partnership Agreement of the Registrant (included
as Exhibit A to the Prospectus).
3.02(a) Certificate of Limited Partnership of the Registrant.
3.02(b) Amendment to Certificate of Limited Partnership of the Registrant.
5.01 Opinion letter of Shearman & Sterling to the Registrant regarding the legality of Units (including
consent).
II-1
Exhibit
Number Description of Document
- ------- -----------------------
8.01(a) Opinion letter of Shearman & Sterling to the Registrant regarding certain federal income tax matters
(including consent).
8.01(b) Opinion letter of Day, Berry & Howard to the Registrant regarding certain Connecticut tax matters
(including consent).
8.01(c)** Consent of Shearman & Sterling.
8.01(d)** Consent of Day, Berry & Howard LLP.
10.01 Form of Amended and Restated Customer Foreign Exchange Agreement between the Registrant and
Bellwether Partners LLC.
10.02(a) Form of Management Agreement among the Registrant, Second Management Company, Inc.
(succeeded by Second Management LLC), and Tudor Investment Corporation.
10.02(b) Form of Amendment to Management Agreement among the Registrant, Second Management
Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation.
10.03(a)** Form of Subscription Agreement and Power of Attorney to be executed by purchasers of Units who
are individuals (included as Exhibit B to the Prospectus).
10.03(b)** Form of Subscription Agreement and Power of Attorney to be executed by participants in the Tudor
Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit C to the
Prospectus).
10.03(c)** Form of Representations and Agreements Letter to be executed by participants in the Tudor
Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit D to the
Prospectus).
10.03(d)** Form of Subscription Agreement for use in making additions to existing accounts (included as
Exhibit E to the Prospectus).
10.04(a) Form of Escrow Agreement among the Registrant, Seventh Management, Inc., and United States
Trust Company of New York.
10.04(b) Form of Amendment to Escrow Agreement among the Registrant, Cargill Investor Services, Inc.,
and United States Trust Company of New York.
23.01** Consent of Independent Public Accountants for each of (i) the Registrant, and (ii) Second
Management LLC.
99.1 Letter to the Securities and Exchange Commission pursuant to Temporary Note 3T.
- --------
** Filed herewith. If not filed herewith, Exhibit was previously filed and has
not been amended in any material respect. Previously filed Exhibits which
have been superseded or are no longer in effect have been deleted from the
foregoing Exhibit list.
II-2
(b) Financial Statements**
Included in the Prospectus:
Tudor Fund For Employees L.P. (the Registrant)
Report of Independent Public Accountants
Audited Financial Statements
Notes to Audited Financial Statements
Unaudited Financial Statements
Notes to Unaudited Financial Statements
Second Management LLC (the General Partner)
Report of Independent Public Accountants
Audited Financial Statements
Notes to Audited Financial Statements
Unaudited Statement of Financial Condition
Notes to Unaudited Statement of Financial Condition
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (a) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to
reflect in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement; and (c) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 4 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Greenwich and State of Connecticut on the 14th day
of May, 2002.
TUDOR FUND FOR EMPLOYEES L.P.
SECOND MANAGEMENT LLC
By: _______________________________
General Partner
/S/ MARK F. DALTON
By: _______________________________
Mark F. Dalton President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
Second Management LLC General Partner May 14, 2002
/s/ MARK F. DALTON President of the General May 14, 2002
By: ______________________________________ Partner
Mark F. Dalton
/s/ PAUL TUDOR JONES, II Chairman and Chief May 14, 2002
By: ______________________________________ Executive Officer of the
Paul Tudor Jones, II General Partner
/s/ JOHN G. MACFARLANE, III Managing Director and Chief May 14, 2002
By: ______________________________________ Operating Officer of the
John G. Macfarlane, III General Partner
/s/ ANDREW S. PAUL Managing Director, General May 14, 2002
By: ______________________________________ Counsel and Secretary of
Andrew S. Paul the General Partner
/s/ JOHN R. Torell Managing Director and Chief May 14, 2002
By: ______________________________________ Financial Officer of the
John R. Torell General Partner
II-4
EXHIBIT INDEX
Exhibit
Number Description of Document
- ---------- -----------------------
1.01 Form of Selling Agreement among Cargill Investor Services, Inc., Second Management LLC,
and the Registrant.
1.02** Form of Selling Agreement among CIS Securities, Inc., Second Management LLC, and the
Registrant.
3.01** Form of Second Amended and Restated Limited Partnership Agreement of the Registrant
(included as Exhibit A to the Prospectus).
3.02(a) Certificate of Limited Partnership of the Registrant.
3.02(b) Amendment to Certificate of Limited Partnership of the Registrant.
5.01 Opinion letter of Shearman & Sterling to the Registrant regarding the legality of Units (including
consent).
8.01(a) Opinion letter of Shearman & Sterling to the Registrant regarding certain federal income tax
matters (including consent).
8.01(b) Opinion letter of Day, Berry & Howard LLP to the Registrant regarding certain Connecticut tax
matters (including consent).
8.01(c)** Consent of Shearman & Sterling.
8.01(d)** Consent of Day, Berry & Howard LLP.
10.01 Form of Amended Restated Customer Foreign Exchange Agreement between the Registrant and
Bellwether Partners LLC.
10.02(a) Form of Management Agreement among the Registrant, Second Management Company, Inc.
(succeeded by Second Management LLC), and Tudor Investment Corporation.
10.02(b) Form of Amendment to Management Agreement among the Registrant, Second Management
Company, Inc. (succeeded by Second Management LLC), and Tudor Investment Corporation.
10.03(a)** Form of Subscription Agreement and Power of Attorney to be executed by purchasers of Units
who are individuals (included as Exhibit B to the Prospectus).
10.03(b)** Form of Subscription Agreement and Power of Attorney to be executed by participants in the
Tudor Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit C to
the Prospectus).
10.03(c)** Form of Representations and Agreements Letter to be executed by participants in the Tudor
Investment Corporation 401(k) Savings and Profit-Sharing Plan (included as Exhibit D to the
Prospectus).
10.03(d)** Form of Subscription Agreement for use in making additions to existing accounts (included as
Exhibit E to the Prospectus).
10.04(a) Form of Escrow Agreement among the Registrant, Seventh Management, Inc., and United States
Trust Company of New York.
10.04(b) Form of Amendment to Escrow Agreement among the Registrant, Cargill Investor Services, Inc.,
and United States Trust Company of New York.
23.01** Consent of Independent Public Accountants for each of (i) the Registrant, and (ii) Second
Management LLC.
99.1 Letter to the Securities and Exchange Commission pursuant to Temporary Note 3T.
- --------
** Filed herewith. If not filed herewith, Exhibit was previously filed and has
not been amended in any material respect. Previously filed Exhibits which
have been superseded or are no longer in effect have been deleted from the
foregoing Exhibit list.