FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: 3/31/02 COMMISSION FILE NUMBER: 333-52543
------- ---------
TUDOR FUND FOR EMPLOYEES L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3543779
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 King Street, Greenwich, Connecticut 06831
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 863-6700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
X YES ____ NO
---
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2002 2001
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
------
Cash and cash equivalents $ 33,021,713 $ 29,804,258
Investment in securities, at market value, (cost $530,655 and $111,609 as
of March 31, 2002 and December 31, 2001) 406,981 352,710
Due from brokers 5,231,323 3,512,418
------------ ------------
Total assets $ 38,660,017 $ 33,669,386
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Securities sold short, at market value, (proceeds $526,735 and $0
as of March 31, 2002 and December 31, 2001) $ 468,494 $ --
Pending partner additions 2,768,505 1,525,056
Redemptions payable 857,565 187,808
Incentive fee payable 64,652 --
Management fee payable 141,255 85,100
Accrued professional fees and other 129,527 81,038
------------ ------------
Total liabilities 4,429,998 1,879,002
------------ ------------
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 30,035,126
General Partner, 196.580 units outstanding at March 31, 2002 and December 31,
2001
1,816,105 1,755,258
------------ ------------
Total partners' capital 34,230,019 31,790,384
------------ ------------
Total liabilities and partners' capital $ 38,660,017 $ 33,669,386
============ ============
The accompanying notes are an integral part of these statements.
TUDOR FUND FOR EMPLOYEES L.P.
CONDENSED SCHEDULE OF INVESTMENTS
MARCH 31, 2002
Percent of
North Partners'
America Asia Europe Total Capital
--------- -------- --------- ---------- --------
INVESTMENT IN SECURITIES, at market value:
OTC foreign exchange option $ -- $ -- $ 221,731 $ 221,731 0.65%
Interest rate future option 185,250 -- -- 185,250 0.54%
--------- -------- --------- ---------- --------
Total investment in securities, at market value 185,250 -- 221,731 406,981 1.19%
(cost $530,655) --------- -------- --------- ---------- --------
SECURITIES SOLD SHORT, at market value
Interest rate future option (468,494) -- -- (468,494) -1.37%
--------- -------- --------- ---------- --------
Total securities sold short, at market value (468,494) -- -- (468,494) -1.37%
(proceeds $526,737) --------- -------- --------- ---------- --------
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%
--------- -------- --------- ---------- --------
Total futures, at market value (324,462) 4,300 -- (320,162) -0.94%
--------- -------- --------- ---------- --------
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%
--------- -------- --------- ---------- --------
COMMODITY SWAPS, at market value: 146,199 -- -- 146,199 0.43%
--------- -------- --------- ---------- --------
Total investments, at market value $(444,534) $ 46,165 $ 208,903 $ (189,466) -0.56%
========= ======== ========= ========== ========
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 $ 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
Management fee 141,255 118,524
Incentive fee 64,652 268,878
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
----------- -----------
Net income $ 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.
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 $ 7,095.78
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 8,928.90
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 $ 9,238.47
=========== ============ ======== =========== ============
(a) See Note 3 - Capital Accounts
(b) See Note 4 - Redemption of Units
The accompanying notes are an integral part of these statements.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
------------------------------------------
ACCOUNTING POLICY
-----------------
The financial statements presented have been prepared pursuant to
the rules and regulations of the Securities and Exchange
Commission ("SEC") and, in the opinion of management of the
General Partner, include all adjustments necessary for a fair
statement of each period presented.
CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash held at banks and
overnight time deposits.
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
quarter ended, March 31, 2002, for which units were issued on
April 1, 2002. 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.
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 of commodity interests trades.
Commissions and fees associated with open commodity interests at
the end of the period 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
payments 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 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.
USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Management believes that the estimates utilized in
preparing the financial statements are reasonable and prudent,
however, actual results could differ from these estimates.
NET GAIN PER UNIT
-----------------
Net gain per unit is computed by dividing net income by the
monthly average of units outstanding at the beginning of each
month.
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to prior year balances to
conform with current year presentation.
(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.
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 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. 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 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 - 2 - -
Equity index contracts 42 - - 30
Over-the-counter contracts:
Commodity swaps 146 - - -
Equity swaps - - 643 -
Currency contracts 148 - 555 -
Non-financial derivative instruments 17 - - 31
-------------------------- ----------------------------
Total $426 $619 $1,300 $ 61
========================== ============================
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
------- -------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Partnership commenced operations on July 2, 1990. Following the
closing of the initial offering period, the Partnership had 37 Limited
Partners who subscribed for 421 units of limited partnership interest
for $421,000. In addition, the General Partner purchased 400 units of
general partnership interest for $400,000. The Partnership had
additions of $2,075,061 and redemptions of $857,565 during the quarter
ended March 31, 2002 (the "Current Quarter"). From its inception
through April 1, 2002, the Partnership received total Limited Partner
subscriptions and contributions of $46,377,256 and had total
withdrawals of $35,412,098. In addition, the General Partner
contributed $1,900,000 since inception. The General Partner redeemed
$2,000,000 on March 31, 1994 and $1,400,000 on December 31, 1996. The
General Partner's equity in the Partnership as of March 31, 2002 was
approximately $1,816,105 representing approximately 5% of the
Partnership's equity. At April 1, 2002, the Partnership had a total of
117 Limited Partners.
As specified in its Limited Partnership Agreement, the Partnership may
accept investments from certain employee benefit plans to the extent
that such investment does not exceed 25% of the aggregate value of
outstanding units, excluding units held by the General Partner and its
affiliates. On August 1, 1995, the Partnership accepted an investment
of $99,306 from the Tudor Investment Corporation 401(k) Savings and
Profit-Sharing Plan (the "TIC 401(k) Plan"), a qualified plan organized
for the benefit of employees of TIC and certain of its affiliates. The
Partnership has received TIC 401(k) Plan contributions in the aggregate
amount from inception through April 1, 2002 of $4,175,909. The TIC
401(k) Plan's equity in the Partnership as of April 1, 2002 was
approximately $7,316,278 representing approximately 19.4% of the
Partnership's equity or approximately 21.8% excluding units held by the
General Partner and its affiliates. TIC has waived its right to receive
management and incentive fees attributable to units held by the TIC
401(k) Plan. The number of units of limited partnership interest held
by the TIC 401(k) Plan will be restated as necessary to equate the per
unit value of the TIC 401(k) Plan's capital account with the
Partnership's per unit value. Furthermore, BPL ceased charging
commissions for transacting the Partnership's foreign exchange spot and
forward and commodity forward contracts.
(1) LIQUIDITY
---------
The Partnership's assets are deposited and maintained with BPL, banks
or in trading accounts with clearing brokers, and are used by the
Partnership as margin and collateral to engage in futures, option, and
forward contract trading. Since the Partnership's sole purpose is to
trade in futures, option, and forward contracts, and other commodity
interest contracts, it is anticipated that the Partnership will
continue to maintain substantial liquid assets for margin purposes.
Interest income for the current quarter was $142,708 compared to
$389,323 during the quarter ended March 31, 2001. This decrease was due
to a lowering of interest rates by the Federal Reserve.
Cash and cash equivalents are part of the Partnership's inventory. Cash
and cash equivalents represented approximately 86% and 89% of the
Partnership's assets as of March 31, 2002 and December 31, 2001. The
cash and cash equivalents satisfy the Partnership's need for cash on
both a short term and long term basis.
Since futures contract trading generates a significant percentage of
the Partnership's income, any restriction or limit on that trading may
render the Partnership's investment in futures contracts illiquid. Most
commodity exchanges limit fluctuations in certain commodity contract
prices during a single day by regulations referred to as a "daily price
fluctuation limit" or "daily limits". Pursuant to such regulations,
during a single trading day, no trade may be executed at a price beyond
the daily limits. If the price for a contract or a particular commodity
has increased or decreased by an amount equal to the "daily limit,"
positions in such contracts can neither be taken nor liquidated unless
traders are willing to effect trades at or within the limit. Commodity
interest contract prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Such market
conditions could prevent the Partnership from promptly liquidating its
commodity positions.
(2) CAPITAL RESOURCES
-----------------
The Partnership does not have, nor does it expect to have, any fixed
assets. Redemptions and additional sales of Units in the future will
impact the amount of funds available for investment in commodity
interest contracts in subsequent periods. As the amount of capital
changes, the size of the positions taken by the Partnership is
adjusted.
The Partnership is currently open to new investments, which can be made
quarterly. Such investments are limited to employees of TIC and its
principals or its affiliates and certain employee benefit plans,
including, but not limited to, the TIC 401(k) Plan.
(3) RESULTS OF OPERATIONS
---------------------
The following table compares Net Asset Value per Unit as of March 31,
2002 and 2001:
Change in Net Asset
Net Asset Value Value Per Unit
per Unit During Quarter
--------------- --------------------------
$ %
--------------------------
March 31, 2002 $9,238.47 $ 309.57 3.47%
March 31, 2001 $7,810.85 $ 715.07 10.08%
Net trading gains and losses includes realized and unrealized trading
gains and losses and commissions from strategies that use a variety of
derivative financial instruments are recorded in the statements of
operations. The following table summarizes the components (in
thousands) of net trading gains and losses, for the three months
ended March 31, 2002 and 2001.
Three Months Ended
March 31,
--------------------------
2002 2001
--------- ---------
Exchange traded contracts:
Interest rate futures and option contracts $ 1,644 $ 504
Foreign exchange contracts (92) 1,845
Equity index futures (285) 1,725
Over-the-counter contracts:
Forward currency contracts 196 (210)
Commodity swaps 101 (496)
Equity index swaps (237) (359)
Interest rate swaps - 18
Non-financial derivative instruments 8 (111)
--------- ---------
Total $ 1,335 $ 2,916
========= =========
Since the Partnership is a speculative trader in the commodities
markets, current year results are not comparable to previous year's
results. The following table illustrates the Partnership's net trading
gains and losses as a return on average Net Assets, brokerage
commissions and fees as a percentage of Net Assets, and incentive fees as
percentage of net trading gains and losses.
Three Months Ended,
-----------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
Net trading gains and losses as a % of 3.9% 10.3%
Net Assets
Brokerage commissions & fees as a % of 0.2% 0.3%
Net Assets
Incentive fees as a % of net trading 4.8% 9.2%
gains and losses
Inflation is not expected to be a major factor in the Partnership's
operations, except that traditionally the commodities markets have tended
to be more active. Since the commencement of the Partnership's trading
operations in July 1990, inflation has not been a major factor in the
Partnership's operations.
(4) RISK MANAGEMENT
---------------
In the normal course of business, the Partnership is a party to a
variety of off-balance sheet financial instruments in connection with
its trading activities. These activities include the trading of
futures, forwards, options, swaps, and other derivative instruments.
For futures, forwards, swaps and forward rate agreements the unrealized
gain or loss, rather than the contract notional amounts, represents the
approximate future cash requirements.
The Partnership is subject to market and credit risk associated with
changes in the value of underlying financial instruments, as well as
the loss of appreciation on certain instruments, if its counterparties
fail to perform, which may be in excess of the amounts recognized in
the statements of financial condition. As a writer of options, the
Partnership bears the risk of unfavorable changes in the price of the
underlying instrument which may be in excess of the premium received.
TIC takes an active role in managing and controlling the Partnership's
market and credit risk and has established formal control procedures
that are reviewed on an ongoing basis.
In order to control the Partnership's market exposure, TIC applies risk
management guidelines and policies designed to protect the
Partnership's capital. These guidelines and policies include
quantitative and qualitative criteria for evaluating the appropriate
risk levels for the Partnership. TIC's Risk Management Committee,
comprised of senior personnel from different disciplines, regularly
reviews the Partnership's trading positions. The Tudor Management
Committee, together with the Risk Management Committee and Tudor's Risk
Management Department assess and evaluate the Partnership's potential
exposures to market risk based on analyses performed by the Risk
Management Department. The Risk Management Department's
responsibilities include: focusing on the positions taken in various
instruments and markets globally; ascertaining that all such positions
are accurately reflected on the Partnership's position reports; and
evaluating the risk exposure associated with all of those positions.
The Risk Management Department uses a statistical technique known as
Value at Risk ("VaR") to assist the Partnership in measuring its
exposure to market risk related to its trading positions. The VaR model
is a proprietary system and is one of the many analytical tools used by
the Risk Management Department to monitor and review the market risk
exposure of the Partnership's trading portfolios. The VaR model
projects potential losses of the portfolio and is based on a
methodology which uses a one-year observation period of hypothetical
daily changes in trading portfolio value, a one-day holding period and
one standard deviation level. These figures can be scaled-up to
indicate risk exposure at the 95% or 99% confidence level.
The following table illustrates the VaR for each component of market
risk as of March 31, 2002. The dollar values represent the VaR scaled
up to a 95% confidence level.
VaR
-----------------
Risk Factors
------------ (95% Confidence)
----------------
Exchange traded contracts:
Interest rate contracts $ 260,356
Foreign exchange contracts 323,112
Equity index contracts 81,028
Over the counter contracts
Currency contracts 241,741
Non-financial derivative instruments 148,688
-------------
$ 1,054,925
=============
Cash and due from brokers are due principally from high credit quality
international financial institutions.
Exchange traded futures and option the contracts are marked-to-market
daily, with variations in value settled on a daily basis with the
exchange upon which they are traded and with the futures commission
merchant through which the commodity futures and options contracts are
executed. Forward contracts are generally settled with the
counterparty two days after the trade.
TIC attempts to minimize credit risk exposure to trading
counterparties and brokers through formal credit policies and
monitoring procedures. TIC has established a formal Credit Committee,
comprised of senior managers from different disciplines, that meets
regularly to analyze the credit risks associated with the
Partnership's counterparties, intermediaries and service providers. A
significant portion of the Partnership's positions, including cash
and cash equivalents, are invested with or held at institutions of
high credit standing. The Credit Committee establishes counterparty
exposure limits and specifically designates which product types are
approved for trading.
The Partnership also reduces its credit risk by entering into master
agreements with certain counterparties that include netting
provisions that incorporate the right of "offset" (assets less
liabilities) across OTC contracts with such counterparties.
Accordingly, cash collateral received is net against the contractual
commitment asset and a liability is recorded to the counterparty for
the cash collateral pledged.
Counterparties' creditworthiness is monitored in the context of the
Partnership's overall exposure to such counterparties. BPL is the
Partnership's primary forward contract counterparty (Note 6).
Notwithstanding the risk monitoring and credit review performed by
TIC with respect to its counterparties, including BPL, there always
is a risk of nonperformance.
Generally, financial contracts can be closed out at TIC's discretion.
An illiquid or closed market, however, could prevent the closeout of
positions.
5. 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.
PART II - OTHER INFORMATION
CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
The Partnership initially registered 10,000 Units of Limited
Partnership Interest pursuant to a registration statement (Commission
file number 33-33982) that was declared effective on June 22, 1990. The
Partnership registered an additional 10,000 Units of Limited
Partnership Interest on June 9, 1998 (Commission file number
333-52543). Of the 20,000 Units that have been registered, 14,043 Units
having an aggregate value of $46,377,256 have been sold through April
1, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TUDOR FUND FOR EMPLOYEES L.P.
By: Second Management LLC,
General Partner
By: /s/ Mark F. Dalton
--------------------
Mark F. Dalton,
President of the General Partner
By: /s/ John R. Torell
-------------------------------
John R. Torell,
Chief Financial Officer of the
General Partner
May 15, 2002