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: 3/31/96 COMMISSION FILE NUMBER: 033-33982
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.)
One Liberty Plaza, 51st Floor, New York, NY 10006
- - ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 602-6700
- - ----------------------------------------------------------------------------
(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 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED) (AUDITED)
------------- ---------------
ASSETS
------
Cash $4 ,408,609 $2,986,405
Equity in commodity trading accounts:
Due From Broker 1,928,352 1,349,843
U.S. Governement Obligations 4,840,102 4,845,289
Net unrealized gain on open
commodity interests 273,035 142,353
------------- ---------------
Total equity 7,041,489 6,337,485
------------- ---------------
Total assets $11,450,098 $9,323,890
============= ===============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Pending Partner Additions $ 1,080,068 $ 718,024
Redemptions payable 381,026 392,382
Incentive fees payable 131,741 42,095
Management fees payable 32,025 13,636
Accrued professional fees and other 49,920 44,360
------------- ---------------
Total liabilities 1,674,780 1,210,497
------------- ---------------
PARTNERS' CAPITAL
- - ----------------------------------------
Limited Partners, 10,000 units authorized
and 2,389.736 and 2,190.191 outstanding at
March 31, 1996 and December 31, 1995 7,702,900 6,272,162
General Partner, 642.943 units outstanding
at March 31, 1996 and December 31, 1995 2,072,418 1,841,231
------------- ---------------
Total partners' capital 9,775,318 8,113,393
------------- ---------------
Total liabilities and partners'
capital $11,450,098 $9,323,890
The accompanying notes are an integral part of these statements
2
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31, MARCH 31,
1996 1995
REVENUES:
Net realized trading gains $1,116,079 $1,362,547
Change in net unrealized trading gains 130,428 272,498
Interest income 118,595 89,368
------------- -----------
Total revenues 1,365,102 1,724,413
------------- -----------
EXPENSES:
Brokerage commissions and fees 40,416 63,042
Incentive fees 131,741 152,508
Management fees 47,961 38,917
Professional fees and other 24,730 18,000
Amortization expense ---- 2,500
Total expenses 244,848 274,967
------------- -----------
Net income $1,120,254 $1,449,446
============= ===========
Limited Partners' Net Income 889,067 1,153,299
General Partner's Net Income 231,187 296,147
------------- -----------
$1,120,254 $1,449,446
============= ===========
Change in Net Asset Value Per
Unit $359.58 $460.62
============= ===========
Average Net Income Per Unit $358.15 $457.66
============= ===========
The accompanying notes are an integral part of these statements
3
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD ENDED MARCH 31, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
LIMITED PARTNERS GENERAL PARTNER
-------------------------- ---------------------- TOTAL NEW ASSET VALUE
UNITS CAPITAL UNITS CAPITAL CAPITAL PER UNIT
-------------------------- ----------------------- ---------- ---------------
Partners' Capital, January 1, 1995 2,409.778 $ 5,297,977 642.943 $1,413,533 $ 6,711,510 $2,198.53
Net income - 1,621,026 - 427,698 2,048,724
TIC 401(k) Plan unit adjustment (a) 0.674 - - -
Capital contributions 489.296 1,197,007 - - 1,197,007
Redemptions (709.557) (1,842,848) - - (1,843,848)
------------ ------------- ------------ ------------- -------------
Partners' Capital, December 31, 1995 (b) 2,190.191 6,272,162 642.943 1,841,231 8,113,393 2,863.75
------------ ------------- ------------ ------------- ------------- -------------
Net income - 889,067 - 231,187 1,120,254
TIC 401(k) Plan unit adjustment (a) 2.005 - - -
Capital contributions 315.749 922,696 - - 922,696
Redemptions (118.209) (381,025) - - (381,025)
------------ ------------- ------------ ------------- -------------
Partners' Capital, March 31, 1996 (b) 2,389.736 $ 7,702,900 642.943 $ 2,072,418 $ 9,775,318 $3,223.33
============ ============= ============ ============= ============= =============
(a) (See Note 3-Capital Accounts)
(b) (See Note 4-Redemption of Units)
The accompanying notes are an integral part of these statements
4
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(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 Company, Inc., a Delaware corporation ("SMI"), was the general
partner for the Partnership during the quarter ended March 31. 1996 and
owned approximately 643 units of general partnership interest. Ownership of
limited partnership units is restricted to employees of Tudor Investment
Corporation ("TIC") and its affiliates and certain employee benefit plans.
Effective April 4, 1996, SMI was merged into Second Management LLC, a
Delaware limited liability company (together with SMI , the "General
Partner").
The objective of the Partnership is to realize capital appreciation through
speculative trading of commodity futures, forward, and option contracts and
other commodity interests ("commodity interests"). The Partnership will
terminate on December 31, 2010 or at an earlier date if certain conditions
occur as outlined in its Limited Partnership Agreement.
DUTIES OF THE GENERAL PARTNER
-------------------------------
The General Partner acts as the commodity pool operator for the Partnership
and is responsible for the selection and monitoring of the commodity
trading advisor 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.
REVENUE RECOGNITION
---------------------
Commodity interests are recorded on the trade date at the transacted
contract price and valued at market.
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 interest trades. Commissions and fees associated
with open commodity interests at the end of the period are accrued on a
round-turn basis.
5
INCENTIVE FEE
-------------
The Partnership pays TIC, as trading advisor, an incentive fee equal to 12%
of the Trading Profits (as defined by the Limited Partnership Agreement)
earned as of the end of each fiscal quarter of the Partnership. Effective
August 1, 1995, TIC has waived its right to receive incentive fees
attributable to units held at the beginning of each month by the Tudor
Investment Corporation 401(k) Savings and Profit Sharing Plan (the "TIC
401(k) Plan").
MANAGEMENT FEE
--------------
The Partnership also pays TIC, for the performance of its duties, a monthly
management fee equal to 1/6 of 1% (2% per annum) of the Partnership's net
assets. Effective August 1, 1995, TIC has waived its right to receive
management fees attributable to units held at the beginning of each month
by the TIC 401(k) plan.
ORGANIZATIONAL AND OFFERING COSTS
----------------------------------
The General Partner paid all of the offering and organizational costs
incurred in connection with the start up of the Partnership and the initial
offering of units. The General Partner was reimbursed by the Partnership
for offering expenses of $106,728 over the first 12 months of its
operations and was reimbursed for organizational expenses of $48,200 from
commencement of trading operations (July 1990) through June 1995.
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.
U.S. GOVERNMENT OBLIGATIONS
---------------------------
The Partnership invests a varying amount of its assets in U.S. Treasury
bills. A portion of such bills is held in commodity trading accounts and
used to fulfill initial margin requirements. U.S. Treasury bills, with
varying maturities through October 1996, are valued in the statements of
financial condition at original cost plus accrued discount which
approximates the market value. These bills had a face value of $5,000,000
(cost $4,751,711 and $4,782,246) at March 31, 1996 and December 31, 1995.
(3) CAPITAL ACCOUNTS
----------------
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 partner based on the ratio that each capital
account bears to 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 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.
6
(4) REDEMPTION OF UNITS
-------------------
At each quarter-end, units are redeemable at the discretion of the limited
partner. Redemption of units in $1,000 increments or a 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. However, monthly redemptions have been required in the case of
employee resignations. 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 partner's
initial investment, whichever is less, will be honored only to the extent
of such limitation.
(5) INCOME TAXES
------------
No provision for income taxes has been made in the accompanying financial
statements. Partners are responsible for reporting income or loss based
upon their respective shares of revenue and expenses of the Partnership.
(6) RELATED PARTY TRANSACTIONS
--------------------------
The General Partner, due to its relationship with its affiliates and
certain other parties, may enter into certain related party transactions.
Bellwether Partners LLC., ("BPL"), a Delaware limited liability company and
an affiliate of the General Partner, is the Partnership's spot and forward
contract counterparty and receives commissions on foreign exchange forward
and commodity forward contracts. The Partnership typically has on deposit
with BPL, as collateral for forward contract transactions, no more than 20%
of the Partnership's net assets. Effective August 1, 1995, BPL ceased
receiving commissions for transacting the Partnership's foreign exchange
forward and commodity contracts.
Bellwether Futures LLC, a Delaware limited liability company and an
affiliate of the General Partner, receives give-up fees as compensation for
managing the execution of treasury bond futures by floor brokers on the
Chicago Board of Trade.
TIC, an affiliate of the General Partner, receives incentive and management
fees as compensation for acting as the Partnership's trading advisor (see
Note 2).
(7) FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK AND CONCENTRATION
-------------------------------------------------------------------
OF CREDIT RISK
--------------
The Partnership is a party to financial instruments with elements of off-
balance sheet credit and market risk in excess of the amount recognized in
the statements of financial condition through its trading of financial
futures, forwards, swaps and exchange traded and negotiated over-the-
counter option contracts.
7
Exchange traded futures 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 are executed. The Partnership has not taken
or made physical delivery on futures contracts. The forward contracts are
generally settled with the counterparty at least two business days after
the trade.
At March 31, 1996 and December 31, 1995, the Partnership held financial
instruments with the following approximate aggregate notional value (in
millions):
March December
1996 1995
--------- ---------
Exchange Traded Contracts:
- - ----------------------------------------
Interest Rate Futures and Option Contracts
- - ------------------------------------------
Domestic $16.8 $ 2.4
Foreign 6.0 5.2
Foreign Exchange Contracts
- - ----------------------------------------
Financial Futures Contracts 2.7 .4
Forward Currency Contracts 19.3 4.8
Equity Index Futures
- - ----------------------------------------
Domestic --- 6.2
Foreign 2.9 1.9
Over-the Counter Contracts:
- - ----------------------------------------
Forward Currency Contracts 8.3 4.9
--------- ---------
Total $56.0 $25.8
========= =========
As of March 31, 1996 and December 31, 1995, there were no swaps outstanding.
Notional amounts of these financial instruments are indicative only of the
volume of activity and should not be used as a measure of market and credit
risk. The various financial instruments held at March 31, 1996 and December 31,
1995 mature through, or matured on, the following dates:
March 1996 December 1995
-------------- ---------------
Interest Rate Futures and Option Contracts June 1996 March 1996
Foreign Exchange Contracts June 1996 March 1996
Equity Index Futures June 1996 March 1996
Over-the Counter Contracts April 4, 1996 January 5, 1996
8
The following table summarizes the quarter-end and the average assets and
liabilities resulting from unrealized gains and losses on derivative
instruments included in the statement of financial condition based on month-
end balances (in thousands):
Assets Liabilities
1996 Average 1996 Average
---- ------- ---- --------
Exchange Traded Contracts:
- - --------------------------
Interest Rate Contracts
- - --------------------------
Domestic $110 $ 71 $ --- $ 7
Foreign 26 8 --- 2
Foreign Exchange Contracts 55 62 4 2
- - --------------------------
Equity Index Futures
- - --------------------
Domestic --- 3 --- ---
Foreign 90 202 --- ---
Over-the-Counter Contracts:
- - ---------------------------
Forward Currency Contracts --- --- 19 15
-----------------------------------------
Total $ 281 $ 346 $ 23 $ 26
=========================================
Net trading gains and losses 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
trading gains and losses, net of commissions and fees, for the three months
ended March 31, 1996 and 1995
1996 1995
---------- ---------
Interest Rate Futures and Option Contracts
------------------------------------------
Domestic $ 167 $ (219)
Foreign 93 (26)
Foreign Exchange Contracts 539 1,019
--------------------------
Equity Index Futures
--------------------
Domestic (117) (65)
Foreign 602 871
Over-the-Counter Contracts (72) (72)
--------------------------
Non-Financial Derivative Instruments (6) 64
------------------------------------
---------- ---------
Total $1,206 $1,572
========== =========
9
In general, exchange traded futures and option contracts possess low credit
risk as most exchanges act as principal to a futures commission merchant
("FCM") on all commodity transactions. Furthermore, most global exchanges
require FCM's to segregate client funds to insure ample customer protection
in the event of an FCM's default. The Partnership monitors the
creditworthiness of its FCM's and counterparties and, when deemed necessary,
reduces its exposure to these FCM's and counterparties. The Partnership's
exposure to credit risk associated with the non-performance of these FCM's
and counterparties in fulfilling contractual obligations can be directly
impacted by volatile financial markets. A substantial portion of the
Partnership's open financial futures positions were transacted with major
international FCM's. BPL is the Partnership's spot and forward contract
counterparty (see Note (6) above). Notwithstanding the risk monitoring and
credit review performed by the Partnership with respect to its FCM's and
counterparties, including BPL, there always is a risk of non-performance.
The Partnership's exposure to credit risk associated with the non-
performance of these counterparties in fulfilling contractual obligations
can be directly impacted by volatile financial markets.
Generally, financial contracts can be closed out at the discretion of the
trading advisor. However, an illiquid market could prevent the closeout of
positions.
10
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF
------- -------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The Partnership commenced operations on July 2, 1990. Following the closing of
the initial offering period, the Partnership had 37 Limited Partners who
subscribed for 421 units for $421,000. In addition, the General Partner
purchased 400 units of general partnership interest for $400,000. The
Partnership had additions of $922,696 and redemptions of $381,026 during the
quarter ended March 31, 1996 (the "Current Quarter"). From its inception
through April 1, 1996, the Partnership received total Limited Partner
contributions of $11,572,426 and had total withdrawals of $7,909,475. In
addition, the General Partner contributed $1.9 million since inception. The
General Partner redeemed $2 million on March 31, 1994. The General Partner
continues to maintain the largest equity interest in the Partnership. The
General Partner's equity in the Partnership as of March 31, 1996 was
approximately $2.1 million, representing 21% of the Partnership's equity. At
April 1, 1996, the Partnership had a total of 95 Limited Partners.
As is specified in the First Amended and Restated Limited Partnership Agreement
dated July 1, 1995, 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 &
Profit-Sharing Plan (the "TIC 401(k) Plan"), a qualified plan organized for the
benefit of employees of TIC and certain of its affiliates. From its inception
through April 1, 1996, the Partnership has received a total of $527,973 in
contributions from the TIC 401(k) Plan. The TIC 401(k) Plan's equity in the
Partnership as of April 1, 1996 was approximately $590,000, representing
approximately 5.4% of Partnership equity or approximately 9.4% 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. The Partnership invests in U.S. Government obligations approved by the
various contract markets to fulfill initial margin requirements. As of March
31, 1996 and December 31, 1995, U.S. Government obligations with varying
maturities through October 1996 represented approximately 42% and 52% of the
total assets of the Partnership. The percentage that U.S. Government
obligations bear to the total assets varies daily and monthly, as the market
value of commodity interest contracts changes, as Government obligations are
purchased or mature, and as the Partnership sells or redeems units. 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 $118,595, compared to
$89,368 during the quarter ended March 31, 1995. This increase was due to an
increase in the Partnership's assets.
11
In the context of the commodity or futures trading industry, cash and cash
equivalents are part of the Partnership's inventory. Cash deposited with banks
represents approximately 38% and 32% of the Partnership's assets as of March 31,
1996 and December 31, 1995. The cash and U.S. Government obligations held at
clearing brokers and banks at quarter-end 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 U. S. commodity
exchanges limit fluctuations in certain commodity futures and options contract
prices during a single day by regulations referred to as a "daily price
fluctuation limit" or "daily limit." 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 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 interest
contract positions and impose restrictions on redemptions.
(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 affect the amount
of funds available for investments in commodity interest contracts in subsequent
periods.
The Partnership is currently open to new investments which can be made on a
quarterly basis. Such investments are limited to existing and future employees
of TIC and certain of its affiliates and certain employee benefit plans,
including, but not limited to, the TIC 401(k) Plan.
(3) RESULTS OF OPERATIONS
---------------------
As of March 31, 1996 and 1995, the Net Asset Value per unit was $3,223.33 and
$2,659.15. For the quarter ended March 31, 1996, the Partnership had a gain of
12.55% or $359.58 per unit, compared to a gain of 20.95% or $460.62 per unit for
the quarter ended March 31, 1995.
12
Net trading gains and losses 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 trading gains and
losses, net of commissions, for the three months ended March 31, 1996 and 1995.
1996 1995
---------- ----------
Interest Rate Futures and Option Contracts
------------------------------------------
Domestic $ 167 $ (219)
Foreign 93 (26)
Foreign Exchange Contracts 539 1,019
--------------------------
Equity Index Futures
--------------------
Domestic (117) (65)
Foreign 602 871
Over-the-Counter Contracts (72) (72)
--------------------------
Non-Financial Derivative Instruments (6) 64
------------------------------------
Total $1,206 $1,572
=====================
Since the Partnership is a speculative trader in the commodities markets,
current year results are not comparable to previous years' results. The
Partnership's net trading gains and losses represent a positive return on
average net assets of 12.3% and 21.7% for the quarters ended March 31, 1996 and
1995. Brokerage commissions and fees were .4% and .8% of average net assets for
the quarters ended March 31, 1996 and 1995. In general, commission rates have
remained stable during the past three years.
Professional fees and other expenses increased during the Current Quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, due to
increases in legal, audit and bank charges.
Incentive fees are paid quarterly based on Net Trading Profits as described in
the Limited Partnership Agreement. For the quarters ended March 31, 1996 and
1995, incentive fees were 10.9% and 9.7% of trading gains, net of commissions
and fees.
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.
13
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: /s/ Mark F. Dalton
------------------
Second Management LLC
General Partner
Mark F. Dalton
President and Chief
Operating Officer
By: /s/ Patrick A. Keenan
---------------------
Second Management LLC
General Partner
Patrick A. Keenan
Vice President and
Chief Financial Officer
May 14, 1996
14