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: 3/31/97 COMMISSION FILE NUMBER: 33-33982
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TUDOR FUND FOR EMPLOYEES L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3543779
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Steamboat Road, Greenwich, Connecticut 06830
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(Address of principal executive offices) (Zip Code)
(203) 863-6700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
X YES NO
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PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
ASSETS
- ------
Cash $ 1,398,324 $ 2,220,395
Equity in commodity trading accounts:
Due from broker 2,881,153 1,005,276
U.S. Government obligations 7,325,181 8,773,008
Net unrealized gain on open commodity 879,373 114,755
interests
----------- -----------
Total equity 11,085,707 9,893,039
Other assets -- 25,272
------------ -----------
Total assets $12,484,031 $12,138,706
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
LIABILITIES:
Pending partner additions $ 844,317 $ 1,218,064
Redemptions payable 127,697 2,327,305
Incentive fees payable 85,870 --
Management fees payable 67,249 17,014
Accrued professional fees and other 63,913 49,957
----------- -----------
Total liabilities 1,189,046 3,612,340
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PARTNERS' CAPITAL
- ----------------------------------------
Limited Partners, 10,000 units
authorized and 2,878.400 and
2,521.886 outstanding at March 31, 10,572,907 7,909,798
1997 and December 31, 1996
General Partner, 196.580 units
outstanding at March 31, 1997 and
642.943 units outstanding at December 722,078 616,568
31, 1996
----------- ----------
Total partners' capital 11,294,985 8,526,366
----------- ----------
Total liabilities and partners' $12,484,031 $12,138,706
capital
=========== ===========
The accompanying notes are an integral part of these statements.
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
MARCH 31, MARCH 31,
1997 1996
------------ ------------
REVENUES:
Net realized trading gains $ 996,465 $1,116,079
Change in net unrealized trading gains 765,763 130,428
Interest income 135,818 118,595
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Total revenues 1,898,046 1,365,102
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EXPENSES:
Brokerage commissions and fees 59,677 40,416
Incentive fees 85,870 131,741
Management fees 50,235 47,961
Professional fees and other 24,013 24,730
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Total expenses 219,795 244,848
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Net income $1,678,251 $1,120,254
============= ============
Limited Partners' Net Income 1,572,741 889,067
General Partner's Net Income 105,510 231,187
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$1,678,251 $1,120,254
============= ============
Change in Net Asset Value Per Unit $536.73 $359.58
============= ============
Average Net Income Per Unit $539.92 $358.15
============= ============
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, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
LIMITED PARTNERS GENERAL PARTNER TOTAL NET ASSET VALUE
UNITS CAPITAL UNITS CAPITAL CAPITAL PER UNIT
-------- ------------ ----------- ------------- ---------------- -----------------------
Partners' Capital, January 1, 1996 $2,190.191 $ 6,272,162 642.943 $ 1,841,231 $ 8,113,393 $2,863.75
Net income -- 645,415 -- 175,337 820,752
TIC 401(k) Plan unit adjustment (a) 5.462 -- -- -- --
Capital Contributions 931.637 2,926,549 (446.363) (1,400,000) 2,926,549
Redemptions (605.404) (1,934,328) -- -- (3,334,328)
-------- ------------ ----------- ------------- ---------------- -----------------------
Partners' Capital, December 31, 1996 2,521.886 7,909,798 196.580 616,568 8,526,366 $3,136.46
(b) --------- ------------ ----------- ------------- ---------------- -----------------------
Net income -- 1,572,741 -- 105,510 1,678,251
TIC 401(k) Plan unit adjustment (a) 2.923 -- -- -- --
Capital Contributions 388.356 1,218,065 -- -- 1,218,065
Redemptions (34.765) (127,697) -- -- (127,697)
-------- ------------ ----------- ------------- ---------------- -----------------------
Partners' Capital, March 31, 1997 (b) 2,878.400 10,572,907 196.580 $ 722,078 $11,294,985 $3,673.19
======== =========== =========== ============= ================ ========================
(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, 1997
(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, a Delaware limited liability company ("SML" or
the "General Partner"), was the general partner for the Partnership
during the quarter ended March 31, 1997 and owned approximately 197
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. Prior to
April 4, 1996, Second Management Company, Inc., a Delaware Corporation
("SMCI") was the general partner of the Partnership. SML is the
successor-in interest to SMCI by virtue of merger with SMCI.
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 Second Amended and
Restated 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.
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 December 1997, 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 $7,500,000 and $9,000,000 (cost $7,201,142 and $8,548,403) at
March 31, 1997 and December 31, 1996.
(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 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 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 Second Amended and Restated 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 ("BFL"), a Delaware limited liability company,
formerly Bellwether Futures Corporation 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 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 .
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, 1997 and December 31, 1996, the Partnership held financial
instruments with the following approximate aggregate notional value
(000's omitted):
March 31, December 31,
1997 1996
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Exchange Traded Contracts:
- --------------------------
Interest Rate Futures and Option
Contracts
- ----------
Domestic $ 6,512 $ 565
Foreign 113,785 28,977
Foreign Exchange Contracts
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Financial Futures Contracts 953 1,673
Forward Currency Contracts 29,114 3,399
Equity Index Futures
- --------------------
Domestic 5,593 --
Foreign 15,200 505
Over-the Counter Contracts:
- ---------------------------
Forward Currency Contracts 1,506 --
Equity Index Swaps 2,395 --
---------------- ---------------
Total $ 175,058 $35,119
================ ===============
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, 1997 and December
31, 1996 mature through, or matured on, the following dates:
March 31, December 31,
1997 1996
------------- -------------
Interest Rate Futures and Option December 1997 March 1997
Contracts
Foreign Exchange Contracts June 1997 June 1997
Equity Index Futures December 1997 March 1997
Over-the Counter Contracts June 1997 --
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
---------------------- -----------------------
March 31, March 31,
1997 Average 1997 Average
--------- ------- --------- -------
Exchange Traded Contracts:
- --------------------------
Interest Rate Contracts
- -----------------------
Domestic $ -- $ 42 $ 79 $ 28
Foreign 35 26 24 67
Foreign Exchange Contracts 80 57 8 10
- --------------------------
Equity Index Futures
- --------------------
Domestic 367 122 -- 12
Foreign 275 127 -- 5
Over-the-Counter Contracts:
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Forward Currency Contracts -- 25 51 21
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Total $ 757 $ 399 $ 162 $ 143
======== ======== ========= ===========
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, 1997 and 1996.
Three Months Ended
March 31, 1997 March 31, 1996
---------------- --------------
Interest Rate Futures and Option Contracts
- -------------------------------------------
Domestic $ 322 $ 167
Foreign (129) 93
Foreign Exchange Contracts 338 539
- -------------------------
Equity Index Futures
- --------------------
Domestic 178 (117)
Foreign 279 602
Over-the-Counter Contracts (23) (72)
- --------------------------
Non-Financial Derivative Instruments 738 (6)
- ------------------------------------ ---------------- --------------
Total $1,703 $1,206
================= ===============
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 close-out of
positions.
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 $1,218,065 and redemptions of $127,698 during the
quarter ended March 31, 1997 (the "Current Quarter"). From its inception through
April 1, 1997, the Partnership received total Limited Partner contributions of
$14,554,938 and had total withdrawals of $9,590,474. 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, 1997 was approximately
$722,000, representing approximately 6% of the Partnership's equity. At April 1,
1997, the Partnership had a total of 107 Limited Partners.
As is specified in the Second Amended and Restated Limited Partnership
Agreement, dated May 22, 1996, 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, 1997, the Partnership has received a total
of $936,140 in contributions from the TIC 401(k) Plan. The TIC 401(k) Plan's
equity in the Partnership as of April 1, 1997 was approximately $1,118,000,
representing approximately 9.2% of Partnership equity or approximately 11.4%
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, 1997 and December 31, 1996, U.S. Government obligations with varying
maturities through December 1997 represented approximately 59% and 42% 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 $135,818, compared to
$118,595 during the quarter ended March 31, 1996. This increase was due to an
increase in the Partnership's assets.
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 11% and 18% of the Partnership's assets as of March 31,
1997 and December 31, 1996. 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, 1997 and 1996, the Net Asset Value per unit was $3,673.19 and
$3,223.33. For the quarter ended March 31, 1997, the Partnership had a gain of
17.11% or $536.73 per unit, compared to a gain of 12.55% or $359.58 per unit for
the quarter ended March 31, 1996.
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, 1997 and 1996.
Three Months Ended
March 31, 1997 March 31, 1996
----------------- ---------------
Interest Rate Futures and Option
Contracts
- ----------
Domestic $ 322 $ 167
Foreign (129) 93
Foreign Exchange Contracts 338 539
- --------------------------
Equity Index Futures
- --------------------
Domestic 178 (117)
Foreign 279 602
Over-the-Counter Contracts (23) (72)
- --------------------------
Non-Financial Derivative Instruments 738 (6)
- ------------------------------------
--------------------- -----------
Total $1,703 $1,206
===================== ===========
Since the Partnership is a speculative trader in the commodities markets,
current year results are not comparable to previous year's results. The
Partnership's net trading gains and losses represent a positive return on
average net assets of 15.9% and 12.3% for the quarters ended March 31, 1997 and
1996. Brokerage commissions and fees were .4% and .4% of average net assets for
the quarters ended March 31, 1996 and 1995.
Professional fees and other expenses during the Current Quarter ended March 31,
1997, as compared to the quarter ended March 31, 1996, remained stable.
Incentive fees are paid quarterly based on Net Trading Profits as described in
the Limited Partnership Agreement. For the quarters ended March 31, 1997 and
1996, incentive fees were 5.0% and 10.9% of trading gains, net of commissions
and fees. The decrease in 1997 was due to trading losses of $866,300 incurred
during the last 6 months of 1996 needed to be recouped prior to the Partnership
earning any new incentive fees in 1997.
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.
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 and Chief
Operating Officer of the
General Partner
By: /s/ Mark Pickard
----------------
Mark Pickard,
Vice President and
Chief Financial Officer of the
General Partner
May 14, 1997