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: 6/30/99 COMMISSION FILE NUMBER: 333-52543
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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.)
600 Steamboat Road, Greenwich, Connecticut 06830
- --------------------------------------------------------------------------------
(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 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------- ------------
ASSETS
------
CASH $ 802,943 $ 3,672,689
U.S. GOVERNMENT SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL 15,800,000 12,600,000
EQUITY IN COMMODITY TRADING ACCOUNTS:
Due from broker 1,607,375 1,281,103
Net unrealized gain on open commodity interests 45,773 711,244
----------- -----------
Total equity in commodity trading accounts 1,653,148 1,992,347
SUBSCRIPTION RECEIVABLE 118,515 -
----------- -----------
Total assets $18,374,606 $18,265,036
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 1,799,946 $ 238,091
Pending partner additions 428,959 2,989,786
Incentive fee payable - 29,507
Management fee payable 24,475 40,370
Accrued professional fees and other 69,112 76,170
----------- -----------
Total liabilities 2,322,492 3,373,924
----------- -----------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,094.54 and
2,589.21 outstanding at June 30, 1999 and December 31, 1998 15,093,311 13,840,543
General Partner, 196.58 units outstanding at June 30, 1999 and
December 31, 1998 958,803 1,050,569
----------- -----------
Total partners' capital 16,052,114 14,891,112
----------- -----------
Total liabilities and partners' capital $18,374,606 $18,265,036
=========== ===========
The accompanying notes are an integral part of these statements.
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30,1999 AND 1998
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
---------- ---------- ----------- ----------
REVENUES:
Net realized trading gain (loss) $ (909,294) $ (682,478) $(1,027,857) $ 27,833
Change in net unrealized trading gain (loss) (36,628) 82,331 (664,360) 156,107
Interest income 209,017 160,650 406,876 322,384
---------- ---------- ----------- ----------
Total revenues (736,905) (439,497) (1,285,341) 506,324
---------- ---------- ----------- ----------
EXPENSES:
Brokerage commissions and fees 41,550 39,299 120,362 106,803
Incentive fee - - - 66,614
Management fee 74,385 58,143 148,316 120,414
Professional fees and other 27,342 22,336 54,916 46,283
---------- ---------- ----------- ----------
Total expenses 143,277 119,778 323,594 340,114
---------- ---------- ----------- ----------
Net income (loss) $ (880,182) $ (559,275) $(1,608,935) $ 166,210
========== ========== =========== ==========
Limited Partners' Net Income (Loss) (832,011) (526,177) (1,517,169) 158,605
General Partners' Net Income (Loss) (48,171) (33,098) (91,766) 7,605
---------- ---------- ----------- ----------
$ (880,182) $ (559,275) $(1,608,935) $ 166,210
========== ========== =========== ==========
Change in Net Asset Value Per Unit $ (244.85) $ (168.36) $ (466.81) $ 38.69
========== ========== =========== ==========
Net income (loss) Per Unit (Note 2) $ (240.55) $ (165.41) $ (459.22) $ 48.82
========== ========== =========== ==========
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 JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
Partners Limited General Partner Total Net Asset Value
--------------------------- ------------------------
Units Capital Units Capital Capital Per Unit
----------- ----------- --------- ---------- ----------- ---------------
Partners' Capital, January 1, 1998 2,186.284 $ 8,712,315 196.580 $ 783,372 $ 9,495,687 $ 3,984.99
----------- ----------- -------- ---------- -----------
Net income -- 3,929,937 -- 267,197 4,197,134
TIC 401(k) Plan unit adjustment (a) 24.416 -- -- -- --
Capital Contributions 1,303.556 5,270,917 -- -- 5,270,917
Redemptions (924.435) (4,072,626) -- -- (4,072,626)
----------- ----------- -------- ---------- -----------
Partners' Capital, December 31, 1998 (b) 2,589.821 13,840,543 196.580 1,050,569 14,891,112 $ 5,344.21
----------- ----------- -------- ---------- -----------
Net income -- (1,517,169) -- (91,766) (1,608,935)
TIC 401(k) Plan unit adjustment (a) 5.846 -- -- -- --
Capital Contributions 927.292 4,869,198 -- -- 4,869,198
Redemptions (428.42) (2,099,261) -- -- (2,099,261)
----------- ----------- -------- ---------- -----------
Partners' Capital, June 30, 1999 (b) 3,094.539 $15,093,311 196.580 $ 958,803 $16,052,114 $ 4,877.40
=========== =========== ======== ========== ===========
(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
JUNE 30, 1999
(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") was the general partner for the
Partnership during the quarter ended June 30, 1999 and owned approximately
197 units of general partnership interest. Tudor Investment Corporation
("TIC"), an affiliate of the General Partner, acts as the trading advisor
of the Partnership. Ownership of limited partnership units is restricted to
either employees of TIC or its affiliates.
The objective of the Partnership is to realize capital appreciation through
speculative trading of commodity futures, forwards, 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 Second Amended and Restated Limited 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 for 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.
REVENUE RECOGNITION
-------------------
Commodity interests are recorded on the trade date at the transacted
contract price and valued at market or fair value.
BROKERAGE COMMISSIONS AND FEES
------------------------------
These expenses represent all brokerage commissions, exchange, National
Futures Association and other fees incurred in connection with the
execution of commodity interests trades. Commissions and fees associated
with open commodity interests at the end of the period are accrued.
INCENTIVE FEE
-------------
The Partnership pays TIC, as trading advisor, an incentive fee equal to 12%
of the Net Trading Profits (as defined in the Limited Partnership
Agreement), earned as of the end of each fiscal quarter of the Partnership.
Effective August 1, 1995, TIC waived its right to receive an incentive fee
attributable to units held by the TIC 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 1/12 of 2% (2% per annum) of the Partnership's Net
Assets (as defined in the Limited Partnership Agreement). Effective August
1, 1995, TIC waived its right to receive a management fee attributable to
units held by the TIC 401(k) Plan.
FOREIGN CURRENCY TRANSLATION
----------------------------
Assets and liabilities denominated in foreign currencies are translated at
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 SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
---------------------------------------------------------------
Securities purchased under agreements to resell are collateralized
investment transactions and are carried at the amounts at which the
securities will be subsequently resold plus accrued interest, which
approximates market value. These transactions are part of the Partnership's
operating activities, and it is the policy of the Partnership to take
possession or control of all underlying assets and to use such assets as
collateral in connection with its trading.
DUE FROM BROKERS
----------------
Due from brokers includes cash, foreign currencies, forward contracts
pending settlement, and margin balances.
PENDING PARTNER ADDITIONS
-------------------------
Pending partner additions is comprised of cash received prior to the last
day of the quarter for which units were issued on the first day of the
subsequent quarter. Pending partner additions do not participate in the
earnings of the Partnership until the related units are issued.
NET INCOME PER UNIT
-------------------
Net income per unit is computed by dividing net income by the average
number of units outstanding at the beginning of each month during the
relevant report period.
(3) CAPITAL ACCOUNTS
----------------
The minimum subscription amount is $1,000 for new Limited Partners.
Additional contributions may be made in increments of $1,000. Both
subscriptions and contributions may be made quarterly, at the beginning of
the respective month.
Each partner, including the General Partner, has a capital account with an
initial balance equal to the amount such partner paid for its units. The
Partnership's net assets are determined monthly, and any increase or
decrease from the end of the preceding month is added to or subtracted from
the capital accounts of the partners based on the ratio that the balance of
each capital account bears in relation to the balance of all capital
accounts as of the beginning of the month. The number of units held by the
TIC 401(k) Plan will be restated as necessary for management and incentive
fees attributable to units held by the TIC 401(k) Plan to equate the per
unit value of the TIC 401(k) Plan's capital account with the Partnership's
per unit value.
(4) REDEMPTION OF UNITS
-------------------
At each quarter-end, units are redeemable at the discretion of each Limited
Partner. Redemption of units in $1,000 increments and full redemption of
all units are made at 100% of the net asset value per unit effective as of
the last business day of any quarter as defined in the Limited Partnership
Agreement. Partial redemptions of units which would reduce the net asset
value of a Limited Partner's unredeemed units to less than the minimum
investment then required of new Limited Partners or such Limited Partner's
initial investment, whichever is less, will be honored only to the extent
of such limitation.
(5) INCOME TAXES
------------
No provision for income taxes has been made in the accompanying financial
statements. Partners are responsible for reporting income or loss based
upon their respective shares of revenue and expenses of the Partnership.
(6) RELATED PARTY TRANSACTIONS
--------------------------
The General Partner, due to its relationship with its affiliates and
certain other parties, may enter into certain related party transactions.
Bellwether Partners LLC ("BPL"), a Delaware limited liability company and
an affiliate of the General Partner, is the Partnership's primary forward
contract counterparty. Effective August 1, 1995, BPL ceased charging
commissions for transacting the partnership's foreign exchange and
commodity forward contracts. The Partnership typically has on deposit with
BPL, as collateral for forward contracts, up to 5% of the Partnership's net
assets.
Bellwether Futures LLC ("BFL"), a Delaware limited liability company, is an
affiliate of the General Partner and is qualified to do business in
Illinois. Effective January 1, 1996, BFL ceased collecting give-up fees
from the Partnership as compensation for managing the execution of treasury
bond futures by floor brokers on the Chicago Board of Trade.
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
-----------
During June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
requires the Partnership to recognize all derivatives in the statements of
financial condition at fair value with adjustments to fair value recorded
through income. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999 (January 1, 2000, for entities with calendar-year fiscal
years); however, early adoption is allowed. The Partnership has elected
early adoption and, accordingly, its standards are applied in the
accompanying financial statements. The Partnership has always maintained a
policy of valuing its commodity interests at market values or estimated
fair values and including any unrealized gains and losses in income and,
accordingly, the adoption of SFAS No. 133 has not resulted in a valuation
or an accounting change in the accompanying financial statements.
In the normal course of business, the Partnership is a party to a variety
of off-balance sheet financial instruments in connection with its trading
activities. These activities include the trading of financial futures,
forwards, swaps, exchange traded and negotiated over-the-counter options
and the other commodity interests. These financial instruments give rise to
market and credit risk in excess of the amounts recognized in the
statements of financial condition. 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.
TIC takes an active role in managing and controlling the Partnership's
market and credit risks and has established formal control procedures that
are reviewed on an ongoing basis. TIC attempts to minimize credit risk
exposure to trading counterparties and brokers through formal credit
policies and monitoring procedures.
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 throughout the firm, regularly assesses and evaluates
the Partnership's potential exposures to the financial markets based on
analysis provided 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 Partnership uses a statistical technique known as Value at Risk ("VaR")
to assist the Risk Management Department in measuring its exposure to
market risk related to its trading positions. The VaR model projects
potential losses in 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.
Cash and due from brokers are due principally from high credit quality
international financial institutions.
Exchange traded futures and option contracts are marked-to-market daily,
with variations in value settled on a daily basis with the exchange upon
which they are traded and with the futures commission merchant through
which the commodity futures and options are executed. Forwards are
generally settled with the counterparties two days after the trade date.
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 FCMs to segregate client funds to ensure ample customer protection
in the event of an FCM's default. The Partnership monitors the
creditworthiness of its FCMs and, when deemed necessary, reduces its
exposure to these FCMs. The Partnership's credit risk associated with the
nonperformance of these FCMs 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 FCMs. 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 FCMs and counterparties,
including BPL, there is always 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.
TIC has a formal Credit Committee, comprised of senior managers from
different disciplines throughout the firm, that meets regularly to analyze
the credit risk associated with the Partnership's counterparties,
intermediaries and service providers. A significant portion of the
Partnership's positions are invested with or held at institutions with high
credit standing. TIC establishes counterparty exposure limits and
specifically designates which product types are approved for trading.
The following table summarizes the quarter-end assets and liabilities resulting
from unrealized gains and losses on derivative instruments included in the
statements of financial condition (000's omitted):
June 30, 1999 December 31, 1998
--------------------- ---------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Exchange Traded Contracts:
Interest Rate Contracts-
Domestic $ - $ - $ 27 $ -
Foreign 171 71 83 37
Foreign Exchange Contracts-
Financing Futures Contracts - 3 - 9
Forward Currency Contracts - 164 - 30
Equity Index Futures-
Domestic - - 106 -
Foreign 7 - 57 -
Over-the-Counter Contracts:
Forward Currency Contracts 136 - - -
Commodity Swaps - 63 - 24
Equity Index Swaps - 28 - -
Non-Financial derivative instruments 61 - 63 24
---- ---- ---- ----
Total $375 $329 $336 $124
==== ==== ==== ====
(8) YEAR 2000 ISSUE
---------------
Like other organizations, the Partnership could be adversely affected
if the computer systems used by the Partnership and its service
providers do not properly process and calculate date-related
information from and after January 1, 2000 (the "Year 2000 Problem").
The Partnership is taking steps that it believes are reasonably
designed to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain satisfactory assurances that
comparable steps are being taken by each of the Partnership's major
service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any material adverse
impact on the Partnership. The inability of the Partnership or its
third-party providers to timely complete all necessary procedures to
address the Year 2000 Problem could have a material adverse impact on
the Partnership's operations. The Partnership will continue to monitor
the status of and its exposure to this issue. All expenses related to
the Year 2000 problem will be borne by the trading advisor. As such,
the partnership does not expect to incur Year 2000 expenses.
The Partnership is in the process of establishing a contingency plan
to address recovery from unavoided and unavoidable Year 2000 problems,
if any.
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 $1,879,413 and redemptions of $1,799,946
during the quarter ended June 30, 1999 (the "Current Quarter"). From its
inception through July 1, 1999, the Partnership received total Limited
Partner contributions of $25,607,996 and had total withdrawals of
$19,924,514. 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 June 30, 1999 was approximately $958,800 representing 6%
of the Partnership's equity. At July 1, 1999, the Partnership had a total
of 111 Limited Partners.
As specified in the 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
July 1, 1999 of $2,487,199. The TIC 401(k) Plan's equity in the Partnership
as of July 1, 1999 was approximately $2,755,000 representing approximately
17.2% of the Partnership's equity or approximately 19.3% 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. Securities purchased under agreements to resell are collaterlized
investment transactions and are carried at the amount the securities will
be subsequently resold plus accrued interest, which approximates market. As
of June 30, 1999 and December 31, 1998, U.S. Government Securities
purchased under agreements to resell maturing July 1, 1999 and January 4,
1998 represented approximately 86% and 69% of the total assets of the
Partnership. To the extent necessary, such U.S. Government Securities are
used by the Partnership as collateral in connection with its trading
activities.The percentage that U.S. Government Securities purchased
under agreements to resell bear to the total assets varies daily and
monthly, as the market value of commodity interest contracts changes, as
Government Securities are resold, 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 $209,017, compared to $160,650 during the quarter
ended June 30, 1998. 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 represented approximately 4% and 20% of the Partnership's assets as
of June 30, 1999 and December 31, 1998. The cash and U.S. Government
Securities purchased under agreements to resell satisfy the Partnership's
need for cash on both a short-term and long-term basis.
Since futures contract trading generates a significant percentage of the
Partnership's income, any restriction or limit on that trading may render
the Partnership's investment in futures contracts illiquid. Most commodity
exchanges limit fluctuations in certain commodity contract prices during a
single day by regulations referred to as a "daily price fluctuation limit"
or "daily limits." Pursuant to such regulations, during a single trading
day, no trade may be executed at a price beyond the daily limits. If the
price for a contract or a particular commodity has increased or decreased
by an amount equal to the "daily limit," positions in such contracts can
neither be taken nor liquidated unless traders are willing to effect trades
at or within the limit. Commodity interest contract prices have
occasionally moved the daily limit for several consecutive days with little
or no trading. Such market conditions could prevent the Partnership from
promptly liquidating its commodity positions.
(2) CAPITAL RESOURCES
-----------------
The Partnership does not have, nor does it expect to have, any fixed
assets. Redemptions and additional sales of units in the future will
impact the amount of funds available for investments in commodity interest
contracts in subsequent periods. As the amount of capital changes, the
size of the positions taken by the Partnership is adjusted.
The Partnership is currently open to new investments, which can be made
quarterly. Such investments are limited to employees of TIC 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 for the three and six
months ended June 30, 1999 and 1998:
Net Asset Value per Three Months Ended Six Months Ended
Unit June 30 June 30
--------------------- ------------------------- ------------------------
$ % $ %
------------------------- ------------------------
June 30, 1999 $4,877.40 $( 245.05) (4.78%) $(466.81) (8.73)%
June 30, 1998 $4,023.60 $( 168.37) (4.02%) $ 38.69 .97%
Net trading gains and losses (includes realized and unrealized trading
gains, losses and commissions ("Net Trading Gains")) 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, for the three and six months ended June 30, 1999 and 1998.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts-
Domestic $ (390) $ (457) $ (366) $ (71)
Foreign 226 130 (117) 41
Foreign Exchange Contracts (326) 191 (883) (198)
Equity Index Futures-
Domestic (431) (59) (624) 109
Foreign (63) (125) (669) (8)
Over-the-Counter Contracts:
Forward Currency Contracts 136 5 858 521
Commodity Swaps (216) (134) (118) (216)
Equity Index Swaps (28) (67) (88) (151)
Non-Derivative Financial Instruments 105 (123) 194 50
-------- -------- -------- --------
Total $ (987) $ (639) $(1,813) $ 77
======== ======== ======== ========
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 as a
return on average Net Assets, brokerage commissions and fees as a
percentage of Net Assets, and incentive fees as a percentage of Net
Trading Gains.
Three Months Ended, Six Months Ended,
----------------------- -----------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
1999 1998 1999 1998
---- ---- ---- ----
Net trading gains and losses as a % of Net Assets (5.7)% (4.9)% (10.4)% 0.6%
Brokerage Commissions & Fees as a % of Net Assets 0.3% 0.3% 0.7% 0.8%
Incentive Fees as a % of Net Trading Gains 0.0% 0.0% 0.0% 86.36%
In general, commission rates have remained stable during the past three
years. Professional fees and other expenses during the Current Quarter
ended remained stable as compared to
the quarter ended June 30, 1998. Trading losses incurred during the second
quarter of 1998 resulted in higher incentive fees as a percentage of Net
Trading Gains for the first six months of 1988. 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.
(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
financial futures, forwards, swaps, exchange traded and negotiated over-
the-counter options and the other commodity interests. These financial
instruments give rise to market and credit risk in excess of the amounts
recognized in the statements of financial condition. 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.
TIC takes an active role in managing and controlling the Partnership's
market and credit risks and has established formal control procedures
that are reviewed on an ongoing basis. TIC attempts to minimize credit
risk exposure to trading counterparties and brokers through formal
credit policies and monitoring procedures.
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 throughout the firm, regularly
assesses and evaluates the Partnership's potential exposures to the
financial markets based on analysis provided 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 Partnership uses a statistical technique known as Value at Risk
("VaR") to assist the Risk Management Department in measuring its
exposure to market risk related to its trading positions. The VaR model
projects potential losses in 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.
Cash and due from brokers are due principally from high credit quality
international financial institutions. Exchange traded futures and
option contracts are marked-to-market daily, with variations in value
settled on a daily basis with the exchange upon
which they are traded and with the futures commission merchant through
which the commodity futures and options are executed. Forwards are
generally settled with the counterparties two days after the trade date.
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 FCMs to segregate client funds to ensure ample
customer protection in the event of an FCM's default. The Partnership
monitors the creditworthiness of its FCMs and, when deemed necessary,
reduces its exposure to these FCMs. The Partnership's credit risk
associated with the nonperformance of these FCMs 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 FCMs. 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 FCMs and counterparties, including BPL, there is
always 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.
TIC has a formal Credit Committee, comprised of senior managers from
different disciplines throughout the firm, that meets regularly to
analyze the credit risk associated with the Partnership's
counterparties, intermediaries and service providers. A significant
portion of the Partnership's positions are invested with or held at
institutions with high credit standing. TIC establishes counterparty
exposure limits and specifically designates which product types are
approved for trading.
The following table illustrates the VaR for each component of market
risk as of June 30, 1999. The dollar values represent the VaR assuming a
one standard deviation move in each of the financial instruments
indicated.
VaR
Risk Factors 1 Standard Deviation
------------ (95% Confidence)
---------------------------
Interest rate futures and option contracts-
Domestic $ -
Foreign 132,495
Foreign Exchange Contracts 65,010
Equity index futures-
Domestic -
Foreign 37,950
Non-derivative financial instruments 38,610
-----------
$ 274,065
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, 9,896.789 Units having an aggregate value of
$25,607,996 have been sold through July 1, 1999.
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/ Mark Pickard
----------------------------------
Mark Pickard,
Managing Director and
Chief Financial Officer of the
General Partner
August 12, 1999