<PAGE>
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: 9/30/99 COMMISSION FILE NUMBER: 333-52543
------- ---------
TUDOR FUND FOR EMPLOYEES L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3543779
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
---
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
------------- -------------
<S> <C> <C>
ASSETS
------
CASH $ 980,121 $ 3,672,689
U.S. GOVERNMENT SECURITIES PURCHASED UNDER
AGREEMENTS TO RESELL 13,600,000 12,600,000
EQUITY IN COMMODITY TRADING ACCOUNTS:
Due from broker 2,795,664 1,281,103
Net unrealized gain on open commodity interests 323,581 711,244
------------- -------------
Total equity in commodity trading accounts 3,119,245 1,992,347
SUBSCRIPTION RECEIVABLE 20,000 -
------------- -------------
Total assets $17,719,366 $18,265,036
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
LIABILITIES:
Redemptions payable $ 591,932 $ 238,091
Pending partner additions 191,609 2,989,786
Incentive fee payable - 29,507
Management fee payable 47,949 40,370
Accrued professional fees and other 64,930 76,170
------------- -------------
Total liabilities 896,420 3,373,924
------------- -------------
PARTNERS' CAPITAL:
Limited Partners, 20,000 units authorized and 3,070.488 and
2,589.821 outstanding at September 30, 1999 and December 31,
1998 15,810,703 13,840,543
General Partner, 196.580 units outstanding at September 30,
1999 and December 31, 1998 1,012,243 1,050,569
------------- -------------
16,822,946 14,891,112
Total partners' capital ------------- -------------
$17,719,366 $18,265,036
Total liabilities and partners' capital ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net realized trading gain (loss) $ 570,007 $ 3,450,741 $(457,850) $3,478,574
Change in net unrealized trading gain (loss) 296,900 407,386 (367,460) 563,493
Interest income 210,407 159,392 617,283 481,776
---------- ----------- --------- ----------
Total revenues 1,077,314 4,017,519 (208,027) 4,523,843
---------- ----------- --------- ----------
EXPENSES:
Brokerage commissions and fees 44,555 55,495 164,917 162,298
Incentive fee - 305,948 - 372,562
Management fee 71,434 59,027 219,750 179,441
Professional fees and other 27,520 23,847 82,436 70,130
---------- ----------- --------- ----------
Total expenses 143,509 444,317 467,103 784,431
---------- ----------- --------- ----------
Net income (loss) $ 933,805 $ 3,573,202 $(675,130) $3,739,412
========== =========== ========= ==========
Limited Partners' Net Income (Loss) 880,365 3,344,040 (636,804) 3,502,645
General Partner's Net Income (Loss) 53,440 229,162 (38,326) 236,767
---------- ----------- --------- ----------
$ 933,805 $ 3,573,202 $(675,130) $3,739,412
========== =========== ========= ==========
Change in Net Asset Value Per Unit $ 271.85 $ 1,165.74 $ (194.96) $ 1,204.43
========== =========== ========= ==========
Net income (loss) Per Unit (Note 2) $ 276.19 $ 1,187.88 $ (194.97) $ 1,142.64
========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Limited Partners General Partner Total Net Asset Value
---------------------------- --------------------------
Units Capital Units Capital Capital Per Unit
--------- ------------ --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
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 loss -- (636,804) -- (38,326) (675,130)
TIC 401(k) Plan unit adjustment (a) 9.754 -- -- -- --
Capital Contributions 1,014.288 5,298,157 -- -- 5,298,157
Redemptions (543.375) (2,691,193) -- -- (2,691,193)
--------- ------------ --------- ----------- -----------
Partners' Capital, September 30, 1999 (b) 3,070.488 $15,810,703 196.580 $1,012,243 $16,822,946 $ 5,149.25
========= ============ ========= =========== ===========
</TABLE>
(a) See Note 3 - Capital Accounts
(b) See Note 4 - Redemption of Units
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 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.
<PAGE>
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
activities.
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.
<PAGE>
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 reporting 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.
<PAGE>
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.
<PAGE>
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.
Due from brokers are due principally from, and cash is principally
held at, 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 are 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.
<PAGE>
AAA
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):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------------- --------------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Exchange Traded Contracts:
Interest Rate Contracts-
Domestic $ - $ 8 $ 21 $ 3
Foreign 53 - 521 -
Foreign Exchange Contracts-
Financing Futures Contracts 139 - 2 -
Forward Currency Contracts - 168 75 -
Equity Index Futures-
Domestic 39 17 27 17
Foreign 56 1 24 -
Over-the-Counter Contracts:
Forward Currency Contracts - - - -
Commodity Swaps 126 - - -
Equity Index Swaps - - - -
Non-Financial derivative instruments 110 6 61 -
---- ---- ---- -----
Total $523 $200 $731 $ 20
==== ==== ==== =====
</TABLE>
(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 or
"has taken" 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.
<PAGE>
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 has established a contingency plan to address recovery
from unavoided and unavoidable Year 2000 problems, if any.
<PAGE>
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 $428,959 and
redemptions of $591,932 during the quarter ended September 30, 1999
(the "Current Quarter"). From its inception through October 1, 1999,
the Partnership received total Limited Partner contributions of
$25,799,606 and had total withdrawals of $20,516,446. 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 September 30, 1999 was approximately $1,012,000 representing 6% of
the Partnership's equity. At October 1, 1999, the Partnership had a
total of 109 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 October 1, 1999 of
$2,560,808. The TIC 401(k) Plan's equity in the Partnership as of
October 1, 1999 was approximately $3,029,000 representing
approximately 17.8% of the Partnership's equity or approximately 19.6%
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 September 30, 1999 and
December 31, 1998, U.S. Government Securities purchased under
agreements to resell maturing October 1, 1999 and January 4, 1998
represented approximately 77% 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 it's
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.
<PAGE>
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 $210,407, compared to $159,392 during the quarter ended
September 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 6% and 20% of the
Partnership's assets as of September 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.
<PAGE>
(3) RESULTS OF OPERATIONS
---------------------
The following table compares net asset value per unit for the three
and nine months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Net Asset Three Months Ended Nine Months Ended
Value per Unit September 30 September 30
-------------- ------------------------- -----------------------------
$ % $ %
------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Sept. 30, 1999 $5,149.25 $ 271.85 5.57% $ (194.96) (3.65)%
Sept. 30, 1998 $5,189.42 $1,165.74 28.98% $1,204.43 30.22%
</TABLE>
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 nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------------
1999 1998 1999 1998
-------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Exchange Traded Contracts:
Interest Rate Futures and Option Contracts-
Domestic $ 146 $1,180 $ (221) $1,109
Foreign 221 931 104 973
Foreign Exchange Contracts (442) 688 (1,323) 490
Equity Index Futures-
Domestic (14) 142 (637) 251
Foreign 305 714 (364) 706
Over-the-Counter Contracts:
Forward Currency Contracts 26 - 884 521
Commodity Swaps 182 (134) 63 (350)
Equity Index Swaps (10) 387 (98) 236
Non-Derivative Financial Instruments 408 (105) 602 (56)
-------------- ------------- --------------- ----------------
Total $ 822 $3,803 $ (990) $3,880
============== ============= =============== ================
</TABLE>
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended, Nine Months Ended,
--------------------------- ----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
--------- --------- --------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Trading Gains as a % of Net Assets 4.8% 28.01% (5.7)% 28.99%
Brokerage Commissions & Fees as a % of Net Assets 0.4% 0.4% 1.0% 1.2%
Incentive Fees as a % of Net Trading Gains 0.0% 8.05% 0.0% 9.6%
</TABLE>
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 September 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
nine 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
<PAGE>
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.
Due from brokers are due principally from, and cash is principally held
at, 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.
<PAGE>
The following table illustrates the VaR for each component of market risk as of
September 30, 1999. The dollar values represent the VaR assuming a one standard
deviation move in each of the financial instruments indicated.
<TABLE>
<CAPTION>
VaR
1 Standard Deviation
Risk Factors (95% Confidence)
------------ --------------------
<S> <C>
Interest Rate Futures and Option Contracts-
Domestic $ 38,940
Foreign $124,410
Foreign Exchange Contracts $ 73,095
Equity Index Futures-
Domestic $ 66,990
Foreign $ 53,955
Non-Financial derivative instruments $194,965
</TABLE>
<PAGE>
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
333-33982) 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, 9,934.000 Units having an aggregate value of
$25,799,606 have been sold through October 1, 1999.
<PAGE>
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
November 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 980,121
<SECURITIES> 13,600,000
<RECEIVABLES> 3,139,245
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 17,719,366
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,719,366
<CURRENT-LIABILITIES> 896,420
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,822,946
<TOTAL-LIABILITY-AND-EQUITY> 17,719,366
<SALES> 0
<TOTAL-REVENUES> 1,077,314
<CGS> 0
<TOTAL-COSTS> 143,509
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 933,805
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 933,805
<EPS-BASIC> 271.85
<EPS-DILUTED> 0
</TABLE>
