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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: 6/30/02
  
COMMISSION FILE NUMBER: 333-52543
 
TUDOR FUND FOR EMPLOYEES L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
   
13-3543779
(State or other jurisdiction of
   
(I.R.S. Employer
incorporation or organization)
   
Identification No.)
      
1275 King Street, Greenwich, Connecticut
   
06831
(Address of principal executive offices)
   
(Zip Code)
 
(203) 863-6700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
 
x YES    ¨ NO

 
PART I – FINANCIAL INFORMATION
Item 1. – Financial Statements
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF FINANCIAL CONDITION
 
    
JUNE 30,
2002
   
DECEMBER 31,
2001
    
 
(UNAUDITED)
   
 
(AUDITED)
ASSETS
              
               
Cash and cash equivalents
   
$
41,826,108
   
$
29,804,258
Due from brokers
   
 
3,000,958
   
 
3,865,128
    
  
Total assets
   
$
44,827,066
   
$
33,669,386
    
  
LIABILITIES AND PARTNERS’ CAPITAL
              
               
LIABILITIES:
              
Pending partner additions
   
$
875,000
   
$
1,525,056
Redemptions payable
   
 
322,997
   
 
187,808
Incentive fee payable
   
 
557,205
   
 
—
Management fee payable
   
 
113,135
   
 
85,100
Accrued professional fees and other
   
 
163,880
   
 
81,038
    
  
Total liabilities
   
 
2,032,217
   
 
1,879,002
    
  
PARTNERS’ CAPITAL:
              
Limited Partners, 20,000 units authorized and 3,869.867 and 3,363.810
    outstanding at June 30, 2002 and December 31, 2001
   
 
40,726,055
   
 
30,035,126
General Partner, 196.580 units outstanding at June 30, 2002 and
    December 31, 2001
   
 
2,068,794
   
 
1,755,258
    
  
Total partners’ capital
   
 
42,794,849
   
 
31,790,384
    
  
Total liabilities and partners’ capital
   
$
44,827,066
   
$
33,669,386
    
  
 
 
 
The accompanying notes are an integral part of these statements.

 
TUDOR FUND FOR EMPLOYEES L.P.
CONDENSED SCHEDULE OF INVESTMENTS
    
North America
     
Asia
     
Europe
   
Total
     
Percent of Partners’ Capital
  
June 30, 2002 (UNAUDITED)
                                         
FUTURES, at market value:
                                         
Equity index futures
   
$
406
 
   
$
—
 
   
$
—
   
$
406
 
   
.00
%
Interest rate futures
   
 
37,752
 
   
 
23,617
 
   
 
—
   
 
61,369
 
   
.14
 
Foreign exchange futures
   
 
174,200
 
   
 
—
 
   
 
—
   
 
174,200
 
   
.41
 
    
  
  
  
  
Total futures, at market value
   
 
212,358
 
   
 
23,617
 
   
 
—
   
 
235,975
 
   
.55
 
    
  
  
  
  
FOREIGN EXCHANGE FORWARDS, at market value:
   
 
13,077
 
   
 
(949
)
   
 
170,117
   
 
182,245
 
   
.43
 
    
  
  
  
  
COMMODITY SWAPS, at market value:
   
 
118,222
 
   
 
—
 
   
 
—
   
 
118,222
 
   
.28
 
    
  
  
  
  
TOTAL INVESTMENTS, at market value (1)
   
$
343,657
 
   
$
22,668
 
   
$
170,117
   
$
536,442
 
   
1.26
%
    
  
  
  
  
                                          
                                          
    
North America
     
Asia
     
Europe
   
Total
     
Percent of Partners’ Capital
  
December 31, 2001 (AUDITED)
                                         
OTC OPTIONS, at market value:
                                         
OTC foreign exchange option
   
$
—
 
   
$
352,710
 
   
$
—
   
$
352,710
 
   
1.11
%
    
  
  
  
  
Total options, at market value (cost $111,609)
   
 
—
 
   
 
352,710
 
   
 
—
   
 
352,710
 
   
1.11
 
    
  
  
  
  
FUTURES, at market value:
                                         
Equity index futures
   
 
(24,950
)
   
 
(5,300
)
   
 
—
   
 
(30,250
)
   
(.10
)
Interest rate futures
   
 
—
 
   
 
101,645
 
   
 
—
   
 
101,645
 
   
.33
 
Foreign exchange futures
   
 
220
 
   
 
—
 
   
 
—
   
 
220
 
   
.00
 
Commodity futures
   
 
(30,894
)
   
 
—
 
   
 
—
   
 
(30,894
)
   
(.10
)
    
  
  
  
  
Total futures, at market value (1)
   
 
(55,624
)
   
 
96,345
 
   
 
—
   
 
40,721
 
   
.13
 
    
  
  
  
  
FOREIGN EXCHANGE FORWARDS, at market value
   
 
—
 
   
 
97,393
 
   
 
215,973
   
 
313,366
 
   
.99
 
    
  
  
  
  
EQUITY SWAPS, at market value:
   
 
643,367
 
   
 
—
 
   
 
—
   
 
643,367
 
   
2.02
 
    
  
  
  
  
TOTAL INVESTMENTS, at market value
   
$
587,743
 
   
$
546,448
 
   
$
215,973
   
$
1,350,164
 
   
4.25
%
    
  
  
  
  
 
 
The accompanying notes are an integral part of these statements.
 
 
(1)
 
All such amounts are included in due from brokers on the statements of financial condition.
 

 
TUDOR FUND FOR EMPLOYEES L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
 
    
THREE MONTHS ENDED
JUNE 30,
     
SIX MONTHS ENDED
JUNE 30,
  
    
 
2002
 
   
 
2001
 
   
 
2002
 
   
 
2001
 
    
  
  
  
Investment income
                         
Interest income
   
$
172,579
 
   
$
339,695
 
   
$
317,710
 
   
$
731,062
 
Investment expense
                         
Interest expense
   
 
6,564
 
   
 
44,824
 
   
 
7,262
 
   
 
54,590
 
Brokerage commissions
   
 
111,928
 
   
 
36,607
 
   
 
179,402
 
   
 
99,161
 
    
  
  
  
Total investment expenses
   
 
118,492
 
   
 
81,431
 
   
 
186,664
 
   
 
153,751
 
    
  
  
  
Operating expenses
                                    
Management fee
   
 
165,392
 
   
 
130,579
 
   
 
306,647
 
   
 
249,103
 
Incentive fee
   
 
557,205
 
   
 
—  
 
   
 
621,857
 
   
 
268,878
 
Professional fees and other expenses
   
 
41,008
 
   
 
34,655
 
   
 
92,116
 
   
 
69,132
 
    
  
  
  
Total operating expenses
   
 
763,605
 
   
 
165,234
 
   
 
1,020,620
 
   
 
587,113
 
    
  
  
  
Net investment income (loss)
   
 
(709,518
)
   
 
93,030
 
   
 
(889,574
)
   
 
(9,802
)
    
  
  
  
Net realized and unrealized gains/losses on
trading activities
                                    
Net realized gain (loss)
   
 
5,354,815
 
   
 
(355,514
)
   
 
8,174,231
 
   
 
3,610,746
 
Change in net unrealized appreciation
   
 
782,576
 
   
 
354,018
 
   
 
(634,645
)
   
 
(625,918
)
    
  
  
  
Net realized and unrealized gain (loss)
   
 
6,137,391
 
   
 
(1,496
)
   
 
7,539,586
 
   
 
2,984,828
 
    
  
  
  
Net increase in net assets resulting from operations
   
$
5,427,873
 
   
$
91,534
 
   
$
6,650,012
 
   
$
2,975,026
 
    
  
  
  
Limited Partners’ net increase in net assets resulting from operations
   
 
5,175,184
 
   
 
88,465
 
   
 
6,336,476
 
   
 
2,831,388
 
General Partner’s net increase in net assets resulting from operations
   
 
252,689
 
   
 
3,069
 
   
 
313,536
 
   
 
143,638
 
    
  
  
  
    
$
5,427,873
 
   
$
91,534
 
   
$
6,650,012
 
   
$
2,975,026
 
    
  
  
  
Change in Net Asset Value Per Unit
   
$
1,285.42
 
   
$
15.61
 
   
$
1,594.99
 
   
$
730.68
 
    
  
  
  
Net increase in Net Assets Per Unit
   
$
1,327.02
 
   
$
22.25
 
   
$
1,686.50
 
   
$
741.05
 
    
  
  
  
 
 
 
 
 
 
 
 
 
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, 2002 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2001 (AUDITED)
 
    
Limited Partners
     
General Partner
  
Total
Capital
     
Net Asset Value
Per Unit
    
Units
 
  
 
Capital
 
   
Units
  
 
Capital
     
    
 
  
 
 
  
Partners’ Capital, January 1, 2001
   
2,926.555
 
  
$
20,766,179
 
   
196.580
  
$
1,394,893
  
$
22,161,072
 
   
$
7,095.78
Net increase in net assets resulting from operations
   
—
 
  
 
6,935,785
 
   
—
  
 
360,365
  
 
7,296,150
 
       
TIC 401(k) Plan unit adjustment (a)
   
32.780
 
  
 
—
 
   
—
  
 
—
  
 
—
 
       
Capital contributions
   
1,295.726
 
  
 
9,626,183
 
   
—
  
 
—
  
 
9,626,183
 
       
Redemptions
   
(891.251
)
  
 
(7,293,021
)
   
—
  
 
—
  
 
(7,293,021
)
       
    
 
  
 
 
      
Partners’ Capital, December 31, 2001(b)
   
3,363.810
 
  
 
30,035,126
 
   
196.580
  
 
1,755,258
  
 
31,790,384
 
   
$
8,928.90
Net increase in net assets resulting from operations
   
—
 
  
 
6,336,476
 
   
—
  
 
313,536
  
 
6,650,012
 
       
TIC 401(k) Plan unit adjustment (a)
   
22.660
 
  
 
—
 
   
—
  
 
—
  
 
—
 
       
Capital contributions
   
606.914
 
  
 
5,535,015
 
   
—
  
 
—
  
 
5,535,015
 
       
Redemptions
   
(123.517
)
  
 
(1,180,562
)
   
—
  
 
—
  
 
(1,180,562
)
       
    
 
  
 
 
      
Partners’ Capital, June 30, 2002 (b)
   
3,869.867
 
  
$
40,726,055
 
   
196.580
  
$
2,068,794
  
$
42,794,849
 
   
$
10,523.89
    
 
  
 
 
      
(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, 2002
(UNAUDITED)
 
(1)    ORGANIZATION
 
Tudor Fund For Employees L.P. (the “Partnership”) was organized under the Delaware Revised Uniform Limited Partnership Act (the “Act”) on November 22, 1989, and commenced trading operations on July 2, 1990. Second Management LLC (the “General Partner”) is the general partner of the Partnership. Tudor Investment Corporation (“TIC”), an affiliate of the General Partner, acts as the trading advisor of the Partnership. The General Partner is registered with the Commodity Futures Trading Commission as a Commodity Pool Operator and a Commodity Trading Advisor and is a member of the National Futures Association in such capacities. Ownership of limited partnership units is restricted to employees of TIC and its principals or its affiliates.
 
The objective of the Partnership is to realize capital appreciation through speculative trading of futures, forwards, option contracts and other derivative instruments, including commodity interests (collectively, “derivative instruments”). The Partnership will terminate on December 31, 2010 or at an earlier date if certain conditions occur as outlined in the Second Amended and Restated Partnership Agreement dated as of May 22, 1996 (the “Limited Partnership Agreement”).
 
DUTIES OF THE GENERAL PARTNER
 
The General Partner acts as the commodity pool operator of the Partnership and is responsible for the selection and monitoring of the commodity trading advisors 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
 
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, reflect all adjustments necessary for a fair presentation of the results for the periods presented in conformity with accounting principles generally accepted in the United States. These financial statements should be read in conjunction with the Partnership’s audited financial statements included in the Partnership’s Annual Report on Form 10-K filed with the SEC on March 28, 2002. Results of the interim periods are not necessarily indicative of results to be obtained for a full fiscal year.
 
CASH AND CASH EQUIVALENTS
 
Cash and cash equivalents include cash held at banks and overnight time deposits.
 
DUE FROM BROKERS
 
Due from brokers primarily consists of cash balances carried as margin deposits with clearing brokers for the purpose of trading derivative instruments. Also included in due from brokers are the unrealized gains and losses on derivative instruments, as reflected on the condensed schedule of investments.
 
PENDING PARTNER ADDITIONS
 
Pending partner additions is comprised of cash received prior to the end of the period, for which units were issued on July 1, 2002 and January 1, 2002. Pending partner additions did not participate in the earnings of the Partnership until the related units were issued.

 
REVENUE RECOGNITION AND VALUATION METHODOLOGIES
 
Trading activities, including related revenues and expenses, are recorded on a trade date basis. Interest income and expense are recorded on the accrual basis.
 
For derivative instruments, market value is generally based upon independent market values when available from major exchanges or, if none are available, from independent broker quotations. Additionally, in determining market value, management utilizes pricing models with market quoted inputs and also considers closing exchange prices of related instruments, time value of money, volatility factors of the underlying instruments, and other market conditions.
 
BROKERAGE COMMISSIONS AND FEES
 
These expenses represent all brokerage commissions, exchange, National Futures Association and other fees incurred in connection with the execution and clearance of derivative instruments.
 
SERVICE AGREEMENT
 
The Partnership has entered into an agreement with CITCO Fund Services USA, Inc. (the “Service Company”), under which the Service Company provides necessary accounting services to the Partnership, including maintenance of the financial books and records.
 
INCENTIVE FEE
 
The Partnership pays TIC, as trading advisor, an incentive fee equal to 12% of the Net Trading Profits (as defined in the Limited Partnership Agreement), earned as of the end of each fiscal quarter of the Partnership. Since inception of the TIC 401(k) Savings and Profit-Sharing Plan (the “TIC 401(k) Plan”), TIC has waived its right to receive an incentive fee attributable to units of limited partnership interest held at the beginning of each month by the TIC 401(k) Plan.
 
MANAGEMENT FEE
 
The Partnership also pays TIC, for the performance of its duties, a monthly management fee equal to 1/12 of 2% (2% per annum) of the Partnership’s net assets (as defined in the Limited Partnership Agreement). Since inception of the TIC 401(k) Plan, TIC has waived its right to receive a management fee attributable to units of limited partnership interest held at the beginning of each month by the TIC 401(k) Plan.
 
FOREIGN CURRENCY TRANSLATION
 
Assets and liabilities denominated in foreign currencies are translated at month-end exchange rates. Gains and losses resulting from foreign currency transactions are calculated using daily exchange rates and are included in the accompanying statements of operations.
 
USE OF ESTIMATES
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing the financial statements are reasonable and prudent; however, actual results could differ from these estimates.

 
NET INCREASE IN NET ASSETS PER UNIT
 
Net increase in net assets per unit is computed by dividing net increase in net assets by the monthly average of units outstanding at the beginning of each month.
 
RECLASSIFICATIONS
 
Certain reclassifications have been made to prior year balances to conform with the current year presentation.
 
(3)    CAPITAL ACCOUNTS
 
The minimum subscription amount is $1,000 for new Limited Partners. Additional contributions may be made in increments of $1,000. Both subscriptions and contributions may be made quarterly, at the beginning of the respective quarter.
 
Each partner, including the General Partner, has a capital account with an initial balance equal to the amount such partner paid for its units of partnership interest. The Partnership’s net assets are determined monthly, and any increase or decrease from the end of the preceding month is added to or subtracted from the capital accounts of the partners based on the ratio that the balance of each capital account bears in relation to the balance of all capital accounts as of the beginning of the month. The number of units held by the TIC 401(k) Plan will be restated as necessary for management and incentive fees attributable to units held at the beginning of each month by the TIC 401(k) Plan to equate the per unit value of the TIC 401(k) Plan’s capital account with the Partnership’s per unit value.
 
(4)    REDEMPTION OF UNITS
 
At each quarter-end, units are redeemable at the discretion of each Limited Partner. Redemption of units in $1,000 increments and full redemption of all units are made at 100% of the net asset value per unit effective as of the last business day of any quarter as defined in the Limited Partnership Agreement. Partial redemptions of units which would reduce the net asset value of a Limited Partner’s unredeemed units to less than the minimum investment then required of new Limited Partners or such Limited Partner’s initial investment, whichever is less, will be honored only to the extent of such limitation. Effective, July 31, 2002, redemptions of units may be made as of the last business day of any month.
 
(5)    INCOME TAXES
 
The Partnership has not made any provisions for U.S. federal and state income taxes since the partners are responsible for reporting income or loss based upon their respective share of revenue and expense.
 
(6)    RELATED PARTY TRANSACTIONS
 
The General Partner, due to its relationship with its affiliates and certain other parties, may enter into certain related party transactions.
 
Bellwether Partners LLC (“BPL”), a Delaware limited liability company and an affiliate of the General Partner, is the Partnership’s primary forward contract counterparty. BPL does not charge commissions for transacting the Partnership’s foreign exchange and commodity forward contracts. The Partnership typically has on deposit with BPL, as collateral for forward contracts, up to 4% of the Partnership’s net assets.
 
At June 30, 2002 and December 31, 2001, the amounts on deposit with BPL were $1,592,028 (including $182,245 in unrealized gains) and $1,187,258 (including $313,366 in unrealized gains). The Partnership earned interest income of $5,934 and $10,749 during the three and six month periods ended June 30, 2002 and $10,834 and $22,684 during the three and six month periods ended June 30, 2001, from deposits on collateral with BPL.
 
Bellwether Futures LLC (“BFL”), a Delaware limited liability compay, is an affiliate of the General Partner and is qualified to do business in Illinois. BFL does not charge the Partnership fees for assisting in the execution of treasury bond futures by floor brokers on the Chicago Board of Trade. BFL ceased operations in March 2001.
 
TIC receives incentive and management fees as compensation for acting as trading advisor (Note 2).

 
(7)    FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF CREDIT RISK
 
The Partnership is subject to changes in value resulting from the market and credit risk associated with the financial instruments which are traded. TIC takes an active role in managing the Partnership’s market and counterparty risks and has established formal procedures which are reviewed on an ongoing basis.
 
TIC has developed a set of guidelines and policies which are designed to maintain risk within parameters which are appropriate and necessary to achieve targeted rates of return. These guidelines and policies include quantitative and qualitative criteria for individual risk factors as well as for aggregate risk. TIC’s Risk Management Department, in conjunction with various senior personnel from different disciplines throughout TIC and its affiliates, regularly assesses and evaluates the Partnership’s potential exposures to market risk based on analyses performed by the department.
 
The Risk Management Department’s responsibilities include: evaluating the positions taken by traders in various instruments and markets globally and assessing the market risk associated with all of those positions. TIC’s Risk Management Department uses a statistical technique known as Value at Risk (“VaR”) to assist in measuring market risk. The VaR model is a proprietary system, and is one of several tools used to monitor and review the Partnership’s trading portfolios. The VaR model projects potential losses of the portfolio based on a historical simulation methodology which uses two years of historical data, a one-day holding period, and a 99% confidence level.
 
As a writer of options, the Partnership receives a premium upon initial settlement and then bears the risk of changes in the price of the financial instrument underlying the option. Swaps, forward currency contracts and OTC foreign currency options are traded in unregulated markets.
 
Derivative instruments are bilateral agreements which result in credit exposure between counterparties. Exchange traded derivatives settle through clearing houses backed by multiple members and present relatively low credit risk. OTC derivatives are settled with individual counterparties and, therefore, present potential concentrated credit exposure risk. TIC attempts to minimize credit risk exposure to trading counterparties and brokers through the use of bilateral collateral agreements (“Collateral Agreements”) with OTC derivative counterparties and through formal credit policies and monitoring procedures. TIC has a formal Credit Committee, comprised of senior professionals from different disciplines throughout TIC and its affiliates, that meets regularly to analyze the credit risks associated with the Partnership’s counterparties, intermediaries and service providers. A significant portion of the Partnership’s positions, including cash and due from brokers, are invested with or held at top tier banks and securities dealers. TIC establishes counterparty exposure limits and specifically designates which product types are approved for trading. The Partnership attempts to reduce its credit risk by establishing stringent credit terms in its legal trade documentation (i.e. ISDA agreements, master netting agreements, etc.) with its counterparties. In addition, TIC monitors exposure levels and actively moves collateral with counterparties to reduce exposure.
 
Futures and forwards are typically liquidated by entering into offsetting contracts with the same counterparty. Swaps are either liquidated or held to maturity. For these instruments the unrealized gain or loss, rather than the contract or notional amounts, represents the present value of future net cash requirements.
 
Collateral Agreements require the Partnership and its counterparties to monitor the fair value of its derivative transactions on a daily basis and pledge or pull back additional collateral as necessary. As of June 30, 2002, the Partnership has pledged no cash collateral and $25,000 cash collateral had been received. As of December 31, 2001, the Partnership had pledged $703,791 of cash collateral and no cash collateral had been received. Under these Collateral Agreements, there was no securities collateral pledged or received as of June 30, 2002 and December 31, 2001. The Partnership records cash collateral pledged as a receivable from the broker.

 
The following table summarizes June 30, 2002 and December 31, 2001 assets and liabilities resulting from unrealized gains and losses on derivative instruments included in the statements of financial condition (000’s omitted):
 
    
June 30, 2002
   
December 31, 2001
    
Assets
     
Liabilities
   
Assets
   
Liabilities
Exchange traded:
                            
Interest rate futures
   
$
62
     
—
   
$
102
   
$
 —
Foreign exchange futures
   
 
174
          
 
—
   
 
—
Equity index futures
   
 
—
     
—
   
 
—
   
 
30
Over-the-counter:
                            
Foreign exchange forwards
   
 
182
     
—
   
 
666
   
 
—
Commodity swaps
   
 
118
     
—
   
 
—
   
 
—
Equity swaps
   
 
—
     
—
   
 
643
   
 
—
Non-financial derivative instruments
   
 
—
     
—
   
 
—
   
 
31
    
    
  
  
Total
   
$
536
     
—
   
$
1,411
   
$
61
    
    
  
  
 
(8)    FINANCIAL HIGHLIGHTS
 
The following represents financial highlights of the Partnership for the three and six months ended June 30, 2002:
 
    
Three Months Ended
June 30, 2002
     
Six Months
Ended
June 30, 2002
  
Per unit operating performance:
                 
Net asset value per unit, beginning of the period
   
$
9,238.47
 
   
$
8,928.90
 
Net investment loss per unit
   
 
(216.18
)
   
 
(275.70
)
Net realized and unrealized trading gain (loss) per unit
   
 
1,501.60
 
   
 
1,870.69
 
    
  
    
 
1,285.42
 
   
 
1,594.99
 
    
  
Net asset value per unit, June 30, 2002
   
$
10,523.89
 
   
$
10,523.89
 
    
  
Total return:
                  
Total return before incentive fee
   
 
15.75
%
   
 
20.03
%
Incentive fee
   
 
(1.83
)
   
 
(2.17
)
    
  
Total return after incentive fee
   
 
13.92
%
   
 
17.86
%
    
  
Ratios to average net assets:
                  
Net investment loss before incentive fee
   
 
(0.48
)%
   
 
(0.89
)%
Incentive fee
   
 
(1.72
)
   
 
(2.02
)
    
  
Net investment loss after incentive fee
   
 
(2.20
)%
   
 
(2.91
)%
    
  
Expenses
   
 
0.91
%
   
 
1.73
%
Incentive fee
   
 
1.72
 
   
 
2.02
 
    
  
Total expenses and incentive fee
   
 
2.63
%
   
 
3.75
%
    
  
 
The per unit operating performance and ratios are computed based upon the average units outstanding and average net assets for the Limited Partner interests, (excluding TIC 401(K) plan net assets, units and related income and expenses (see Note 2)) respectively, for the three and six months ended June 30, 2002. Total return is calculated as the change in the net asset value of the Limited Partner interests for the three and six months ended June 30, 2002. The total return and ratios assessed to an individual Limited Partner may vary based on varying management and/or incentive fee arrangements and the timing of capital transactions.
 
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with the financial statements of the Partnership and related notes thereto.
 
OVERVIEW AND BUSINESS
 
The Partnership commenced operations on July 2, 1990. Following the closing of the initial offering period, the Partnership had 37 Limited Partners who subscribed for 421 units of limited partnership interest for $421,000. In addition, the General Partner purchased 400 units of general partnership interest for $400,000. The Partnership had additions of $3,459,954 and redemptions of $322,997 during the quarter ended June 30, 2002 (the “Current Quarter”). From its inception through July 1, 2002, the Partnership received total Limited Partner subscriptions and contributions of $47,282,256 and had total withdrawals of $35,780,094. 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, 2002 was $2,068,794 representing approximately 5% of the Partnership’s equity. At July 1, 2002, the Partnership had a total of 125 Limited Partners.

 
As specified in its Limited Partnership Agreement, the Partnership may accept investments from certain employee benefit plans of affiliates 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, 2002 of $3,980,828. The TIC 401(k) Plan’s equity in the Partnership as of July 1, 2002 was approximately $8,322,955 representing approximately 19.05% of the Partnership’s equity or approximately 22.77% excluding units held by the General Partner, TIC and their 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 does not charge commissions for transacting the Partnership’s foreign exchange spot and forward and commodity forward contracts.
 
CURRENT MARKET ENVIRONMENT
 
The partnership’s trading in the second quarter of 2002 was successful across a range of markets and instruments, with most trading strategies tied to weakness in the U.S. economy and U.S. equity markets. News of corporate failures, profit warnings and accounting irregularities increased volatility and created opportunities for directional trading in various markets. As these events unfolded, the partnership benefited from positions in U.S. fixed income and U.S. equity indices as well as in positions in currencies reflecting the U.S. dollar’s relative weakness to several global currencies.
 
 
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
 
The Partnership reported a net increase in net assets resulting from operations of $5,427,873 and $6,650,012 for the three and six month periods ended June 30, 2002 compared to a net increase in net assets resulting from operations of $91,354 and $2,975,026 for the three and six month periods ended June 30, 2001.
 
The following table compares Net Asset Value per Unit for the three and six months ended June 30, 2002 and 2001:
 
         
Change in Net Asset Value Per Unit
  
    
Net Asset
Value per
Unit
   
Three Months Ended
June 30
     
Six Months Ended
June 30
  
June 30, 2002
   
$
10,523.89
   
$
1,285.42
   
13.91
%
   
$
1,594.99
   
17.86
%
June 30, 2001
   
$
7,826.46
   
$
15.61
   
0.20
%
   
$
730.68
   
10.30
%
 
INVESTMENT INCOME
 
Interest income for the three and six months ended June 30, 2002 was $172,579 and $317,710 compared to the three and six months ended June 30, 2001 of $339,695 and $731,062. The Partnership earns interest income on cash and cash equivalents maintained with BPL, banks or in trading accounts and used by the Partnership as margin and collateral to engage in futures, option and forward contracts and other commodity interest contracts. The decrease in interest income was due to the lowering of interest rates by the Federal Reserve.
 
INVESTMENT EXPENSE
 
Interest expense for the three and six months ended June 30, 2002 was $6,564 and $7,262 compared to the three and six months ended June 30, 2001 of $44,824 and $54,590.
 
Brokerage commissions expense for the three and six months ended June 30, 2002 was $111,928 and $179,402 compared to the three and six months ended June 30, 2001 of $36,607 and $99,161. These expenses represent all brokerage commissions, exchange, National Futures Association and other fees incurred in connection with the execution and clearing of commodity interest trades. The increase in brokerage commissions is due to the increase in trade volume driven by the increase in assets under management. The General Partner anticipates that the Partnership will normally pay annually approximately 1% of its average Net Assets in brokerage commissions and other transaction costs and charges.
 
OPERATING EXPENSES
 
Management fees for the three and six months ended June 30, 2002 were $165,392 and $306,647 compared to the three and six months ended June 30, 2001 of $130,579 and $249,103. As management fees are earned as a percentage of the Partnership’s net assets, this increase was due to the increase in assets under management.
 
Other expenses for the three and six months ended June 30, 2002 were $41,008 and $92,116, substantially unchanged from the three and six months ended June 30, 2001 of $34,655 and $69,132.
 
NET REALIZED AND UNREALIZED GAINS/LOSSES ON TRADING ACTIVITIES
 
Net realized and unrealized trading gains and losses net of brokerage commissions from strategies that use a variety of derivative financial instruments, are recorded in the statements of operations. The following table summarizes the components (in thousands) of net realized and unrealized gains and losses, for the three and six months ended June 30, 2002 and 2001.

 
    
Three Months Ended June 30,
     
Six Months Ended June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Exchange traded :
                                    
Interest rate futures and options
   
$
918
 
   
$
(610
)
   
$
2,562
 
   
$
(106
)
Foreign exchange futures
   
 
165
 
   
 
97
 
   
 
162
 
   
 
93
 
Equity index futures
   
 
1,852
 
   
 
(334
)
   
 
1,567
 
   
 
1,391
 
Over-the-counter contracts:
                                    
Foreign exchange forwards
   
 
3,303
 
   
 
648
 
   
 
3,409
 
   
 
2,289
 
Commodity swaps
   
 
(131
)
   
 
(163
)
   
 
(29
)
   
 
(654
)
Equity index swaps
   
 
(97
)
   
 
144
 
   
 
(334
)
   
 
(215
)
Interest rate swaps
   
 
—
 
   
 
(131
)
   
 
—
 
   
 
(112
)
Non-financial derivative instruments
   
 
15
 
   
 
311
 
   
 
23
 
   
 
200
 
    
  
  
  
Total
   
$
6,025
 
   
$
(38
)
   
$
7,360
 
   
$
2,886
 
    
  
  
  
 
Since the Partnership is a speculative trader in the commodities markets, current period results are not comparable to prior period’s results. The following table illustrates the Partnership’s net realized and unrealized gains and losses as a return on average Net Assets, brokerage commissions and fees as a percentage of Net Assets, and incentive fees as percentage of net realized and unrealized gains and losses.
 
 
    
Three Months Ended,
     
Six Months Ended,
  
    
June 30, 2002
     
June 30, 2001
     
June 30, 2002
     
June 30, 2001
  
Net realized and unrealized gains and losses as a Percent of Average Net Assets
   
15.4
%
   
(0.3
)%
   
19.9
%
   
9.68
%
Brokerage commissions & fees as a Percent of Net Assets
   
0.3
%
   
0.1
%
   
0.5
%
   
0.3
%
Incentive fees as a Percent of net realized and unrealized gains and losses
   
9.3
%
   
0.0
%
   
8.4
%
   
9.5
%
 
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 during inflationary periods. Since the commencement of the Partnership’s trading operations in July 1990, inflation has not been a major factor in the Partnership’s operations.
 
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 derivative instruments trading. Since the Partnership’s sole purpose is to trade in derivative instruments, it is anticipated that the Partnership will continue to maintain substantial liquid assets for margin purposes.
 
Cash and cash equivalents are part of the Partnership’s inventory. Cash and cash equivalents of $41,826,108 and $29,804,258 represented approximately 93% and 89% of the Partnership’s assets as of June 30, 2002 and December 31, 2001. The cash and cash equivalents satisfy the Partnership’s need for cash on both a short term and long term basis.
 
Since futures contract trading generates a significant percentage of the Partnership’s income, any restriction or limit on that trading may render the Partnership’s investment in futures contracts illiquid. Most commodity exchanges limit fluctuations in certain commodity contract prices during a single day by regulations referred to as a “daily price fluctuation limit” or “daily limits”. Pursuant to such regulations, during a single trading day, no trade may be executed at a price beyond the daily limits. If the price for a contract or a particular commodity has increased or decreased by an amount equal to the “daily limit,” positions in such contracts can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit. Commodity interest contract prices have occasionally moved the daily limit for several consecutive days with little or no trading. Such market conditions could prevent the Partnership from promptly liquidating its commodity positions.
 
CAPITAL RESOURCES
 
The Partnership does not have, nor does it expect to have, any fixed assets. Redemptions and additional sales of Units in the future will impact the amount of funds available for investment in commodity interest contracts in subsequent periods. As the amount of capital changes, the size of the positions taken by the Partnership is adjusted.
 
The Partnership is currently open to new investments, which can be made quarterly. Such investments are limited to employees of TIC and its principals or its affiliates and certain employee benefit plans, including, but not limited to, the TIC 401(k) Plan.
 
 
CRITICAL ACCOUNTING POLICIES
 
The Partnership’s financial statements are prepared in conformity with accounting principles generally accepted in the United States, many of which require the use of management estimates and assumptions. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent; however, actual results could differ from these estimates.
 
MARKET VALUE
 
The Partnership values its derivative instruments at market value, with the accompanying gains and losses reflected in the statement of operations. The determination of market value is generally based upon independent market values when available from major exchanges or, if none are available, from independent broker quotations. Additionally, in determining market value, management utilizes pricing models with market quoted inputs and also considers closing exchange prices of related instruments, time value of money, volatility factors of the underlying instruments, and other market conditions.
 
For additional information on the Partnership's significant accounting policies, see Note 2 to the financial statements.
 
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
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 derivative instruments. For derivative instruments, the unrealized gain or loss, rather than the contract notional amounts, represents the approximate future cash requirements.

 
The Partnership is subject to market and credit risk associated with changes in the value of underlying financial instruments, as well as the loss of appreciation on certain instruments, if its counterparties fail to perform, which may be in excess of the amounts recognized in the statements of financial condition. As a writer of options, the Partnership bears the risk of unfavorable changes in the price of the underlying instrument which may be in excess of the premium received.
 
TIC takes an active role in managing and controlling the Partnership’s market and credit risk and has established formal control procedures that are reviewed on an ongoing basis.
 
In order to control the Partnership’s market exposure, TIC applies risk management guidelines and policies designed to protect the Partnership’s capital. These guidelines and policies include quantitative and qualitative criteria for evaluating the appropriate risk levels for the Partnership. The Tudor Management Committee, together with the TIC’s Risk Management Department assesses and evaluates the Partnership’s potential exposures to market risk based on analyses performed by the Risk Management Department. The Department’s responsibilities include: focusing on the positions taken in various instruments and markets globally; ascertaining that all such positions are accurately reflected on the Partnership’s position reports; and evaluating the risk exposure associated with all of those positions. The Risk Management Department uses a statistical technique known as Value at Risk (“VaR”) to assist the Partnership in measuring its exposure to market risk related to its trading positions. The VaR model is a proprietary system and is one of several analytical tools used by TIC to monitor and review the market risk exposure of the Partnership’s trading portfolios. The VaR model projects potential losses of the portfolio based on a historical simulation methodology which uses a two-year observation period of hypothetical daily changes in trading portfolio value and a one-day holding period.
 
The following table illustrates the VaR for each component of market risk as of June 30, 2002. The dollar values represent the VaR at the 99% confidence level.
 
Risk Factors
   
June 30, 2002
Interest rate futures
   
$
490,900
Foreign exchange futures
   
 
1,100,066
Equity index futures
   
 
53,871
Non-financial derivative instruments
   
 
52,274
    
    
$
1,697,111
    
 
The following table illustrates the Partnership’s high, low and average VaR during the six months ended June 30, 2002 for each component of market risk noted above:
 
Risk Factors
   
High
   
Low
   
Average
Interest rate futures
   
$
1,051,417
   
$
334,462
   
$
592,598
Foreign exchange futures
   
 
1,424,552
   
 
832,645
   
 
547,120
Equity index futures
   
 
643,822
   
 
252,118
   
 
269,723
Non-financial derivative instruments
   
 
173,062
   
 
48,428
   
 
126,326
    
  
  
    
$
3,292,853
   
$
1,467,653
   
$
1,535,767
    
  
  
 
At June 30, 2002, the Partnership’s primary market exposure was to foreign exchange instruments.
 
Changes in interest rates directly affect the price of interest rate futures and may, indirectly, affect the price of foreign exchange futures and equity index futures. At June 30, 2002, the Partnership’s interest rate exposure was primarily to interest rate fluctuations in the United States and other G-7 countries.
 

The Partnership’s foreign exchange contract exposure is as a result of fluctuations in exchange rates. Exchange rates fluctuate as a result of many factors including interest rates, rates of inflation and government policies and programs.
 
The Partnership’s equity index exposure was primarily attributable to equity price risk in the United States and other G-7 countries. Stock index futures traded by the Partnership are principally limited to futures on broad-based equity indices.
 
In additions to exchange traded instruments, the Partnership is exposed to various over-the-counter derivative instruments including swaps and spot and forward contracts. As discussed below, in addition to having price risk that may be similar to exchange traded instruments, over-the-counter instruments may result in the Partnership having credit risk associated with its over-the-counter contract counterparties.
 
Cash and due from brokers held principally at high credit quality U.S. banks and securities dealers as well as a few 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 contracts are executed. Forward contracts are generally settled with the counterparty two days after the trade.
 
TIC attempts to minimize credit risk exposure to trading counterparties and brokers through formal credit policies and monitoring procedures. TIC has established a formal Credit Committee, comprised of senior managers from different disciplines, that meets regularly to analyze the credit risks associated with the Partnership’s counterparties, intermediaries and service providers. A significant portion of the Partnership’s positions, including cash and cash equivalents, are invested with or held at institutions of high credit standing. The Credit Committee establishes counterparty exposure limits and specifically designates which product types are approved for trading.
 
TIC also attempts to minimize the Partnership’s credit risk exposure to trading counterparties by entering into bilateral collateral agreements. These agreements typically include specialized margin terms, collateral thresholds and master agreements with certain counterparties that include netting provisions that incorporate the right of “offset” across OTC contracts with such counterparties. Accordingly, TIC monitors exposure levels of the Partnership and actively moves collateral with counterparties to reduce exposure.
 
Notwithstanding the risk monitoring and credit review performed by TIC with respect to its counterparties, including BPL, there is always a risk of non-performance.
 
Generally, financial contracts can be closed out at TIC’s discretion. An illiquid or closed market, however, could prevent the close-out of positions.
 
 
PART II – OTHER INFORMATION
 
ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS
 
The Partnership initially registered 10,000 Units of Limited Partnership Interests 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 Interests on June 9, 1998 (Commission file number 333-52543). Of the 20,000 Units that have been registered, 12,882 Units having an aggregate value of $47,282,256 have been sold through July 1, 2002.

 
ITEM 5.    OTHER INFORMATION
 
 
The Partnership has included in this Form 10-Q filing, and from time to time its management may make, statements which may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only the Partnership's beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the Partnership's or its management's control. Statements preceded by, followed by, or that include the words ''expect,'' ''will,'' ''may,'' ''could,'' ''intend,'' ''anticipate,'' ''believe,'' and ''should'', involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or those of the industry in which we operate, to be materially different from any expected future results, performance or achievements expressed or implied in these forward-looking statements. It is possible that its actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the Partnership's specific forward-looking statements include:
 
 
•
 
a decline in general economic conditions;
 
•
 
a decline in liquidity in global markets generally or certain sectors and instruments within such markets;
 
•
 
material changes in government regulations relating to contracts, instruments, or participants in various markets in which the partnership is active;
 
•
 
reduced availability of credit and other forms of leverage from counterparties, banks, and dealers in various markets in which the Partnership is active;
 
•
 
default by counterparties; and
 
•
 
increased volatility in the capital markets.
 
Additional information regarding these and other important factors that could cause actual results to differ from those in the Partnership's forward-looking statements is contained in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The Partnership hereby incorporates by reference those risk factors into this Form 10-Q. Other additional information regarding important factors that cause results to differ from those in the Partnership's forward looking statements are contained in the Partnership's periodic filings with the Securities & Exchange Commission.
 
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K
 
(a)  Exhibits
 
99.1
   
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2
   
Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
(b)  Reports on Form 8-K
 
On June 17, 2002, the Partnership filed a Form 8-K in which it reported that it had dismissed Arthur Andersen LLP as its independent auditor. In the same filing, the Partnership reported that it had engaged Ernst &Young LLP as its independent auditor as successor to Arthur Andersen LLP.
 

 
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 Executive Officer of the
General Partner
 
 
By:
  
/S/     JOHN R. TORELL
   
John R. Torell,
Chief Financial Officer of the
General Partner
 
August 14, 2002