10-Q 1 a2165559z10-q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2005 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 000-50565 S&P MANAGED FUTURES INDEX FUND, LP (Exact name of registrant as specified in its charter) DELAWARE 90-0080448 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) C/O REFCOFUND HOLDINGS, LLC 200 LIBERTY STREET, TOWER A NEW YORK, NEW YORK 10281 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (212) 693-7000 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 for 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. Yes /X/ No / / Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes / / No /X/ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes / / No /X/ S&P MANAGED FUTURES INDEX FUND, LP (A DELAWARE LIMITED PARTNERSHIP) TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements Statements of Assets and Liabilities as of September 30, 2005 (unaudited) 1 and December 31, 2004 Statements of Operations for the three months ended September 30, 2005 and September 30, 2004, and for the nine months 2 ended September 30, 2005 and for the period from March 15, 2004 (Commencement of Operations) to September 30, 2004 (unaudited) Statements of Changes in Net Assets for the nine months ended September 30, 2005, 3 and for the period March 15, 2004 (Commencement of Operations) to September 30, 2004 (unaudited) Statements of Cash Flows for the nine months ended September 30, 2005 and for the period March 15, 2004 (Commencement of 4 Operations) to September 30, 2004 (unaudited) Schedule of Investments as of September 30, 2005 (unaudited) 5 Schedule of Investments as of December 31, 2004 6 Notes to Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 26 PART II - OTHER INFORMATION Item 1. Legal Proceedings 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27 Item 6. Exhibits 28 SIGNATURES 29
S&P MANAGED FUTURES INDEX FUND, LP (A DELAWARE LIMITED PARTNERSHIP) STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
SEPTEMBER 30, 2005 DECEMBER 31, 2004 ASSETS: Cash $ 826,299 $ 278,393 Investments in Index SPC, at fair value (cost $52,175,165 and $40,190,165, respectively) 52,777,796 42,830,003 Investment made in advance - 2,350,000 Receivable from General Partner 17,096 83,812 ------------------ ----------------- TOTAL ASSETS 53,621,191 45,542,208 ------------------ ----------------- LIABILITIES: Subscriptions received in advance 521,864 2,382,786 Accrued expenses 341,354 213,777 Management fees payable 140,881 135,838 Redemption payable 448,253 76,093 Redemption fee payable 7,267 1,722 Due to investors - 8,250 ------------------ ----------------- TOTAL LIABILITIES 1,459,619 2,818,466 ------------------ ----------------- NET ASSETS $ 52,161,572 $ 42,723,742 ================== ================= CLASS 1 Number of Partnership Units Outstanding 52,385.425 38,856.005 Net Assets $ 43,373,369 $ 35,111,145 Net Asset Value per Partnership Unit $ 828.71 $ 903.62 CLASS 2 Number of Partnership Units Outstanding 10,309.552 8,314.206 Net Assets $ 8,788,203 $ 7,612,597 Net Asset Value per Partnership Unit $ 852.43 $ 915.61
The accompanying notes are an integral part of these financial statements. 1 STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004, AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND FOR THE PERIOD FROM MARCH 15, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 (UNAUDITED)
MARCH 15, 2004 (COMMENCEMENT OF THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 OPERATING EXPENSES: Management fees Class 1 $ 130,698 $ 214,481 $ 911,816 $ 310,523 Class 2 26,356 30,314 117,991 46,191 Servicing Fees - Class 1 264,428 264,428 Administration fees Class 1 51,326 51,073 151,385 135,441 Class 2 10,440 15,068 33,007 39,100 Professional fees 38,750 29,474 116,252 88,422 Other expenses 4,735 10,026 14,203 26,215 ------------------ ------------------ ------------------ ------------------ Total expenses 526,733 350,436 1,609,082 645,892 ------------------ ------------------ ------------------ ------------------ Less waiver of management fees by General Partner (48,379) (53,016) (73,302) (101,749) ------------------ ------------------ ------------------ ------------------ NET INVESTMENT LOSS (478,354) (297,420) (1,535,780) (544,143) ------------------ ------------------ ------------------ ------------------ INCREASE (DECREASE) IN EQUITY IN INDEX SPC 1,818,535 738,101 (2,037,207) (845,151) ------------------ ------------------ ------------------ ------------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,340,181 $ 440,681 $ (3,572,987) $ (1,389,294) ================== ================== ================== ==================
The accompanying notes are an integral part of these financial statements. 2 STATEMENTS OF CHANGES IN NET ASSETS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND FOR THE PERIOD FROM MARCH 15, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 (UNAUDITED)
MARCH 15, 2004 (COMMENCEMENT OF NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS: Net investment loss $ (1,535,780) $ (544,143) Decrease in equity in Index SPC (2,037,207) (845,151) ------------------ ------------------ Net decrease in net assets resulting from operations (3,572,987) (1,389,294) ------------------ ------------------ INCREASE IN NET ASSETS FROM CAPITAL TRANSACTIONS: Proceeds from issuance of partnership units Class 1 13,615,785 27,454,582 Class 2 3,489,307 7,736,326 Redemption of partnership units Class 1 (2,337,414) (301,584) Class 2 (1,756,861) (967,374) ------------------ ------------------ Total increase in net assets from capital transactions 13,010,817 33,921,950 ------------------ ------------------ NET INCREASE IN NET ASSETS 9,437,830 32,532,656 NET ASSETS AT BEGINNING OF PERIOD 42,723,742 - ------------------ ------------------ NET ASSETS AT END OF PERIOD $ 52,161,572 $ 32,532,656 ================== ==================
The accompanying notes are an integral part of these financial statements. 3 STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND FOR THE PERIOD FROM MARCH 15, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 (UNAUDITED)
MARCH 15, 2004 (COMMENCEMENT OF NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 CASH USED IN OPERATING ACTIVITES: Net decrease in net assets resulting from operations $ (3,572,987) $ (1,389,294) Adjustments to reconcile net decrease in net assets from operations to net cash used in operating activities: Decrease in equity in Index SPC 2,037,207 845,151 Changes in operating assets and liabilities: Cost of investments in Index SPC (11,985,000) (33,809,165) Investment made in advance 2,350,000 (1,345,000) Receivable from General Partner 66,716 (60,544) Accrued expenses 127,577 145,907 Management fees payable 5,043 102,972 Redemption fee payable 5,545 2,009 Due to investors (8,250) - ------------------ ------------------ Net cash used in operating activities (10,974,149) (35,507,964) ------------------ ------------------ CASH PROVIDED BY FINANCING ACTIVITIES: Proceeds from issuance of partnership units 15,244,170 36,913,002 Redemption of partnership units (3,722,115) (946,608) ------------------ ------------------ Net cash provided by financing activities 11,522,055 35,966,394 ------------------ ------------------ Net increase in cash 547,906 458,430 CASH, BEGINNING OF PERIOD 278,393 - ------------------ ------------------ CASH, END OF PERIOD $ 826,299 $ 458,430 ================== ==================
The accompanying notes are an integral part of these financial statements. 4 S&P MANAGED FUTURES INDEX FUND, LP (A DELAWARE LIMITED PARTNERSHIP) SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2005 (UNAUDITED)
% OF INVESTMENTS IN INDEX SPC NET ASSETS FAIR VALUE ------------------------------------------------------------------------------------------------------ INDEX CONSTITUENTS SPhinx Managed Futures (Aspect) Segregated Portfolio 7.95% $ 4,148,026 SPhinx Managed Futures (Beach) Segregated Portfolio 7.28% 3,799,483 SPhinx Managed Futures (Drury Capital) Segregated Portfolio 6.47% 3,372,976 SPhinx Managed Futures (Campbell FME Large) Segregated Portfolio 8.28% 4,321,091 SPhinx Managed Futures (Chesapeake Capital) Segregated Portfolio 7.35% 3,835,362 SPhinx Managed Futures (Dunn) Segregated Portfolio 6.31% 3,293,380 SPhinx Managed Futures (Eclipse) Segregated Portfolio 6.94% 3,619,204 SPhinx Managed Futures (Graham Global Investment) Segregated Portfolio 7.13% 3,718,235 SPhinx Managed Futures (Hyman Beck) Segregated Portfolio 5.96% 3,107,353 SPhinx Managed Futures (JWH) Segregated Portfolio 7.42% 3,870,075 SPhinx Managed Futures (Millburn) Segregated Portfolio 7.93% 4,133,784 SPhinx Managed Futures (Rotella) Segregated Portfolio 8.24% 4,299,156 SPhinx Managed Futures (Argo Willowbridge) Segregated Portfolio 6.06% 3,162,057 SPhinx Managed Futures (Winton) Segregated Portfolio 7.86% 4,097,614 ---------- ------------- TOTAL 101.18% $ 52,777,796 ========== =============
All investments in Index SPC have directional/tactical investment objective. Redemptions from the Index SPC are permitted semi-monthly. The accompanying notes are an integral part of these financial statements. 5 SCHEDULE OF INVESTMENTS DECEMBER 31, 2004
% OF INVESTMENTS IN INDEX SPC NET ASSETS FAIR VALUE ------------------------------------------------------------------------------------------------------ INDEX CONSTITUENTS SPhinX Managed Futures (Argo Willowbridge) Segregated Portfolio 8.48% $ 3,623,423 SPhinX Managed Futures (Aspect) Segregated Portfolio 6.17% 2,634,776 SPhinX Managed Futures (Beach) Segregated Portfolio 6.77% 2,891,362 SPhinX Managed Futures (Campbell FME Large) Segregated Portfolio 7.60% 3,247,970 SPhinX Managed Futures (Chesapeake Capital) Segregated Portfolio 7.14% 3,048,942 SPhinX Managed Futures (Drury Capital) Segregated Portfolio 7.41% 3,167,826 SPhinX Managed Futures (Dunn) Segregated Portfolio 6.45% 2,755,206 SPhinX Managed Futures (Eclipse) Segregated Portfolio 6.09% 2,603,695 SPhinX Managed Futures (Graham Global Investment) Segregated Portfolio 7.35% 3,141,712 SPhinX Managed Futures (Hyman Beck) Segregated Portfolio 6.42% 2,741,850 SPhinX Managed Futures (JWH) Segregated Portfolio 8.88% 3,795,017 SPhinX Managed Futures (Millburn) Segregated Portfolio 6.73% 2,876,523 SPhinX Managed Futures (Rotella) Segregated Portfolio 6.51% 2,783,102 SPhinX Managed Futures (Winton) Segregated Portfolio 8.24% 3,518,599 ---------- ------------- TOTAL 100.24% $ 42,830,003 ========== =============
All investments in Index SPC have directional/tactical investment objective. Redemptions from the Index SPC are permitted semi-monthly. The accompanying notes are an integral part of these financial statements. 6 S&P MANAGED FUTURES INDEX FUND, LP (A DELAWARE LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. NATURE OF BUSINESS AND ORGANIZATION ORGANIZATION - S&P Managed Futures Index Fund, LP (the "Fund") was organized as a limited partnership on May 13, 2003 under the Delaware Revised Uniform Limited Partnership Act, as amended, and started operations on March 15, 2004. In accordance with the Amended and Restated Limited Partnership Agreement, the Fund is organized as a single series of limited partnership units (the "Units") which are offered in two classes - Class 1 and Class 2 (each, a "Class"). Prior to July 1, 2005, Class 1 and 2 were called Class A and B, respectively. RefcoFund Holdings, LLC is the General Partner of the Fund ("RFH" or the "General Partner"). The General Partner has the sole authority and responsibility for managing the operations of the Fund and directing the investment of the Fund's assets. RFH has retained the services of PlusFunds Group, Inc. ("PlusFunds") as Sub-Investment Manager to oversee the day-to-day investment management functions for the Fund. The Fund is designed to seek investment returns that substantially track the Standard & Poor's Managed Futures Index (the "Index"), before expenses of the Fund. The General Partner will pursue the Fund's investment objective by allocating substantially all of the Fund's assets to SPhinX(TM) Managed Futures Fund SPC (the "Index SPC"), which is a Cayman Islands segregated portfolio company. The Index SPC is designed to track the Index, and thus provide the Fund's limited partners with exposure to a broad cross section of systematic managed futures strategies through a single investment. The Index SPC allocates its assets to portfolio managers (the "Portfolio Managers") that generally employ a broad range of systematic trading strategies in the futures markets. Other markets, such as the interbank foreign exchange market, may be used as well. Standard & Poor's has granted a license to PlusFunds and RFH to utilize the Index in connection with the Index SPC and the Fund. The Fund will be terminated and dissolved upon the occurrence of any one of the following events: (1) limited partners owning more than 50% of the outstanding Units voting to dissolve the Fund; (2) the General Partner ceasing to be general partner and no new general partner being appointed; or (3) the continued existence of the Fund becoming unlawful. BISYS-RK Alternative Investment Services, Inc. ("BISYS-RK") acts as the administrator, transfer agent and registrar of the Fund. BISYS-RK also provides certain accounting and administrative services to the Fund. The Units are offered by Refco Securities, LLC (the "Selling Agent"), an affiliate of the General partner and a broker-dealer registered with the United States Securities and Exchange Commission, and by any additional selling agents who may be engaged from time to time on behalf of the Fund. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund. BASIS OF PRESENTATION - The accompanying unaudited financial statements of the Fund have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of 7 Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the financial condition and results of operations of the Fund for the period presented have been included. SECURITIES VALUATION - The economic interest of investors in the Units ultimately resides in the Index SPC as allocated to the Portfolio Managers of the Index. This investment is valued on a semi-monthly basis and represents the net asset value of the assets allocated to the Portfolio Managers. Such net asset value is derived after valuing the assets allocated to the Portfolio Managers and deducting expenses at the Index SPC level, including management fees and incentive allocations to the Portfolio Managers. The Fund is allocated realized and unrealized gains and net investment income from the Index SPC in proportion to its ownership in the Index SPC. This is reflected in the statement of operations as "increase (decrease) in equity in Index SPC." Management fees payable to the Portfolio Managers range from 1.00% to 2.50% per annum of the assets allocated to a Portfolio Manager. Each Portfolio Manager is eligible to receive performance based compensation of 15% to 25% of net trading gain. INVESTMENT TRANSACTIONS - The Fund records subscriptions and redemptions related to its investment in the Index SPC on the transaction date. CASH - The Fund considers all highly liquid investments with a maturity of three months or less when purchased to be cash and cash equivalents. EXPENSES - In accordance with the Amended and Restated Limited Partnership Agreement, the Fund will be charged for certain expenses and such expenses will be allocated proportionately among the partners. The Fund is responsible for administrative, ongoing offering expenses and operating expenses, including but not limited to legal and accounting fees, and any taxes or extraordinary expenses payable. All expenses are recorded on an accrual basis. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. INCOME TAXES - Federal income taxes are not provided as each partner is individually liable for the taxes, if any, on its share of the Fund's taxable income items including capital gains, interest, dividends, and deductions. In accordance with the Amended and Restated Limited Partnership Agreement, the limited partners may also be subject to various state and other taxes. 3. SUBSCRIPTIONS AND REDEMPTIONS Units are issued upon subscription into and redeemed through redemption from the Fund. Subscriptions for either Class may be made as of the 1st and 16th day of the month (the "Offering Date") at net asset value per Unit. If either day is not a business day, then the subscription may be made as of the next business day. The net asset value per Unit of each Class is determined by dividing the net assets of each Class by the number of Units of that Class outstanding on the date the calculation is being performed. 8 The Units may generally be redeemed as of the 15th day and the last day of each calendar month, subject to certain restrictions and qualifications, upon at least 10 business days' prior written notice to the General Partner. The General Partner may declare additional redemption dates upon notice to the limited partners and may, in unusual circumstances, permit some, or all, limited partners to redeem as of dates other than the end of the month. The General Partner may not be able to make timely payments with respect to redemptions due to the Fund's inability to liquidate its investment in the Index SPC on a timely basis. Redemptions of interests in the Index SPC by the Fund as of any particular redemption date cannot exceed 20% of the Fund's investment in the Index SPC as of that date unless the Index SPC has received at least 15 business days' notice prior to a redemption date. A redemption fee payable to RFH of 2% of the net asset value per Class 1 Unit applies if a Class 1 Unit is redeemed within 12 months of its original purchase. However, the redemption fee is reduced by 1/24th of 2%, or 0.08333%, on the 15th day of the month and the last business day of each month following the date the units were purchased. The Class 2 Units are not subject to a redemption fee. Class A units purchased on or after June 30, 2004 and prior to July 1,2005 will pay a redemption fee of 3% of net asset value per Class 1 unit if these units are redeemed within 12 months of the date of their original purchase The activity of the Units during the period January 1, 2005 to September 30, 2005 was as follows:
CLASS 1 CLASS 2 ---------------------------------------------------------------------------------- Issued and outstanding at January 1, 2005 38,856.005 8,314.206 Issuance of additional units during the period 16,434.177 4,115.228 Redemption of units during the period (2,904.757) (2,119.882) ------------------------- Issued and outstanding at September 30, 2005 52,385.425 10,309.552 -------------------------
The activity of the Units during the period March 15, 2004 (Commencement of Operations) to September 30, 2004 was as follows:
CLASS 1 CLASS 2 ---------------------------------------------------------------------------------- Issued and outstanding at March 15, 2004 - - Issuance of additional units during the period 31,717.290 8,697.485 Redemption of units during the period (339.922) (1,025.977) ------------------------- Issued and outstanding at September 30, 2004 31,377.368 7,671.508 -------------------------
4. RELATED PARTY TRANSACTIONS Refco Securities, LLC, the Selling Agent of the Fund, is an affiliate of the General Partner. Refco LLC, an affiliate of the General Partner and the Selling Agent, acts as futures commission merchant for the Index SPC, and in such capacity provides execution, clearing and margin services in connection with futures and commodities trading activities. Refco Capital Markets, Ltd., also an affiliate of RFH, acts as the dealer for the underlying investments of the Index SPC for currency trading. 9 The Fund's selling agents are advanced from the General Partner an initial service fee equal to 2% of the purchase price per Class 1 Unit at the time that the Class 1 Unit is sold for services provided during the first 12 months of ownership. The General Partner is reimbursed monthly by the Fund over the following 12 - month period. Class 1 Units purchased on or after June 30, 2004 and prior to July 1, 2005 pay an initial service fee to the General Partner of 2.9% annually of net assets. In the event Class 1 units are redeemed within the 12 - month period following the purchase, the Fund's obligation to reimburse the General Partner terminates and no further payments are made. Prior to July 1, 2005, the Fund's selling agents received from the General Partner upfront selling commissions equal to 3% of the purchase price of the Class 1 Units and ongoing service fees of 2% commencing in the 13th month after the sale. After July 1, 2005, the Fund will also pay to the selling agents with respect to the Class 1 Units, ongoing service fees beginning in the 13th month following the purchase of Class 1 Units equal to 0.167% of the Class 1 Units' month-end net assets (a 2.00% annual rate). The Class 2 Units are not subject to any initial or ongoing servicing fees. No selling commissions will be paid from the proceeds of subscriptions. The following is a summary of commissions, initial service fees and redemption fees earned by RFH:
MARCH 15, 2004 (COMMENCEMENT OF THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 --------------------------------------------------------------------------------------------------------------- Upfront Commissions $ 0 $ 155,047 $ 510,844 $ 224,475 Initial Service Fees $ 172,598 $ 0 $ 172,598 $ 0 Redemption Fees $ 9,366 $ 5,623 $ 16,244 $ 6,261
Refco Group Ltd., LLC, the parent of the General Partner, paid the organizational and initial offering expenses. RFH receives a management fee of 1.25% annually of the Class 1 and 2 net asset value of the Fund, calculated daily and paid monthly in arrears, in exchange for providing ongoing advisory and general management services. All fees paid to PlusFunds for sub-investment management services are paid by RFH. RFH may voluntarily waive a portion of its management fee in its sole discretion. Prior to July 1, 2005 RFH received management fees of 4.15% and 2.15% annually of the Class 1 and Class 2 Units, respectively. The Amended and Restated Limited Partnership Agreement and/or guidelines of state securities regulators limit the fees that are paid by the Fund (the "Expense Cap"). From commencement of operations through September 30, 2005 aggregate annual fees and expenses based on the Fund's net assets could not exceed 6% of net assets per year (1/2 of 1% per month). This Expense Cap included management fees and customary and routine administrative expenses of the Fund but did not include legal and accounting expenses or extraordinary expenses. Effective July 1, 2005, the Fund implemented the following voluntary expense caps: the management fee payable to the General Partner and the operating expenses (excluding service fees) of the Fund are limited to an aggregate of 1.70% in respect to the Class 1 and Class 2 Units calculated on the net assets before the application of fees. To the extent that the monthly management fee payable to the General Partner and operating expenses (excluding service fees) of the Fund exceed the above mentioned limits, the General Partner will waive its management fee of 1.25% with respect to the Class 1 and 2 Units. If, after the deduction of the management fee, the expenses of the Fund remain above 1.70% for the Class 1 and Class 2 Units, the General Partner will reimburse the Fund for such expenses to bring them within the limits stated above. Prior to July 1, 10 2005, Class 1 and Class 2 Units were subject to a voluntary expense cap of 4.95% and 2.95%, respectively, calculated on the net assets before the application of fees. The reimbursements for the periods ended September 30, 2004 and 2005 are set forth on the Statement of Operations. As of December 31, 2004 and September 30, 2005, the General Partner held 491.8988 Class 2 Units of the Fund totaling $450,387 and 697.8224 Class 2 Units of the Fund totaling $594,845 respectively. 5. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which contain general indemnification provisions. The Fund's maximum exposure under these arrangements is unknown as the potential exposure involves future claims that may be made against the Fund. Based upon the prior experience of the General Partner, the General Partner expects the risk of loss to be remote. 6. DERIVATIVE FINANCIAL INSTRUMENTS By investing in the Index SPC, the Fund will be subject to all of the risks associated with the Index SPC's investments and trading. The Index SPC may invest in derivative instruments, which include futures, forwards, swaps or options, or other financial instruments with similar characteristics. All derivatives are reported at fair value and changes in value are reflected in the net asset value of the Index SPC. Market Risk - Derivative instruments involve varying degrees of off-balance sheet market risk. Changes in the level or volatility of interest rates, foreign currency exchange rates or the market values of the financial instruments or commodities underlying such derivative instruments may result in changes in the Index SPC's net unrealized profit (loss) on such derivative instruments. The Index SPC's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Index SPC as well as the volatility and liquidity in the markets in which such derivative instruments are traded. Credit Risk - The Index SPC has credit risk associated with counterparty non-performance. The risks associated with exchange-traded contracts are typically perceived to be less than those associated with the over-the-counter transaction (non-exchange traded), because exchanges typically provide clearing house arrangements in which the collective credit (which is, in some cases, limited in amount) of the members of the exchange is pledged to support the financial integrity of the exchange. In over-the-counter transactions, on the other hand, traders must rely solely on the credit of the respective individual counterparties. If the Index SPC's clearing broker becomes bankrupt or insolvent, or otherwise defaults on its obligations to the Index SPC, the Index SPC may not receive all amounts owed to it in respect to its trading, despite the clearinghouse fully discharging all of its obligations. Furthermore, in the event of the bankruptcy of the clearing broker, the Index SPC could be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker's combined customer accounts, even though property specifically traceable to the Index SPC was held by the clearing broker. See Note 8, "Subsequent Events" for more information about the Index SPC's futures clearing merchant. 11 7. FINANCIAL HIGHLIGHTS
CLASS 1 --------------------------------------------------------------------------------- MARCH 15, 2004 (COMMENCEMENT OF THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 ---------------------------------------------------------------------------------------------------------------------------- PER PARTNERSHIP UNIT DATA: NET ASSET VALUE, BEGINNING OF PERIOD $ 807.31 $ 829.17 $ 903.62 $ 1,000.00 Net investment loss (7.48) (10.21) (28.83) (28.74) Increase (decrease) in equity in Index SPC 28.88 12.83 (46.08) (139.47) --------------------------------------------------------------------------------- Net increase (decrease) resulting from operations 21.40 2.62 (74.91) (168.21) Distributions to partners - - - - --------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 828.71 $ 831.79 $ 828.71 $ 831.79 ================================================================================= TOTAL RETURN 2.65% 0.32% (8.29)% (16.82)% RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Pre-waiver expenses 4.06% 5.77% 4.85% 7.03% Waiver by General Partner (0.35)% (0.79)% (0.15)% (1.13)% After-waiver expenses 3.71% 4.98% 4.70% 5.90% Net investment loss (3.71)% (4.98)% (4.70)% (5.90)% CLASS 2 --------------------------------------------------------------------------------- MARCH 15, 2004 (COMMENCEMENT OF THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED OPERATIONS) TO SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 SEPTEMBER 30, 2005 SEPTEMBER 30, 2004 ---------------------------------------------------------------------------------------------------------------------------- PER PARTNERSHIP UNIT DATA: NET ASSET VALUE, BEGINNING OF PERIOD $ 826.27 $ 831.79 $ 915.61 $ 1,000.00 Net investment loss (3.53) (6.16) (15.83) (22.16) Increase (decrease) in equity in Index SPC 29.69 12.98 (47.35) (139.23) --------------------------------------------------------------------------------- Net increase (decrease) resulting from operations 26.16 6.82 (63.18) (161.39) Distributions to partners - - - - --------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 852.43 $ 838.61 $ 852.43 $ 838.61 ================================================================================= TOTAL RETURN 3.17% 0.82% (6.90)% (16.14)% RATIOS TO AVERAGE NET ASSETS (ANNUALIZED): Pre-waiver expenses 2.09% 3.83% 2.73% 5.23% Waiver by General Partner (0.38)% (0.88)% (0.20)% (0.74)% After-waiver expenses 1.71% 2.95% 2.53% 4.49% Net investment loss (1.71)% (2.95)% (2.53)% (4.49)%
The per Unit amounts were computed using an average number of Units outstanding during the periods. Total returns are calculated for each class of partners taken as a whole, based on the change in fair value during the periods of net assets of each class adjusted for subscriptions. Individual partner's return may vary from these returns based on the timing of capital transactions. Net investment loss excludes decrease in equity in the Index SPC and is the partners' share of expenses. Expenses include the partners' share of Fund management fees and other operating expenses. The 12 expense ratios exclude those expenses charged by the underlying investment vehicles that were recorded by the Index SPC. 8. SUBSEQUENT EVENTS On October 10, 2005, Refco, Inc., the ultimate parent of RFH, announced that it had discovered through an internal review a receivable owed to Refco, Inc., by an entity controlled by Phillip R. Bennett, the then Chief Executive Officer and Chairman of the Board of Directors of Refco, Inc., in the amount of approximately $430 million. Mr. Bennett has been charged with securities fraud in connection with this matter and various actions have been filed against Refco, Inc. Thereafter, on October 13, 2005, Refco, Inc., announced that the liquidity within Refco Capital Markets, Ltd. ("RCM") was no longer sufficient to continue operations, and that RCM had imposed a fifteen (15) day moratorium on all of its activities in an attempt to protect the value of that enterprise. On October 18, 2005, Refco, Inc. and RCM filed for bankruptcy protection in the Southern District of New York. None of the Fund, RFH or the Index SPC, were covered by the filing. Although the Fund's assets are not held directly with Refco, Inc., one of Refco, Inc.'s affiliated entities, Refco, LLC, did indirectly serve as the futures commission merchant through the Fund's investment in the Index SPC. Refco, LLC was not covered by the bankruptcy filing. In addition, a portion of the Fund's assets (less than 3%, based upon net assets as of October 13, 2005) was indirectly exposed to RCM through a number of foreign currency contracts held within the portfolios of the Index SPC. While RCM has unwound any outstanding foreign currency contracts with the Index SPC, the Index SPC does not expect to be able access those assets in the near future. In light of the events outlined herein, the Index SPC moved the majority of the Fund's assets from Refco, LLC to Lehman Brothers, Inc. and its affiliated entities ("Lehman") to act as futures clearing merchant. On or about October 17, 2005, the Index SPC had transferred the majority of its assets to Lehman. The Index SPC is in the process of transferring any remaining assets held at Refco LLC to Lehman in due course. Pending the resolution of the Fund's claim against RCM, the Fund will no longer have assets on deposit with RCM. RFH does not believe that the bankruptcy filings of Refco, Inc. and RCM will have a material impact upon the operations of the Fund or the Index SPC, or either's ability to satisfy a request for redemption. In this regard, the operations of the Fund and the Index SPC, including the trading activities of the underlying asset managers, have continued with minimal interruption. The Index SPC has informed the Fund that, with respect to redemptions made as of October 14, 2005 and thereafter, the Index SPC will continue to make payment in the ordinary course with respect to 95% of the proceeds of such redemptions, while reserving the payment of the remaining 5% for up to twenty business days prior to final distribution. So long as the Index SPC continues to make redemption payments in accordance with its Memorandum and Articles of Association, the Fund will continue to make redemptions payments in accordance with the Fund's Disclosure Document and organizational documents. Generally, investors in the Fund may redeem units as of (i) the 15th day of any calendar month (or the business day prior to the 15th day of the month if the 15th day of the month is not a business day), and (ii) the last business day of any calendar month; provided, however, that, in either instance, RFH receives 10 business days' prior written notice of an investor's intent to redeem. Effective August 8, 2005, Mr. Philip Silverman resigned as the Secretary and Chief Financial Officer of RFH. Effective October 13, 2005, the composition of the Managers of RFH has changed as Mr. Philip R. Bennett was removed as a Manager of the General Partner and Mr. Richard C. Butt, President of RFH , and Ms. Annette A. Cazenave were appointed Managers of RFH. On November 13 18, 2005, Mr. Keith D. Kemp resigned and on November 21, 2005 Mr. Eric A. Simonsen was appointed as Chief Financial Officer of RFH. On November 10, 2005, Man Group PLC signed an initial agreement to purchase certain assets, and assume certain liabilities, of Refco LLC and certain assets of other subsidiaries of Refco, Inc. The transaction was closed on November 25, 2005 and Refco LLC filed for bankruptcy under Chapter 7 of the United States bankruptcy law. Neither RFH nor the assets of RFH have been included in that purchase agreement. While actively exploring various strategic options including the sale of RFH to a third party or seeking to approve a new General Partner, RFH management cannot predict whether these efforts will be successful. If an acceptable strategic option is not identified in the foreseeable future, RFH may need to resign as General Partner of the Fund and the Fund may need to be terminated and dissolved. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Fund is a managed futures investment fund designed to seek returns that substantially track the Index, before expenses of the Fund. The Fund pursues its investment objective by investing in the Index SPC, which currently allocates investments to 14 commodity trading advisors ("Portfolio Managers"). All of the Index SPC's Portfolio Managers employ systematic trading approaches that are mostly technical trend-following in nature and are designed to collectively deliver returns broadly representative of systematic managed futures programs, and therefore do not have specific return or volatility targets. Portfolio Managers employing technical trend-following approaches generally take positions based on computer-generated models to identify trades, determine the size of positions, and to control ongoing portfolio exposure to specific markets. The Standard & Poor's Managed Futures Index Committee (the "Index Committee") is responsible for overseeing the methodology, constituent selection and operations related to the Index. Index constituents are selected based on multiple factors including representativeness of managed futures in general, the quality of the manager's trading program, the program's risk/return profile, performance during selected time frames and market conditions, and the type of market instruments held. Other, less technical factors are included in the selection process such as trading manager reputation, experience, training, stability and quality of organization, as well as a minimum track record length (generally 3 years) and quantity of assets under management. PlusFunds Group, Inc. ("PlusFunds") acts as investment manager of the Index SPC. The Portfolio Managers in the Index SPC receive allocations that generally track the Index and are initially weighted equally on a dollar basis, and rebalanced annually in January, or as otherwise needed. CAPITAL RESOURCES The Fund is designed to raise additional capital only through the sale of limited partnership interests in the Fund (the "Units") pursuant to the continuous offering of the Units pursuant to registration statements filed on Form S-1 with the Securities and Exchange Commission (the "SEC") and does not intend to raise any capital through borrowing. The General Partner does not plan to invest the Fund's assets directly other than in the stated investment objective, but the General Partner may invest funds temporarily in U.S. government obligations, money market accounts, or other short-term interest-bearing accounts. Additionally, the General Partner may borrow money on an unsecured or secured basis for cash management purposes, and will pay interest on such activities. 14 LIQUIDITY An investment in the Fund is not liquid as there is no secondary market for the Units. The Units may be redeemed only as of the fifteenth and the last business day of the calendar month by providing at least ten business days' prior notice. If the 15th day is not a business day, than the redemption shall take place on the immediately following business day. In addition, there are also substantial restrictions on the ability of the Fund to make withdrawals from the Index SPC that further reduces the liquidity of the Fund's assets. While the Fund does not invest directly in futures contracts, it possesses indirect liquidity risk through its investment in the Index SPC as described below. Most U.S. futures exchanges limit fluctuations in some futures and options contract prices during a single day by regulations referred to as daily price fluctuation limits or daily limits. During a single trading day, no trades may be executed at prices beyond the daily limit. Once the price of a contract has reached the daily limit for that day, positions in that contract can neither be taken nor liquidated. Futures prices have occasionally moved to the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the investment manager of the Index SPC from promptly liquidating unfavorable positions and subject the Index SPC to substantial losses that could exceed the margin initially committed to those trades. In addition, even if futures or options prices do not move to the daily limit, the Index SPC may not be able to execute trades at favorable prices, if little trading in the contracts is taking place. Other than the limitations described above, the Index SPC's assets are expected to be highly liquid. OFF-BALANCE SHEET ARRANGEMENTS The Fund does not have any off-balance sheet arrangements. RESULTS OF OPERATIONS The Class 1 Units returned (8.29%) year-to-date and 2.65% for the three-month period ended September 30, 2005, net of fees and expenses. The Class 1 Units returned (16.82%) from March 15, 2004 (Commencement of Operations) to September 30, 2004, and 0.32% for the three-month period ended September 30, 2004, net of fees and expenses. The Class 2 Units returned (6.90%) year-to-date and 3.17% for the three-month period ended September 30, 2005, net of fees and expenses. The Class 2 Units returned (16.14%) from March 15, 2004 (Commencement of Operations) to September 30, 2004, and 0.82% for the three-month period ended September 30, 2004, net of fees and expenses. QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2005 During the quarter ended September 30, 2005, of the 14 managers in the Index, 11 managers had positive returns, with underlying managers' returns ranging from a negative 14.18% to a positive 47.89%. During the nine months ended September 30, 2005, of the 14 managers in the Index, 5 managers had positive returns, with underlying managers' returns ranging from a negative 21.81% to a positive 8.77%. After posting its seventh consecutive year of positive returns, the Index began the 1st quarter of 2005 with a loss of 6.32% in January as market participants reversed their views on the viability of the U.S. economy and aggressively bid up the U.S. dollar versus other currencies. As background to the reversal, the U.S. dollar collapsed after the U.S. presidential election in November 2004, with the consensus view holding that budget deficits, trade deficits, and trade flows would remain in poor condition for the foreseeable future thus making the U.S. economy and its currency appear less 15 inviting as investments. Government bonds were down slightly for the period ending March 31, 2005 as the long end of global yield curves steepened in February at least partially on account of testimony before Congress of Alan Greenspan, Chairman of the Federal Reserve Board, regarding business activity level. However, going into the end of the 1st quarter the increase in the U.S. trade deficit, which was the second largest in history-helped push U.S. bond prices even lower to a level of 10930. Although volatile, metals rallied through the end of the quarter, helped by a recovery in copper and silver, which were approaching recent highs based on a tighter industry supply outlook and a weakening U.S. dollar. Additionally, energy prices continued to move higher throughout the 1st quarter of 2005 as Northeast U.S. temperatures remained cold in January and February and the prospect that Organization of the Petroleum Exporting Countries ("OPEC") would endorse production cuts appeared more likely. As a result, crude oil moved from intra-month lows near U.S. dollar $42 at the beginning of January to end March slightly over the U.S. dollar $56 level. Mid-way through January, U.S. equity markets led global equity indices higher on increased news of profitability, increased manufacturing orders, and upwardly revised Gross Domestic Products numbers for the fourth quarter of 2004 in the U.S. However, throughout February and March, unrelenting energy prices and lower than expected earning reports put downside pressure on the equity markets. The second quarter of 2005 continued to be a difficult period of time for the Index. Performance of the Index improved in May and June. This three-month period was defined by major reversals across most major sectors especially in the energies, the metals and the equity indices. This period of time was also marked by some market sectors finding direction in May with follow through in June, allowing for many trends to remain intact. In April, the equity indices experienced a strong sell-off, prompted by weaker U.S. economic data and also concerns about the impact of higher energy prices paired up with poor consumer demand data. Additionally, the metals sector found support as evidence of a weakening U.S. economy emerged. The energy markets, principally crude oil, put in new highs at the start of April and experienced a major downward correction as data showed a large increase in crude oil inventories. May seemed to bring some stability to the performance of the Index as U.S. bond and short-term interest rate markets were supported by stable inflation data in the U.S. Equity indices found support on the stable inflation outlook in the U.S. and Europe amid lower energy prices. The month of June brought some greater stability, as the markets in general seemed to enjoy favorable economic data, particularly from the U.S. resulting in many markets to continue to trend into the end of the month. Equity markets remained well supported, helped by favorable global bond markets despite rising energy prices, coupled with the U.S. dollar strength, as the U.S. economy continued showing signs of non-inflationary growth. Lastly, the global bond markets ended the month stronger despite the intra-month sell off caused by higher energy prices. The result of all this activity was positive performance for the Index of 1.86% in the month of June. Based on the above market activity, the Index took losses in global bond and short-term interest rate sectors, with profits in the equity indices, foreign exchange and energy sectors. Performance for the 3rd quarter 2005 was a positive 3.17%. The markets in July were dominated by major political and economic news with stock indices performing strongest, as global economic sentiment remained robust. Positive returns on equities and energy were countered by losses in fixed income, short-term interest rate and currency trading. Currency trading proved volatile during the month as the market digested the news of the Chinese Yuan revaluation, along with the move to a managed floating exchange rate regime. The U.S. Dollar against the Euro traded in a range between 1.1870 and 1.2250 while the U. S. Dollar moved higher against the Yen closing at 112.50. The terrorist attacks in London had an impact on markets that proved short-lived. Fixed income markets sold off after Chairman Greenspan's testimony, which focused on the robustness of the U.S. economy and the strong domestic housing market while, the Japanese bond markets weakened as a result of the Chinese revaluation. The energy sector, while remaining volatile, continued to move higher with Crude Oil reaching $61.90 per barrel. Equity markets were helped by stronger earnings 16 as the S&P reached a new high for the year. The metals markets (principally gold) consolidated recent moves higher while grains, meats and softs provided mixed results on the month. Rising energy prices continued to dominate market activity in August. The extent of the diversification of the Index across sectors was highlighted as strong returns from long energy positioning, fixed income and equity indices more than covered losses in the currency, short-term financials and grain sectors. Energy trading proved to be the main driver of performance in August as Crude Oil hit $70 a barrel. The acceleration in prices towards month-end was driven by Hurricane Katrina and its impact on the U.S. markets. Bond trading was positive as bullish risk grew over the month in response to higher energy prices while rallies in short-term interest rates caused losses. Currency trading for the majority of managers in the Index was difficult as reversals in the Euro and Swiss Franc led to losses. Equity markets were quiet and off their highs except for the Nikkei which rallied strongly. Precious metals trading saw Gold breaking to the upside, to approximately US$450 before trading back into recent ranges, while base metals continued to remain strong. Losses in grains (corn, soybeans, wheat) trading were matched by profits in the softs (coffee, sugar, cocoa) while meats (lean hogs, feeder cattle, pork bellies) were flat on the month. September saw volatile energy prices continue to dominate market activity in the aftermath of Hurricane Katrina and Rita. The benefit of the fund's diversification across sectors was evident as long positioning in energy, equity indices, currencies and metals markets provided strong returns while bond and interest rate markets underperformed as the Federal Reserve continued on its tightening path. Foreign exchange markets witnessed a strong rally in the U. S. Dollar against major currencies, the USD/Euro moved from 1.26 to below 1.20 as a stalemate emerged after German elections. The stronger U.S. Dollar also gained against the Japanese Yen to post a new high for the year above 114. Energy markets delivered mixed performance highlighted by a surge in natural gas prices, caused by disruptions to refineries. Bond and interest rate futures in the U.S. moved lower as the Federal Reserve continued on its tightening path despite the effects of Hurricane Katrina. The sell off in the U.S. interest rate markets pushed global interest rates higher as signs of emerging inflation through higher energy prices affected markets. Equity markets moved higher on the month with Europe and Japan out-performing U.S. markets. Metal markets moved higher on the month as gold broke out to the upside breaking $470 while base metals remained well supported. Commodity trading delivered strong returns from long sugar positions while grains and meats were also positive. QUARTER ENDED SEPTEMBER 30, 2004 AND THE PERIOD FROM MARCH 15, 2004 (COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 2004 Of the 14 Portfolio Managers in the Index, only 3 were profitable in March. Most sectors traded had an extremely volatile month, with individual markets such as equities, energy, and currencies accelerating in one direction, then aggressively reversing course without warning. Of the 8 pure trend-followers, 6 had negative returns and amongst the pattern recognition managers, 5 of 6 had negative returns. Most of the losses in March were attributable to trading in 3 sectors. In currencies, the Index had losses in the Yen market as short positions that had been developed in a long-standing down trend in that currency were caught in a late month 7% rally, with the exchange rate moving from a price level of 112 Yen per U.S. dollar to close the month at 104 Yen per U.S. dollar. In stock indices, the Index had losses from a mid-month correction, where the S&P 500 Index, for example, moved from 1,157 to 1,091, losing approximately 6% in a 2-week time frame. Finally, the Index had losses in the energy sector, where the Index's long positions in crude oil had a late month correction, falling almost 5% in the last 8 trading days of the month. Losses in these Sectors were partially offset by gains in other sectors, where the Index benefited from long positions in natural gas and agricultural markets, which both had run-ups approaching 7% during March. All asset classes in the Fund were volatile during April 2004 as market participants reacted to improving economic news coming out of the United States. The Fund had mixed but overall negative results, with currency and financial components deteriorating as long standing trends it was profiting from reversed course on signs that the U.S. economy is improving. 17 Most of the losses came from the financial sector, specifically by losses in bonds, which were mainly driven by long positions in U.S. treasuries that were hit by a 6% reversal by traders dumping bonds in anticipation of higher interest rates. Long positions in short-term Euro-denominated interest rate instruments also helped depress the Fund's returns. Federal Reserve Bank statements suggested the U.S. economy was gaining traction as jobs reports were starting to show more favorable numbers and pricing power was becoming more apparent. This in turn helped fuel concern over increasing inflation pressure and the likely response by the Federal Reserve Bank to increase interest rates, which made existing bond yields look less attractive than new bond instruments issued in a higher interest rate environment. Losses were derived from currencies where the Fund was short the U.S. dollar against European, Canadian, and U.K. currencies. Most major foreign currencies fell by upwards of 5% versus the U.S. dollar on a month-to-date basis. The U.S. dollar gained against the Euro in particular after a closely followed German Consumer Investor Report showed that economic growth was only going to be 1.5% this year, which was perceived by traders as further opening the door to an interest rate cut by the European Central Bank. In addition, the interest rate increases by the Bank of England were perceived as having quelled inflation and signs show the U.K. economy may be cooling as well. Combining this news with bullish economic reports from the U.S. made the U.S. appear as a more favorable place to invest, and thus drove up the U.S. dollar against other currencies. By examining macro-economic reports in May, it became apparent that market participants were reacting on almost a "day-to-day" basis, making tactical maneuvers in reaction to news reports regarding inflation, employment, and interest rate reports, as well as commodity price changes and geopolitical events. Continuing the theme of April, economic conditions were transitioning from the deflationary effect of a global recession to a re-inflation theme that resulted from unusually accommodative monetary and fiscal policy in the U.S., Europe, and Asia. Although market participants broadly agreed on the evidence of this secular trend, there was disagreement over the timing of its effects on individual asset classes. Following April's sharp drop in bonds in anticipation of increasing rates, economic reports in May were somewhat mixed, and market participants reacted by trading the "news of the day", which resulted in bonds reversing course from a downward trajectory formed in May. Prices reversed, however, in mid-May on various news points including OPEC's pledge to increase oil output to help restrain record-breaking oil prices which would have a deflationary effect on yields and traders rotated back into Bonds partially in response. With respect to currencies, the major trend coming out of April was the U.S. dollar's turnaround as it gained strength from the prospect for higher interest rates that would make it more attractive and a medium of exchange to benefit from higher yielding investments in the U.S. The U.S. dollar continued to gain strength until the middle of May then fell as market participants rotated into gold as a flight-to-quality response that drove gold prices up 5% in the last 2 weeks of May from 377 to 396. Gold was driven up partially in response to news of the assassination of the President of the Iraqi Governing Council on May 17 and assorted terrorist attacks in Saudi Arabia, which raised more doubts on prospects for stability in that region and additionally by the sheer frustration of market participants to find a stable store of value during May. For the full month of May, U.S. Treasury Bonds were virtually unchanged; the U.S. dollar lost about 2% on average vs. developed currencies, crude oil rose about 7%, and gold rose about 3%. All of these markets traded in volatile ranges for the month. The Fund's medium-term trend following managers were hurt the most during the month as their models showed strong conviction in the positions developed in April and as a result traders added to their short bond positions and long U.S. Dollar positions. These managers returned between -3.0% to -5.0% for the month. In contrast, those managers engaged in long-term trend-following actually posted flat or positive returns for the month as their systems had not turned as quickly and thus never fully built up positions that got whipsawed in May. These managers posted between -0.5% and +0.2% returns for the month. In addition, those managers employing shorter-term pattern-recognition strategies also posted flat or positive returns as they benefited from volatile sideways 18 markets that were exhibited in May. These managers posted between -1.5% and +4.0% returns for the month. In contrast to bonds and currencies that caused most of the losses in May, crude oil prices displayed a forceful up-trend that helped diminish portfolio losses during the month as a broad set of managers had positive exposure to this market. During the month of June all managers had negative returns, with long-term trend-followers as well as traders with short-term systems contributing equally to the negative results. Building on the story from May, most major markets traded experienced volatile sideways price activity, whereby markets displayed a general lack of directional activity on a full month basis but developed jagged patterns on a daily and weekly basis. Although it is rare for so many markets to fall into this pattern simultaneously, we should note the unusual circumstances market participants encountered as they digested the full range of questions relating to interest rate changes, geo-political events, economic growth, and inflation, to name only a few. Trend followers were again caught on the defensive because they had to balance the need to liquidate positions and shield themselves from temporary losses against the probability that a short term directional move in a given market will indeed turn into a profitable trend. The geo-political and economic environment in June did not provide substantial reasons for trending in many markets and as a result, strategies relying on momentum to generate alpha, such as Trend following, had a difficult time. Specific to the sectors traded in the Fund, losses were incurred primarily in energy markets where substantial positions were built up as crude oil trended higher over the last year, but dramatically reversed in June, falling from $42/barrel at the beginning of the month to $35/barrel by month-end on news of increased OPEC production. In bond markets, European- and U.S.-based markets declined through the first 2 weeks of the month attracting additional short positions from the fund's traders, only to reverse course mid month with nearly a 3 point move higher in the U.S. 10-Year Notes, for example, as market participants reacted to labor market news in the U.S. and speculation on the magnitude of the NY Federal Reserve Bank's change in interest rate targets. Losses were also incurred in currency markets where the U.S. dollar staged a 1-month run-up against the Euro and British Pound but did so with extreme intra-day volatility where moves approaching 2-points in the Euro were common on a daily basis. In reaction to these adverse moves, traders were proactive in reducing exposure in losing areas. In energy, for example, exposure was reduced by about 40% since June 1 as a result of deteriorating market activity. In short Yen positions, where a large portion of currency losses occurred, positions were cut by 50% as risk management protocols were activated. In contrast to these markets, gains from short positions in interest rates helped to offset losses elsewhere as these markets are providing one of the few quality trending areas from which to profit. Smaller gains were also drawn from cotton, cattle, and wheat futures and to a lesser extent in frozen orange juice and cocoa markets, as trends developed based on supply/demand imbalances and weather-based data. In July, 12 managers had negative returns, with returns ranging from -6% to +7% and longer-term trend-followers ranking at the top. Losses were greatest in financials, including stock indices and currency markets. Specifically, long positions in US T-Bonds, Euro/Dollar, and Gold hurt performance as the up-trends formed by these markets in June broke apart into a volatile sideways trading range last month. Conversely, large gains were harvested from Crude Oil and Natural Gas, as both markets developed pronounced up-trends, as well as in Agriculturals such as Wheat, Corn, and Sugar. Smaller profits were gained in the Soybean market as we caught part of the 50% drop in that market in July, which occurred due to beneficial weather forecasts and overhead supply in the marketplace. Financial markets are still affected by concerns over the viability and speed of a global economic recovery along with the threat of terrorism and interruption of Crude Oil supplies. As a result of negative performance over the last several months, the Index is in a drawdown of about -20%. The market background consists of 3 specific phases. First, in January and February 2004 the Index accumulated gains generated at the end of multi-year trends in Bonds, U.S. Dollar, and Crude 19 Oil. Second, the Index lost ground in April as trend-followers generated disappointing returns because the large multi-year trends came to an end and started reversing in a volatile manner. Third, from May 2004 to July 2004, almost every market went into a very unusual "whipsaw" pattern where false break-outs occurred on both very short and medium time frames luring both longer-term and shorter-term trend-followers into building positions that reversed as quickly as 1 day in an extremely volatile fashion (e.g. Crude Oil, Bonds, Currencies). This has been a persistent and very unusual profile because it is affecting so many markets for several months at a time. The unusually volatile nature of markets recently is attributed to unresolved concerns that market participants have about inflation, interest rates, economic growth, and terrorism and their combined effect on all investable asset classes. In August, half of the managers in the Index had positive returns, representing an increase in the number of managers producing positive returns in recent months, with returns ranging from -7% to +8%. Overall Index performance was down less than 1% for the month, which represents a flattening out of the current drawdown momentum. Although recent months have experienced a dramatic lack of volatility and trading opportunities in most asset classes, there were strong signs of trending in most Long Duration Government Bond Index futures, Energy (especially Natural Gas), and Agricultural markets during August from which the Index profited. Losses offset these gains, however, in Base Metals, particularly in Nickel Futures, as the run up over the prior few months abruptly reversed course on news that warehouse inventories and Russian output is rising, which had the combined effect of allaying fears of continued shortages causing a sharp reversal downward. Other losses were incurred in Financials, especially in Stock Indices where prices of Equity Index Futures reversed their downtrend to rally with positive returns upwards of 6%. Smaller losses were incurred in Interest Rates where long positions in EURIBOR contracts and Eurodollars had minor pullbacks. Conversely, large gains were harvested from the Energy sector, especially from short positions in Natural Gas which fell from the US$6.20 level to US$5.00 during the course of August on news of storage injections increasing inventories to a level above their 5 year average combined with unseasonably cool weather relative to history which dampened demand for gas fired electric plant output. Crude Oil exposure generated small profits for the month as most long positions were successfully closed out at a profit prior to the market reversal from $US50 to $US43. Larger profits were gained from a uniform trend in Global Bond markets, with German, Japanese, US, and UK sovereign long duration debt contracts increasing in price as inflationary worries abated due to a retreat in Crude Oil prices combined with mixed economic news from the Euro-region and US. Smaller gains were also realized in the Wheat futures as prices continued on a downward slope in August. In September, 11 of the 14 managers had positive returns with returns ranging from -2% to +21%. Overall, the Index return was up nearly 4% for the month. With respect to markets as a whole during the last 6 months, the forces of accelerating interest rates, rapid commodity price inflation, and concern over geopolitical developments have created a plateau in the expected rate of change of the global economic recovery. This stagnation has led to much lower volatility in equities, bonds, and currencies and has resulted in markets that have largely traded in tightly bound ranges with little directional momentum or extremely choppy trends that detracted from Index returns during this period. In September, however, many markets started to show signs of momentum again and the trend-following strategies in the Index found and exploited trading opportunities in Energy, Government Bond, Metal, and Agricultural markets. Long positions in Energy markets provided the best trading opportunities, with prices in Crude Oil rising 9 straight sessions in a row to lifetime highs above USD $50. The causes for this rapid ascent in prices include fundamental global supply shortages, high demand growth, in addition to the effects of hurricane damage to oil rigs in the Gulf of Mexico, Russian Government tax reclaims from Yukos Oil Co. which are affecting deliveries to China, and rebel activity in Nigeria which threatens to disrupt supplies to western countries. Profits were also gained in long Government Bond positions which trended higher with pronounced momentum. U.S. Treasury Bond Futures, for example, rallied to a high of USD $114 in September due in large part to the deflationary effect of Crude Oil prices on the U.S. economic recovery. Gold 20 had an equally impressive rally, which the Index participated in on the long side, as prices hit a low area of USD $397 in early September and then rallied to USD $420 on the effects of a weakened U.S. Dollar. Large gains were also made in long Copper Futures positions as prices drove from a low of USD $1.22 to almost USD $1.40 on large-scale forecasted supply shortages. Finally, profits were captured in short positions in Corn Futures which have been in a bear market spiral since early June, as prices dropped from USD $3.30 to recent lows around the USD $2.00 level on substantial gains in crop yield estimates and favorable weather forecasts. CRITICAL ACCOUNTING POLICIES - VALUATION OF THE INDEX SPC'S POSITIONS The General Partner believes that the accounting policies that will be most critical to the Fund's financial condition and results of operations relate to the valuation of the Index SPC's investment positions. The majority of the Index SPC's investment positions will be exchange-traded futures contracts, which will be valued daily at settlement prices published by the exchanges. The Index SPC's spot and forward foreign currency contracts will also be valued at published daily settlement prices or at dealers' quotes. Swap contracts generally will be valued by reference to published settlement prices or dealers' quotes in related markets or other measures of fair value deemed appropriate by the General Partner. The General Partner does not believe that the Index SPC will trade swaps to a significant degree. Thus, the General Partner expects that under normal circumstances substantially all of the Index SPC's assets, and as a result the Fund's assets, will be valued by objective measures and on a timely basis. THE FUND The Fund commenced trading on March 15, 2004 and has limited performance history."Standard & Poor's(R)" and "S&P Managed Futures Index" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by RFH and PlusFunds. The Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no recommendation concerning the advisability of investing in the Fund. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTRODUCTION The Fund does not control the Index SPC, PlusFunds or any Portfolio Manager, and has no role in the choice of Portfolio Managers, any Portfolio Manager's choice of investments or any other investment decisions of the Index SPC. The Fund is dependent upon the expertise and abilities of PlusFunds in implementing the Index strategy as well as the Portfolio Managers who have investment discretion over assets allocated to them. There can be no assurance that the services of PlusFunds or of a Portfolio Manager will be available for any length of time, or that the Index SPC will remain available for investment by the Fund. The Fund is dependent on PlusFunds and the Index SPC's independent administrator to provide it with periodic reports and other information. The Fund may not be provided with detailed information regarding the precise investments made by a Portfolio Manager because some of this information may be considered proprietary and otherwise confidential. This lack of access to information may make it more difficult for the Fund to evaluate the Index SPC and the Portfolio Managers and to make a judgment regarding the fair value of the assets of the Fund. The Fund is designed to invest in the Index SPC, a speculative commodity pool. The market sensitive instruments indirectly held by it are acquired for speculative trading purposes, and all or a substantial amount of the Fund's assets are indirectly subject to the risk of trading loss. 21 Market movements result in frequent changes in the fair market value of the Index SPC's open positions and, consequently, in its earnings and cash flow. The Index SPC's market risk is influenced by a wide variety of factors, including the level and volatility of exchange rates, interest rates, equity price levels, the market value of financial instruments and contracts, market prices for base and precious metals, energy complexes and other commodities, the diversification effects among the Index SPC's open positions and the liquidity of the markets in which it trades. Frequently, the Index SPC rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular future market scenario will affect performance. The Index SPC's current trading advisors all employ trend-following strategies that rely on sustained movements in price. Erratic, choppy, sideways trading markets and sharp reversals in movements can materially and adversely affect the Index SPC's performance results. The Index SPC's past performance is not necessarily indicative of its future results. QUANTITATIVE MARKET RISK The following quantitative disclosures regarding the Fund's exposure to market risk contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for in the Private Securities Litigation Reform Act of 1995 (as set forth in Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for any statement of historical fact. The Fund's approximate risk exposure in the various market sectors traded by its trading advisors is quantified below in terms of value at risk. Value at risk is a quantitative technique used to estimate the likelihood that a portfolio's losses will exceed a certain amount over a given time frame and is alternately expressed in percentage or currency terms. The results of this technique should be viewed as estimations because future results will differ from predicted values due to changing market conditions that cannot be forecasted with complete accuracy. VALUE AT RISK BY MARKET SECTORS The following table indicates the value at risk associated with the Index SPC's open positions by market category as of September 30, 2005. As of September 30, 2005, the Fund's Net Assets were $52,161,572. The results below illustrate the estimated value at risk over a 10-business day period at a 99% level of confidence. Value at Risk is expressed in U.S. dollars and VaR% is expressed as a percentage of Fund Net Assets.
AS OF SEPTEMBER 30, 2005 MARKET SECTOR VALUE AT RISK VaR (%) ------------------------------------------------------------------------- Interest Rate $ 1,923,868 3.69% Equity Index 265,773 0.51% Currency 662,753 1.27% Raw Commodity 303,381 0.58% ------------------------ ------------- TOTAL $ 3,155,775 6.05% ======================== =============
22
AS OF SEPTEMBER 30, 2004 MARKET SECTOR VALUE AT RISK VaR (%) ------------------------------------------------------------------------- Interest Rate $ 986,441 2.31% Equity Index 877,821 2.05% Currency 1,181,512 2.77% Raw Commodity 423,394 0.99% ------------------------ ------------- TOTAL $ 3,469,168 8.12% ======================== =============
QUALITATIVE MARKET RISK TRADING RISK The following qualitative disclosures regarding the Fund's exposure to market risk contain "forward-looking statements" within the meaning of the safe harbor from civil liability provided for in the Private Securities Litigation Reform Act of 1995 (as set forth in Section 27A of the Securities Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). All qualitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for any statement of historical fact and the descriptions of how the Fund manages its primary market risk exposures The Fund invests substantially all of its assets into the Index SPC. The following are guidelines to the primary trading risk exposures of the Index SPC by market sector. INTEREST RATES Interest rate risk is one of the principal market exposures of the Index SPC. Interest rate movements directly affect the price of interest rate futures positions held and indirectly the value of its stock index and currency positions. Interest rate movements in one country as well as relative interest rate movements between countries materially impact profitability. The primary interest rate exposure is to interest rate fluctuations in the United States and the other G-7 countries. However, the Index SPC also takes futures positions on the government debt of smaller nations. CURRENCIES Exchange rate risk is a significant market exposure of the Index SPC. The Index SPC's currency exposure is to exchange rate fluctuations, primarily fluctuations that disrupt the historical pricing relationships between different currencies and currency pairs. These fluctuations are influenced by interest rate changes as well as political and general economic conditions. The Fund trades in a large number of currencies, including cross-rates, which are positions between two currencies other than the U.S. dollar. ENERGY 23 The Index SPC also has energy market exposure to gas and oil price movements, which often have short-term volatility swings resulting from political developments in the Middle East and in the long-term are subject to the forces of global supply and demand. STOCK INDICES The Index SPC's primary equity exposure is to equity price risk in the G-7 countries as well as other smaller jurisdictions. The Index SPC is primarily exposed to the risk of adverse price trends or static markets in the major indices of the United States, Europe and Japan. METALS The Index SPC's metals market exposure is to fluctuations in the price of both precious metals, including gold and silver, as well as base metals including aluminum, copper, nickel and zinc. Some metals, such as gold, are used as surrogate stores of value, in place of hard currency, and thus have an associated currency or interest rate risk associated with them relative to their price in a specific currency. Other metals, such as silver, platinum, copper, and steel, have substantial industrial applications, and may be subject to forces affecting industrial production and demand. AGRICULTURAL The Index SPC may also invest in raw commodities and will thus have exposure to agricultural price movements, which are often directly affected by severe or unexpected weather conditions or by political events in countries that comprise significant sources of commodity supply. OTHER TRADING RISKS As a result of leverage, small changes in the price of the Portfolio Managers' positions may result in substantial losses to the Fund. Commodity interest contracts are typically traded on margin. This means that a small amount of capital can be used to invest in contracts of much greater total value. The resulting leverage means that a relatively small change in the market price of a contract can produce a substantial loss. Like other leveraged investments, any purchase or sale of a contract may result in losses in excess of the amount invested in that contract. The Portfolio Managers may lose more than their initial margin deposits on a trade. The Portfolio Managers' trading will be subject to execution risks. Market conditions may make it impossible for the Portfolio Managers to execute a buy or sell order at the desired price, or to close out an open position. Daily price fluctuation limits are established by the exchanges and approved by the Commodities Futures Trading Commission (the "CFTC"). When the market price of a contract reaches its daily price fluctuation limit, no trades can be executed at prices outside the limit. The holder of a contract may therefore be locked into an adverse price movement for several days or more and lose considerably more than the initial margin put up to establish the position. Thinly traded or illiquid markets also can make it difficult or impossible to execute trades. NON-TRADING RISK EXPOSURE The Fund must rely on the Index SPC when calculating net asset value. The net asset values received by the Fund from the Index SPC may be subject to revision through monthly financial reports of the Index SPC. As a result, revisions to the Fund's gain and loss calculations may occur. Any revisions not deemed material in the sole discretion of the General Partner will not result in an adjustment to prior subscription or redemption prices for the Fund. Moreover, in some cases, the Fund will have little ability to assess the accuracy of the valuations of its investment in the Index SPC that are received from PlusFunds or from the Index SPC or its administrator. There are no 24 market quotations available to use in valuing the Fund's investments in the Index SPC. As a result, these investments will be valued at their fair values as determined in accordance with procedures adopted in good faith by the General Partner. These valuations may not in all cases accurately reflect the values of the Fund's investments in the Index SPC. These inaccuracies may adversely affect the Fund or investors who purchase or redeem Units. The Fund's ability to track the Index is dependent upon PlusFunds' ability to make the requisite allocations to all of the Portfolio Managers that are included in the Index. To the extent that PlusFunds is not able to make an allocation to a Portfolio Manager, the performance of the Fund will not track the performance of the Index, before fees of the Fund. The Fund invests substantially all of its assets in the Index SPC and is subject to the risks of the Index SPC as follows: THE INDEX SPC IS SUBJECT TO COUNTERPARTY RISKS. If the Index SPC's clearing broker becomes bankrupt or insolvent, or otherwise defaults on its obligations to the Index SPC, the Index SPC may not receive all amounts owed to it in respect to its trading, despite the clearinghouse fully discharging all of its obligations. Furthermore, in the event of the bankruptcy of the clearing broker, the Index SPC could be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker's combined customer accounts, even though property specifically traceable to the Index SPC (for example, Treasury bills deposited by the Index SPC with the clearing broker as margin) was held by the clearing broker. In addition, some of the instruments which the Index SPC may trade are traded in markets such as foreign exchanges or forward contract markets in which performance is the responsibility only of the individual counterparty with whom the trader has entered into a contract and not of an exchange or clearing corporation. The Index SPC will be subject to the risk of the inability or refusal to perform on the part of the counterparties with whom those types of contracts are traded. There are no limitations on the amount of allocated assets a Portfolio Manager can trade on foreign exchanges or in forward contracts THE INDEX SPC'S POSITIONS ARE SUBJECT TO SPECULATIVE LIMITS. The CFTC and domestic exchanges have established speculative position limits on the maximum futures position which any person, or group of persons acting in concert, may hold or control in particular futures contracts or options on futures contracts traded on U.S. commodity exchanges. Under current regulations, other accounts of the Portfolio Managers are combined with the positions held by the Index SPC for position limit purposes. This trading could preclude additional trading in these commodities by the Portfolio Managers for the account of the Index SPC. SYSTEMATIC STRATEGIES DO NOT CONSIDER FUNDAMENTAL TYPES OF DATA AND DO NOT HAVE THE BENEFIT OF DISCRETIONARY DECISION MAKING. Most of the Index SPC's assets will be allocated to Portfolio Managers that rely on technical, systematic strategies that do not take into account factors external to the market itself (although certain of these strategies may have minor discretionary elements incorporated into their systematic strategy). The widespread use of technical trading systems frequently results in numerous Portfolio Managers attempting to execute similar trades at or about the same time, altering trading patterns and affecting market liquidity. Furthermore, the profit potential of trend-following systems may be diminished by the changing character of the markets, which may make historical price data (on which technical programs are based) only marginally relevant to future market patterns. Systematic strategies are developed on the basis of a statistical analysis of market prices. Consequently, any factor external to the market itself that dominates prices that a discretionary decision maker may take into account may cause major losses for a systematic strategy. For example, a pending political or economic event may be very likely to cause a major price movement, but a systematic strategy may continue to maintain 25 positions indicated by its trading method that might incur major losses if the event proved to be adverse. MANAGING RISK EXPOSURE The Index Committee is charged with overseeing the methodology and operations of the Index and has primary responsibility for the Index's strategy classifications, composition and methodology. Implicit to the Index SPC's construction is consideration of the quality and effectiveness of risk awareness and volatility monitoring on the part of the commodity trading advisors selected for membership in the Index. In addition, numerical analysis of each Portfolio Manager's historical returns with respect to performance in aggregate as well as in discrete periods of various market cycles is made as part of the due diligence process for consideration of membership in the Index. PlusFunds, the investment manager of the Index SPC and the sub-investment manager of the Fund, is a Delaware corporation organized on March 25, 2002. It has been registered with the CFTC as a commodity pool operator since July 1, 2002 and as a commodity trading advisor since March 14, 2003 and is a member of the National Futures Association. PlusFunds monitors the day-to-day performance of the Index SPC's underlying CTAs on a T+1 basis using daily pricing information verified by independent sources. PlusFunds screens managers for potential anomalies, such as excessive leverage, abnormal changes in positions, transaction mis-pricing, fraudulent behavior as well as deviation from investment style. On a weekly basis, PlusFunds performs an analysis of portfolio exposure across securities, sectors, regions and asset allocation along with value at risk, and incremental risk analysis. PlusFunds selects the Portfolio Funds generally to track the Index, but there may be differences specifically if there is a change in Index composition. ITEM 4. CONTROLS AND PROCEDURES The General Partner of the Fund carried out an evaluation, under the supervision and with the participation of the General Partner's management, including its principal executive officer and principal financial officer, of the design and operation of the Fund's disclosure controls and procedures. Based on this evaluation, the General Partner's principal executive officer and principal financial officer concluded that, as of September 30, 2005, the Fund's disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Fund in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. 26 PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 10, 2005, Refco Inc., ( the "Company")the parent company of RFH announced that it had discovered through an internal review a receivable owed to the Company by an entity controlled by Phillip R. Bennett, Chief Executive Officer and Chairman of the Board of Directors of the Company, in the amount of approximately $430 million. Mr. Bennett repaid the receivable in cash, including all accrued interest, on October 10, 2005. Based upon the results of the review to date, the Company believes that the receivable was the result of the assumption by an entity controlled by Mr. Bennett of certain historical obligations owed by unrelated third parties to the Company, which may have been uncollectible. Independent Counsel and forensic auditors have been retained to assist the Company's Audit Committee in the investigation of these matters. At the request of the Board of Directors of the Company, Mr. Bennett has taken a leave of absence. On October 12, 2005, Mr. Bennett was initially charged with one count of securities fraud. On November 10, 2005, he was indicted on eight counts of conspiracy, fraud, and other charges by a federal grand jury. The indictment was delivered in the United States District Court for the Southern District of New York. Prosecutors charge in the indictment that Mr. Bennett, hid customer and company losses from Refco auditors and investors from as early as the late 1990s. Those losses, according to the indictment, were then transferred to a company controlled by Mr. Bennett and hidden through a series of transactions. Mr. Bennett was removed as a Manager of RFH on October 13, 2005. Mr. Richard Butt, President of RFH, and Annette Cazenave were installed as Managers of RFH on that date as well as appointed to the RFH Audit Committee (the "Audit Committee"). Since the announcement of these matters at Refco, Inc., the Audit Committee has undertaken its own review into RFH and the Fund to ensure none of these matters had any material impact on the results of operations of either RFH as General Partner or the Fund. Based upon the results of that review, the Audit Committee has no reason to believe that the actions of Mr. Bennett had any impact on the operations or financial results of the Fund. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
UNITS TITLE OF CLASS OF SECURITIES REGISTERED EFFECTIVE DATE FILE NUMBER --------------------------------------------------------------------------------------------------- Initial Registration on Form S-1 - Class 1 Units of 100,000 January 30, 2004 333-107357 Limited Partnership Interest Initial Registration on Form S-1 - Class 2 Units of 100,000 January 30, 2004 333-107357 Limited Partnership Interest Additional Registration on Form S-1 - Class 1 500,000 November 1, 2004 333-118965 Units of Limited Partnership Interest TOTAL CLASS 1 UNITS REGISTERED 600,000 TOTAL CLASS 2 UNITS REGISTERED 100,000
Class 1 Units sold through 9/30/05: 55,731.543 Class 1 Units unsold through 9/30/05: 544,268.457 Aggregate price paid for Class 1 Units sold through 9/30/05: $47,756,345 27 Class 2 Units sold through 9/30/05: 14,141.716 Class 2 Units unsold through 9/30/05: 85,858.284 Aggregate price paid for Class 2 Units sold through 9/30/05: $12,406,267 Units are continuously sold at monthly closings at a purchase price equal to 100% of the net asset value per Unit as of the close of business on the last day of each month. 100% of the proceeds of the offerings have been applied to the working capital of the Fund for use in accordance with the "Use of Proceeds" section of the relevant prospectus included as a part of the above referenced registration statements. The managing underwriter for the Fund is Refco Securities, LLC. ITEM 6. EXHIBITS. EXHIBITS 3.1 CERTIFICATE OF LIMITED PARTNERSHIP OF THE REGISTRANT, FILED AS EXHIBIT 3.1 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-107357) AS FILED ON JULY 25, 2003 (FILE NO. 333-107357), AND INCORPORATED HEREIN BY REFERENCE. 3.2 AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT, FILED AS EXHIBIT A TO THE REGISTRANT'S RULE 424(b) PROSPECTUS AS FILED ON JULY 5, 2005, AND INCORPORATED HEREIN BY REFERENCE. 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934. 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934. 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. 28 SIGNATURES Pursuant to the requirements 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. S&P Managed Futures Index Fund, LP LIMITED PARTNERSHIP Date: December 1, 2005 by: RefcoFund Holdings, LLC its general partner By: /s/ Richard C. Butt ----------------------- Richard C. Butt President (principal executive officer) By: /s/ Eric A Simonsen ----------------------------- Eric A. Simonsen Secretary (principal financial and accounting officer) 29