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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/
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S&P MANAGED FUTURES INDEX FUND, LP
(A DELAWARE LIMITED PARTNERSHIP)
TABLE OF CONTENTS
<Table>
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
</Table>
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S&P MANAGED FUTURES INDEX FUND, LP
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2005 (UNAUDITED) AND DECEMBER 31, 2004
<Table>
<Caption>
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
</Table>
The accompanying notes are an integral part of these financial statements.
1
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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)
<Table>
<Caption>
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)
================== ================== ================== ==================
</Table>
The accompanying notes are an integral part of these financial statements.
2
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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)
<Table>
<Caption>
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
================== ==================
</Table>
The accompanying notes are an integral part of these financial statements.
3
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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)
<Table>
<Caption>
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
================== ==================
</Table>
The accompanying notes are an integral part of these financial statements.
4
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S&P MANAGED FUTURES INDEX FUND, LP
(A DELAWARE LIMITED PARTNERSHIP)
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2005 (UNAUDITED)
<Table>
<Caption>
% 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
========== =============
</Table>
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
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SCHEDULE OF INVESTMENTS
DECEMBER 31, 2004
<Table>
<Caption>
% 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
========== =============
</Table>
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
<Page>
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
<Page>
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
<Page>
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:
<Table>
<Caption>
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
-------------------------
</Table>
The activity of the Units during the period March 15, 2004 (Commencement
of Operations) to September 30, 2004 was as follows:
<Table>
<Caption>
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
-------------------------
</Table>
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
<Page>
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:
<Table>
<Caption>
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
</Table>
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
<Page>
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
<Page>
7. FINANCIAL HIGHLIGHTS
<Table>
<Caption>
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)%
<Caption>
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)%
</Table>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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.
<Table>
<Caption>
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%
======================== =============
</Table>
22
<Page>
<Table>
<Caption>
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%
======================== =============
</Table>
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
<Page>
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
<Page>
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
<Page>
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
<Page>
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
<Table>
<Caption>
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
</Table>
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
<Page>
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
<Page>
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