Below is an updated summary of the exposure to Refco of the CSFB/Tremont Investable Indices managed by CSFB/Tremont Index LLC. In summary, we believe the overall impact on our Investable Indices continues to be minor.
1. Service providers to CSFB/Tremont Investable Indices
§ Refco is not used as a service provider for any CSFB/Tremont Investable Indices.
2. Prime broker / custodian relationships
§ To date, it has been determined that only one Member Fund has material exposure to Refco Capital Markets Ltd. (“RCML”) as their prime broker (the “Fund”). We continue to be in contact with that Fund who has informed us that approximately two thirds of their assets are held with RCML. The Fund has implemented measures to side pocket the portion of its assets that are locked in the bankruptcy proceedings, and has suspended redemptions on this part of the Fund until the bankruptcy is resolved. The Fund will continue to actively manage the remainder of its assets held outside RCML, and will accept subscriptions and redemptions related to that portion of the Fund. In connection with the bankruptcy, we have gathered all information available about the affected assets of the Fund, as well as information pertaining to the possible outcome of the bankruptcy proceedings. This information includes daily market pricing for Refco unsecured debt, bankruptcy filings (including creditors lists), AUM valuations and proportion of assets impacted from the Fund’s administrator, news available from various sources and numerous calls and meetings with the Fund manager. We have combined this information to form a valuation for the Fund for October 05, which was reviewed and subsequently approved by the Index Committee. The contributions to October 2005 performance as a result of the determined valuation was as follows: Investable Index –0.11% and Sector Invest Emerging Market Index –1.93%. We will continue to monitor the impact of the Fund in respect to the RCML bankruptcy filing and take the appropriate action according to the Index Rules.
3. Securities Exposures
§ Several of the Investable Indices Member Funds held long positions in Refco equity and bonds. However, no new material exposure/loss to Refco securities has been reported since the previous update.
4. OTC Derivatives Exposures
§ We are currently unaware of any material OTC derivatives exposure in any of the Investable Indices Member Funds.
We will continue to update you on any new developments with respect to Refco.