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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, 2012

OR ( ) 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 000-52603

WARRINGTON FUND L.P.

 

(Exact name of registrant as specified in its charter)

 

New York		20-3845577
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

c/o Ceres Managed Futures LLC

522 Fifth Avenue – 14th Floor

New York, New York 10036

 

(Address of principal executive offices) (Zip Code)

(855) 672-4468

 

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X  No -

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer -		Accelerated filer -		Non-accelerated filer X		Smaller reporting company -

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes -  No X

As of October 31, 2012, 131,567.4899 Limited Partnership Class A Redeemable Units were outstanding, 4,127.9873 Limited Partnership Class D Redeemable Units were outstanding.

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WARRINGTON FUND L.P.

FORM 10-Q

INDEX

 

						Page   Number
PART I — Financial Information:
		Item 1.		Financial Statements:
				Statements of Financial Condition at September 30, 2012 (unaudited) and December 31, 2011		3
				Condensed Schedules of Investments at September 30, 2012 (unaudited) and December 31, 2011		4 – 5
				Statements of Income and Expenses for the three and nine months ended September 30, 2012 and 2011 (unaudited)		6
				Statements of Changes in Partners’ Capital for the nine months ended September 30, 2012 and 2011 (unaudited)		7
				Notes to Financial Statements (unaudited)		8 – 15
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		16-17
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk		18-19
		Item 4.		Controls and Procedures		20
PART II — Other Information
		Item 1.		Legal Proceedings		21
		Item 1A.		Risk Factors		22
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		23
		Item 5.		Other Information		24
		Item 6.		Exhibits		25

 

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PART I

Item 1. Financial Statements

Warrington Fund L.P.

Statements of Financial Condition

 

		(Unaudited) September 30, 2012				December 31, 2011
Assets:
Equity in trading account:
Cash		$	130,168,387			$	145,413,723
Cash margin			32,294,431				20,916,233
Options purchased, at fair value (cost $4,966,125 and $517,375 at September 30, 2012 and December 31, 2011, respectively)			6,091,875				446,500
Total trading equity			168,554,693				166,776,456
Interest receivable			6,715				0
Total assets		$	168,561,408			$	166,776,456
Liabilities and Partners’ Capital:
Liabilities:
Net unrealized depreciation on open futures contracts		$	61,750			$	0
Options premium received, at fair value (premium $3,792,250 and $4,016,675 at September 30, 2012 and December 31, 2011, respectively)			2,676,312				432,838
Accrued expenses:
Brokerage fees			504,778				505,312
Management fees			275,418				276,268
Administrative fees			68,854				69,067
Other			67,789				77,343
Redemptions payable			2,646,128				7,767,203
Total liabilities			6,301,029				9,128,031
Partners’ Capital:
General Partner, Class A, (0.0000 unit equivalents outstanding at September 30, 2012 and December 31, 2011)			0				0
General Partner, Class D, (1,442.1637 and 2,254.6063 unit equivalents outstanding at September 30, 2012 and December 31, 2011, respectively)			1,705,863				2,426,903
Limited Partners, Class A, (130,814.1229 and 136,256.4266 Redeemable Units outstanding at September 30, 2012 and December 31, 2011, respectively)			155,839,453				150,238,249
Limited Partners, Class D, (3,986.1963 and 4,629.5010 Redeemable Units outstanding at September 30, 2012 and December 31, 2011, respectively)			4,715,063				4,983,273
Total partners’ capital			162,260,379				157,648,425
Total liabilities and partners’ capital		$	168,561,408			$	166,776,456
Class A, net asset value per unit		$	1,191.30			$	1,102.61
Class D, net asset value per unit		$	1,182.85			$	1,076.42

See accompanying notes to financial statements.

 

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Warrington Fund L.P.

Statements of Financial Condition

Condensed Schedule of Investments

September 30, 2012

(Unaudited)

 

		Number of Contracts				Fair Value				% of Partners’ Capital
Futures Contracts Purchased
Indices			190			$	(61,750	)			(0.03	)%
Total futures contracts purchased							(61,750	)			(0.03	)
Options Purchased
Indices
Calls			190				2,375				0.00	*
Puts			950				6,089,500				3.75
Total options purchased							6,091,875				3.75
Options Premium Received
Indices
Calls			1,590				(50,750	)			(0.03	)
Puts			9,595				(2,625,562	)			(1.62	)
Total options premium received							(2,676,312	)			(1.65	)
Net fair value						$	3,353,813				2.07	%

 

*	Due to rounding.

See accompanying notes to financial statements.

 

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Warrington Fund L.P.

Statements of Financial Condition

Condensed Schedule of Investments

December 31, 2011

 

		Number of Contracts				Fair Value				% of Partners’ Capital
Options Purchased
Indices
Puts			190			$	446,500				0.28	%
Total options purchased							446,500				0.28
Options Premium Received
Indices
Calls			3,562				(44,525	)			(0.03	)
Puts			3,705				(388,313	)			(0.24	)
Total options premium received							(432,838	)			(0.27	)
Net fair value						$	13,662				0.01	%

See accompanying notes to financial statements.

 

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Warrington Fund L.P.

Statements of Income and Expenses

(Unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Investment Income:
Interest income		$	20,122			$	5,284			$	49,197			$	54,439
Expenses:
Brokerage fees including clearing fees			1,659,680				1,850,418				5,008,788				6,324,696
Management fees			820,556				891,110				2,384,165				2,955,446
Administrative fees			205,139				222,777				596,040				738,861
Other			63,529				33,651				182,967				149,994
Total expenses			2,748,904				2,997,956				8,171,960				10,168,997
Net investment income (loss)			(2,728,782	)			(2,992,672	)			(8,122,763	)			(10,114,558	)
Trading Results:
Net gains (losses) on trading of commodity interests:
Net realized gains (losses) on closed contracts			9,422,786				(9,002,200	)			21,449,217				13,349,800
Change in net unrealized gains (losses) on open contracts			(5,528,031	)			1,679,623				(1,333,024	)			455,408
Total trading results			3,894,755				(7,322,577	)			20,116,193				13,805,208
Net income (loss)		$	1,165,973			$	(10,315,249	)		$	11,993,430			$	3,690,650
Net income (loss) allocation by class:
Class A		$	1,077,317			$	(10,315,249	)		$	11,345,602			$	3,690,650
Class D		$	88,656			$	0			$	647,828			$	0
Net asset value per unit
Class A (130,814.1229 and 156,534.4521 units outstanding at September 30, 2012 and 2011, respectively)		$	1,191.30			$	1,030.13			$	1,191.30			$	1,030.13
Class D (5,428.3600 units outstanding at September 30, 2012)		$	1,182.85			$	0			$	1,182.85			$	0
Net income (loss) per unit*
Class A		$	8.15			$	(60.13	)		$	88.69			$	14.35
Class D		$	14.71			$	0			$	106.43			$	0
Weighted average units outstanding
Class A			132,317.8513				171,146.8666				132,465.6544				188,489.4886
Class D			6,028.3600				0				6,274.2001				0

 

*	Based on change in net asset value per unit.

See accompanying notes to financial statements.

 

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Warrington Fund L.P.

Statements of Changes in Partners’ Capital

For the Nine Months Ended September 30, 2012 and 2011

(Unaudited)

 

		Class A								Class D								Total
		Amount				Units				Amount				Units				Amount				Units
Partner’s capital at December 31, 2011		$	150,238,249				136,256.4266			$	7,410,176				6,884.1073			$	157,648,425				143,140.5339
Net income (loss)			11,345,602				0				647,828				0				11,993,430				0
Subscriptions-Limited Partners			18,990,276				16,511.0579				725,000				641.0593				19,715,276				17,152.1172
Redemptions-Limited Partners			(24,734,674	)			(21,953.3616	)			(1,462,326	)			(1,284.3640	)			(26,197,000	)			(23,237.7256	)
Redemptions-General Partner			0				0				(899,752	)			(812.4426	)			(899,752	)			(812.4426	)
Partner’s capital at September 30, 2012		$	155,839,453				130,814.1229			$	6,420,926				5,428.3600			$	162,260,379				136,242.4829
		Class A								Class D								Total
		Amount				Units				Amount				Units				Amount				Units
Partner’s capital at December 31, 2010		$	222,241,881				218,789.9994			$	0				0			$	222,241,881				218,789.9994
Net income (loss)			3,690,650				0				0				0				3,690,650				0
Subscriptions-Limited Partners			6,474,964				6,254.5811				0				0				6,474,964				6,254.5811
Redemptions-Limited Partners			(70,957,064	)			(68,323.4846	)			0				0				(70,957,064	)			(68,323.4846	)
Redemptions-General Partner			(200,000	)			(186.6438	)			0				0				(200,000	)			(186.6438	)
Partner’s capital at September 30, 2011		$	161,250,431				156,534.4521			$	0				0			$	161,250,431				156,534.4521

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

1.    General:

Warrington Fund L.P. (the “Partnership”) is a limited partnership organized on November 28, 2005, under the partnership laws of the State of New York to engage in the speculative trading of commodity interests including futures and options contracts. The Partnership does not currently intend to, but may in the future, engage in transactions in spot and forward markets. The Partnership primarily trades futures in the stock indices sector. The Partnership may, however, also trade in additional sectors including U.S. Treasury bonds, currencies, gold, silver and energy products. The Partnership commenced trading on February 21, 2006. The commodity interests that are traded by the Partnership are volatile and involve a high degree of market risk. The Partnership privately and continuously offers redeemable units of limited partnership interest (“Redeemable Units”) in the Partnership to qualified investors. There is no maximum number of Redeemable Units that may be sold by the Partnership.

Ceres Managed Futures LLC, a Delaware limited liability company, acts as the general partner (the “General Partner”) and commodity pool operator of the Partnership. The General Partner is wholly owned by Morgan Stanley Smith Barney Holdings LLC (“MSSB Holdings”). Morgan Stanley, indirectly through various subsidiaries, owns a majority equity interest in MSSB Holdings. Citigroup Inc. indirectly owns a minority equity interest in MSSB Holdings. Citigroup Inc. also indirectly owns Citigroup Global Market Inc. (“CGM”), the commodity broker and a selling agent for the Partnership. Prior to July 31, 2009, the date as of which MSSB Holdings became its owner, the General Partner was wholly owned by Citigroup Financial Products Inc., a wholly owned subsidiary of Citigroup Global Markets Holdings Inc., the sole owner of which is Citigroup Inc.

On June 15, 2011, the Partnership began offering “Class A” Redeemable Units and “Class D” Redeemable Units pursuant to the offering memorandum. All outstanding Redeemable Units on June 15, 2011, were Class A Redeemable Units. The rights, powers, duties and obligations associated with the investment in Class A Redeemable Units were not changed. On October 1, 2011, the first Class D Redeemable Units were issued to limited partners of the Partnership (each a “Limited Partner.”) Class A Redeemable Units and Class D Redeemable Units will each be referred to as a “Class” and collectively referred to as the “Classes”. The Class of Redeemable Units that a Limited Partner receives will generally depend upon the amount invested in the Partnership, although the General Partner may determine to offer Class A Redeemable Units or Class D Redeemable Units to investors in its sole discretion.

As of September 30, 2012, all trading decisions for the Partnership are made by Warrington Asset Management LLC (the “Advisor”). In addition, the Advisor is a special limited partner (the “Special Limited Partner”) of the Partnership.

The General Partner and each Limited Partner share in the profits and losses of the Partnership, after the allocation to the Special Limited Partner, in proportion to the amount of Partnership interest owned by each, except that no Limited Partner is liable for obligations of the Partnership in excess of its capital contribution and profits or losses, if any, net of distributions.

The Partnership’s trading of futures and options contracts, if applicable, on commodities is done primarily on United States of America and foreign commodity exchanges. It engages in such trading through a commodity brokerage account maintained with CGM.

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Partnership’s financial condition at September 30, 2012, and December 31, 2011, and the results of its operations and changes in partners’ capital for the three and nine months ended September 30, 2012, and 2011. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) for the year ended December 31, 2011.

The preparation of financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Due to the nature of commodity trading, the results of operations for the interim periods presented should not be considered indicative of the results that may be expected for the entire year.

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

2.    Financial Highlights:

Changes in net asset value per unit for each Class for the three and nine months ended September 30, 2012 and 2011 were as follows:

 

		Three Months Ended September 30, 2012								Three Months Ended September 30, 2011				Nine Months Ended September 30, 2012								Nine Months Ended September 30, 2011
		Class A				Class D				Class A				Class A				Class D				Class A
Net realized and unrealized gains (losses) *		$	15.89			$	22.37			$	(53.45	)		$	111.16			$	128.57			$	34.50
Interest income			0.14				0.14				0.03				0.36				0.36				0.27
Expenses and allocation to Special Limited Partner **			(7.88	)			(7.80	)			(6.71	)			(22.83	)			(22.50	)			(20.42	)
Increase (decrease) for the period			8.15				14.71				(60.13	)			88.69				106.43				14.35
Net asset value per unit, beginning of period			1,183.15				1,168.14				1,090.26				1,102.61				1,076.42				1,015.78
Net asset value per unit, end of period		$	1,191.30			$	1,182.85			$	1,030.13			$	1,191.30			$	1,182.85			$	1,030.13

 

*	Includes brokerage fees including clearing fees.

**	Excludes brokerage fees including clearing fees.

 

		Three Months Ended September 30, 2012								Three Months Ended September 30, 2011				Nine Months Ended September 30, 2012								Nine Months Ended September 30, 2011
		Class A				Class D				Class A***				Class A				Class D				Class A***
Ratios to average net assets:****
Net investment income (loss)			(6.8	)%			(4.5	)%			(6.8	)%			(7.1	)%			(4.9	)%			(7.0	)%
Allocation to Special Limited Partner			0	%			0	%			0	%			0	%			0	%			0	%
Net investment income (loss) before allocation to Special Limited Partner *****			(6.8	)%			(4.5	)%			(6.8	)%			(7.1	)%			(4.9	)%			(7.0	)%
Operating expense			6.9	%			4.5	%			6.8	%			7.1	%			5.0	%			7.1	%
Allocation to Special Limited Partner			0	%			0	%			0	%			0	%			0	%			0	%
Total expenses			6.9	%			4.5	%			6.8	%			7.1	%			5.0	%			7.1	%
Total return:
Total return before allocation to Special Limited Partner			0.7	%			1.3	%			(5.5	)%			8.0	%			9.9	%			1.4	%
Allocation to Special Limited Partner			0	%			0	%			0	%			0	%			0	%			0	%
Total return after allocation to Special Limited Partner			0.7	%			1.3	%			(5.5	)%			8.0	%			9.9	%			1.4	%

 

***	The ratios are shown net and gross of allocation to Special Limited Partner, if any, to conform to current period presentation.

****	Annualized (except allocation to Special Limited Partner, if applicable).

*****

Interest income less total expenses.

The above ratios may vary for individual investors based on the timing of capital transactions during the period. Additionally, these ratios are calculated for the Limited Partner Classes using the Limited Partners’ share of income, expenses and average net assets.

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

3.    Trading Activities:

The Partnership was formed for the purpose of trading contracts in a variety of commodity interests, including derivative financial instruments and derivative commodity instruments. The results of the Partnership’s trading activities are shown in the Statements of Income and Expenses.

The customer agreement between the Partnership and CGM gives the Partnership the legal right to net unrealized gains and losses on open futures contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification (“ASC”) 210-20, “Balance Sheet,” have been met.

All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of futures contracts traded during the three months ended September 30, 2012, and 2011 were 63 and 0, respectively. The monthly average number of futures contracts traded during the nine months ended September 30, 2012, and 2011 were 21 and 97, respectively. The monthly average number of option contracts traded during the three months ended September 30, 2012, and 2011 were 11,565 and 13,092, respectively. The monthly average number of option contracts traded during the nine months ended September 30, 2012, and 2011 were 15,411 and 16,435, respectively.

Brokerage fees are calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and are affected by trading performance, subscriptions and redemptions.

The following table indicates the gross fair values of derivative instruments of futures and option contracts as separate assets and liabilities as of September 30, 2012 and December 31, 2011.

 

		September 30, 2012				December 31, 2011
Liabilities
Futures Contracts
Indices		$	(61,750	)		$	—
Total unrealized depreciation on open futures contracts		$	(61,750	)		$	—
Net unrealized depreciation on open futures contracts		$	(61,750	)*		$	—	*
Assets
Options Purchased
Indices		$	6,091,875			$	446,500
Total options purchased		$	6,091,875	**		$	446,500	**
Liabilities
Options Premium Received
Indices		$	(2,676,312	)		$	(432,838	)
Total options premium received		$	(2,676,312	)***		$	(432,838	)***

 

*	This amount is in “Net unrealized depreciation on open futures contracts” on the Statements of Financial Condition.

**	This amount is in “Options purchased, at fair value” on the Statements of Financial Condition.

***	This amount is in “Options premium received, at fair value” on the Statements of Financial Condition.

 

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Warrington Fund L.P.

Notes to Financial Statements

June 30, 2012

(Unaudited)

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three and nine months ended September 30, 2012 and 2011.

 

		Three Months Ended September 30,								Nine Months Ended September 30,
Sector		2012				2011				2012				2011
Indices		$	3,894,755			$	(7,322,577	)		$	20,116,193			$	13,805,208
Total		$	3,894,755	****		$	(7,322,577	)****		$	20,116,193	****		$	13,805,208	****

 

**** This amount is in “Total trading results” on the Statements of Income and Expenses.

4.    Fair Value Measurements:

Partnership’s Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on option contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

Partnership’s Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, the Partnership’s Level 1 assets and liabilities are actively traded.

 

The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

Effective January 1, 2012, the Partnership adopted Accounting Standards Update (“ASU”) 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in GAAP and International Financial Reporting Standards [(“IFRS”)].” The amendments within this ASU change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements to eliminate unnecessary wording differences between GAAP and IFRS. However, some of the amendments clarify the Financial Accounting Standards Board’s (“the FASB”) intent about the application of existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This new guidance did not have a significant impact on the Partnership’s financial statements.

The Partnership considers prices for exchange-traded commodity futures and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of forwards and certain option contracts for which market quotations are not readily available are priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended September 30, 2012 and December 31, 2011, the Partnership did not hold any derivative instruments for which market quotations were not readily available and which were priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). During the nine months ended September 30, 2012, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

		September 30, 2012				Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Options purchased		$	6,091,875			$	6,091,875			$	—			$	—
Total assets		$	6,091,875			$	6,091,875			$	—			$	—
Liabilities
Futures		$	61,750			$	61,750			$	—			$	—
Options premium received			2,676,312				2,676,312				—				—
Total liabilities			2,738,062				2,738,062				—				—
Net fair value		$	3,353,813			$	3,353,813			$	—			$	—

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

		December 31, 2011				Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Assets
Options purchased		$	446,500			$	446,500			$	—			$	—
Total assets		$	446,500			$	446,500			$	—			$	—
Liabilities
Options premium received		$	432,838			$	432,838			$	—			$	—
Total liabilities			432,838				432,838				—				—
Net fair value		$	13,662			$	13,662			$	—			$	—

5.    Financial Instrument Risks:

In the normal course of business, the Partnership is party to financial instruments with off-balance sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include futures and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments on specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments are standardized and include futures and certain forward and option contracts. OTC contracts are negotiated between contracting parties and include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. Each of these instruments is subject to various risks similar to those relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract.

The risk to the Limited Partners that have purchased Redeemable Units is limited to the amount of their share of the Partnership’s net assets and undistributed profits. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

Market risk is the potential for changes in the value of the financial instruments traded by the Partnership due to market changes, including interest and foreign exchange rate movements and fluctuations in commodity or security prices. Market risk is directly impacted by the volatility and liquidity in the markets in which the related underlying assets are traded. The Partnership is exposed to market risk equal to the value of futures contracts purchased and unlimited liability on such contracts sold short.

Credit risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of a contract. The Partnership’s risk of loss in the event of a counterparty default is typically limited to the amounts recognized in the Statements of Financial Condition and is not represented by the contract or notional amounts of the instruments. The Partnership’s risk of loss is reduced through the use of legally enforceable master netting agreements with counterparties that permit the Partnership to offset unrealized gains and losses and other assets and liabilities with such counterparties upon the occurrence of certain events. The Partnership has credit risk and concentration risk, as CGM or a CGM affiliate is the sole counterparty or broker with respect to the Partnership’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through CGM, the Partnership’s counterparty is an exchange or clearing organization.

As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership to potentially unlimited liability; for purchased options, the risk of loss is limited to the premiums paid. Certain written put options permit cash settlement and do not require the option holder to own the reference asset. The Partnership does not consider these contracts to be guarantees.

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

The General Partner monitors and attempts to control the Partnership’s risk exposure on a daily basis through financial, credit and risk management monitoring systems, and accordingly, believes that it has effective procedures for evaluating and limiting the credit and market risks to which the Partnership may be subject. These monitoring systems generally allow the General Partner to statistically analyze actual trading results with risk adjusted performance indicators and correlation statistics. In addition, online monitoring systems provide account analysis of futures, forwards and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.

The majority of these financial instruments mature within one year of the inception date. However, due to the nature of the Partnership’s business, these instruments may not be held to maturity.

6.    Critical Accounting Policies

Use of Estimates. The preparation of financial statements and accompanying notes in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses, and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. As a result, actual results could differ from these estimates.

Partnership’s Investments. All commodity interests (including derivative financial instruments and derivative commodity instruments) are held for trading purposes. The commodity interests are recorded on trade date and open contracts are recorded at fair value (as described below) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on option contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

Partnership’s Fair Value Measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be determined based on the lowest level input that is significant to the fair value measurement in its entirety.

GAAP also requires the use of judgment in determining if a formerly active market has become inactive and in determining fair values when the market has become inactive. Management has concluded that based on available information in the marketplace, the Partnership’s Level 1 assets and liabilities are actively traded.

The Partnership will separately present purchases, sales, issuances and settlements in its reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and make disclosures regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy as required under GAAP.

The Partnership considers prices for exchange-traded commodity futures and options contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of forwards, swaps and certain options contracts for which market quotations are not readily available are priced by broker-dealers that derive fair values for those assets and liabilities from observable inputs (Level 2). As of and for the periods ended September 30, 2012, and December 31, 2011, the Partnership did not hold any derivative instruments that were priced by broker-dealers that derive fair values for those assets from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). During the nine months ended September 30, 2012, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

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Warrington Fund L.P.

Notes to Financial Statements

September 30, 2012

(Unaudited)

 

Options. The Partnership may purchase and write (sell), both exchange listed and OTC, options on commodities or financial instruments. An option is a contract allowing, but not requiring, its holder to buy (call) or sell (put) a specific or standard commodity or financial instrument at a specified price during a specified time period. The option premium is the total price paid or received for the option contract. When the Partnership writes an option, the premium received is recorded as a liability in the Statements of Financial Condition and marked to market daily. When the Partnership purchases an option, the premium paid is recorded as an asset in the Statements of Financial Condition and marked to market daily. Net realized gains (losses) and changes in net unrealized gains (losses) on options contracts are included in the Statements of Income and Expenses.

Income Taxes. Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses.

GAAP provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements and requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Partnership’s financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions with respect to tax at the Partnership level not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax benefit or expense in the current year. The General Partner has concluded that no provision for income tax is required in the Partnership’s financial statements.

The Partnership files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The 2009 through 2011 tax years remain subject to examination by U.S. federal and most state tax authorities. The General Partner does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Subsequent Events. The General Partner evaluates events that occur after the balance sheet date but before financial statements are filed. The General Partner has assessed the subsequent events through the date of filing and has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.

Recent Accounting Pronouncements. In October 2011, the FASB issued a proposed ASU intended to improve and converge financial reporting by setting forth consistent criteria for determining whether an entity is an investment company. Under longstanding GAAP, investment companies carry all of their investments at fair value, even if they hold a controlling interest in another company. The primary changes being proposed by the FASB relate to which entities would be considered investment companies as well as certain disclosure and presentation requirements. In addition to the changes to the criteria for determining whether an entity is an investment company, the FASB also proposes that an investment company consolidate another investment company if it holds a controlling financial interest in the entity. In August 2012, the FASB updated the proposed ASU to state that entities regulated under the Investment Company Act of 1940 should qualify to be investment companies within the proposed investment company guidance. The Partnership will evaluate the impact that this proposed update would have on the financial statements once the pronouncement is issued.

In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities,” which creates a new disclosure requirement about the nature of an entity’s rights of setoff and the related arrangements associated with its financial instruments and derivative instruments. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparisons between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of IFRS. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Partnership would also provide the disclosures retrospectively for all comparative periods presented. The Partnership is currently evaluating the impact that the pronouncement would have on the financial statements.

Net Income (Loss) per unit. Net income (loss) per unit is calculated in accordance with investment company guidance. See Note 2, “Financial Highlights.”

 

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are its equity in its trading account, consisting of cash and cash margin, options and futures contracts and interest receivable. Because of the low margin deposits normally required in commodity futures trading, relatively small price movements may result in substantial losses to the Partnership. While substantial losses could lead to a material decrease in liquidity, no such illiquidity occurred in the third quarter of 2012.

The Partnership’s capital consists of capital contributions of its partners, as increased or decreased by realized and/or unrealized gains or losses on trading and by expenses, interest income, subscriptions and redemptions of Redeemable Units and distributions of profits, if any.

For the nine months ended September 30, 2012, the Partnership’s capital increased 2.9% from $157,648,425 to $162,260,379. This increase was attributable to the net income of $11,993,430, coupled with the subscriptions of 16,511.0579 Class A Redeemable Units totaling $18,990,276 and subscriptions of 641.0593 Class D Redeemable Units totaling $725,000. This increase was partially offset by redemptions of 21,953.3616 Class A Redeemable Units totaling $24,734,674 and redemptions of 1,284.3640 Class D Redeemable Units totaling $1,462,326 and 812.4426 General Partner Class D unit equivalents were redeemed totaling $899,752. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Management believes that the estimates utilized in preparing the financial statements are reasonable. Actual results could differ from those estimates. The Partnership’s significant accounting policies are described in detail in Note 6 of the Financial Statements.

The Partnership records all investments at fair value in its financial statements, with changes in fair value reported as a component of net realized gains (losses) and change in net unrealized gains (losses) in the Statements of Income and Expenses.

Results of Operations

During the Partnership’s third quarter of 2012, the net asset value per Class A unit increased 0.7% from $1,183.15 to $1,191.30 as compared to a decrease of 5.5% in the third quarter of 2011. During the Partnership’s third quarter of 2012, the net asset value per Class D unit increased 1.3% from $1,168.14 to $1,182.85. The Partnership experienced a net trading gain before brokerage fees and related fees in the third quarter of 2012 of $3,894,755. Gains were primarily attributable to the trading of commodity futures in the S&P 500 Index futures and the S&P 500 Index Puts and were partially offset by losses in the S&P 500 Index Calls. The Partnership experienced a net trading loss before brokerage fees and related fees in the third quarter of 2011 of $7,322,577. Losses were primarily attributable to the trading of commodity futures in the S&P 500 Index Calls and the S&P 500 Index Puts, and were partially offset by gains in the S&P 500 Index futures.

During the third quarter of 2012, the most significant gains were recorded during September as ratio put spread positions in the S&P 500 Index benefited as prices rallied. Further gains were recorded during July as ratio put spread positions in the S&P 500 Index benefited during the earlier part of the month as prices declined given concerns about the health of the U.S. economy. Lastly, modest gains were also recorded during August as ratio put spread positions in the S&P 500 Index benefited the Partnership as prices declined early in the month.

During the Partnership’s nine months ended September 30, 2012, the net asset value per Class A unit increased 8.0% from $1,102.61 to $1,191.30 as compared to an increase of 1.4% in the nine months ended September 30, 2011. During the Partnership’s nine months ended September 30, 2012, the net asset value per Class D unit increased 9.9% from $1,076.42 to $1,182.85. The Partnership experienced a net trading gain before brokerage fees and related fees in the nine months ended September 30, 2012, of $20,116,193. Gains were primarily attributable to the trading of commodity futures in the S&P 500 Index futures, S&P 500 Index Calls and the S&P 500 Index Puts. The Partnership experienced a net trading gain before brokerage fees and related fees in the nine months ended September 30, 2011, of $13,805,208. Gains were primarily attributable to the trading of commodity futures in the S&P 500 Index futures and were partially offset by losses in the S&P 500 Index Calls and the S&P 500 Index Puts.

During the nine months ended September 30, 2012, the most significant gains were recorded during June as ratio put spread positions in the S&P 500 Index profited during the latter half of the month as prices rallied. Further gains were recorded during April as ratio put spread positions in the S&P 500 Index benefited during the earlier part of the month as prices declined given concerns about the health of the U.S. economy. Gains were also recorded during May from ratio put spread positions in the S&P 500 Index as prices declined during the month on concerns over the euro zone debt crisis and slowing global growth. Gains were also recorded during September as ratio put spread positions in the S&P 500 Index were profitable as prices rallied. Additional gains were recorded during January as ratio put spread positions in the S&P 500 Index benefited during the last week of the month as the S&P 500 Index traded lower for four consecutive days. Smaller trading gains were recorded in March as the Partnership was able to capitalize on a small part of the decline in the S&P 500 Index at the end of the month. A portion of these gains was offset by trading losses incurred in February as low levels of volatility in the S&P 500 Index cost the Fund’s ratio put spreads money as the market traded higher, thus forcing positions to be rebalanced during the month.

 

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Commodity markets are highly volatile. Broad price fluctuations and rapid inflation increase the risks involved in commodity trading, but also increase the possibility of profit. The profitability of the Partnership depends on the existence of major price trends and the ability of the Advisor to correctly identify those price trends. Price trends are influenced by, among other things, changing supply and demand relationships, weather, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events, and changes in interest rates. To the extent that market trends exist and the Advisor is able to identify them, the Partnership expects to increase capital through operations.

Interest income on 80% of the Partnership’s daily average equity maintained in cash in its account during each month was earned at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month U.S. Treasury bills maturing in 30 days. Interest income for the three months ended September 30, 2012, increased by $14,838, as compared to the corresponding period in 2011. Interest income for the nine months ended September 30, 2012, decreased by $5,242, as compared to the corresponding period in 2011. The increase in interest income is due to higher U.S. Treasury bill rates during the three months ended September 30, 2012, as compared to the corresponding period in 2011. The decrease in interest income is due to lower U.S. Treasury bill rates and lower average net assets during the nine months ended September 30, 2012, as compared to the corresponding period in 2011. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership depends on the average daily equity in the Partnership’s account and upon interest rates over which neither the Partnership nor CGM has control.

Brokerage fees are calculated on the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Brokerage fees and clearing fees for the three and nine months ended September 30, 2012, decreased by $190,738 and $1,315,908, respectively, as compared to the corresponding periods in 2011. The decrease in brokerage fees is due to lower average net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Management fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Management fees for the three and nine months ended September 30, 2012, decreased by $70,554 and $571,281, respectively, as compared to the corresponding periods in 2011. The decrease in management fees is due to lower average net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Administrative fees are calculated as a percentage of the Partnership’s adjusted net asset value as of the end of each month and are affected by trading performance, subscriptions and redemptions. Administrative fees for the three and nine months ended September 30, 2012, decreased by $17,638 and $142,821, respectively, as compared to the corresponding periods in 2011. The decrease in administrative fees is due to lower average net assets during the three and nine months ended September 30, 2012, as compared to the corresponding periods in 2011.

Special Limited Partner profit share allocations (incentive fees) are based on the new trading profits earned by the Advisor on behalf of the Partnership, at the end of the quarter, as defined in the management agreement among the Partnership, the General Partner and the Advisor. There were no profit share allocations made for the three and nine months ended September 30, 2012, and 2011. The Special Limited Partner will not receive a profit share allocation until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.

In allocating the assets of the Partnership to the Advisor, the General Partner considers the Advisor’s past performance, trading style, volatility of markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor at any time.

 

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Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

The Partnership is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and all or substantially all of the Partnership’s assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Partnership’s main line of business.

The limited partners will not be liable for losses exceeding the current net asset value of their investment.

Market movements result in frequent changes in the fair value of the Partnership’s open positions and, consequently, in its earnings and cash balances. The Partnership’s market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Partnership’s open contracts and the liquidity of the markets in which it trades.

The Partnership 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, and the Partnership’s past performance is not necessarily indicative of its future results.

“Value at Risk” is a measure of the maximum amount which the Partnership could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Partnership’s speculative trading and the recurrence in the markets traded by the Partnership of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Partnership’s experience to date (i.e., “risk of ruin”). In light of the foregoing as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification in this section should not be considered to constitute any assurance or representation that the Partnership’s losses in any market sector will be limited to Value at Risk or by the Partnership’s attempts to manage its market risk.

Exchange maintenance margin requirements have been used by the Partnership as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component, which is not relevant to Value at Risk.

 

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Value at Risk tables represent a probabilistic assessment of the risk of loss in market sensitive instruments. The following tables indicate the trading Value at Risk associated with the Partnership’s open contracts by market category as of September 30, 2012, and December 31, 2011, and the highest, lowest and average value during the three months ended September 30, 2012, and twelve months ended December 31, 2011. All open contracts trading risk exposures of the Partnership have been included in calculating the figures set forth below. There has been no material change in the trading Value at Risk information previously disclosed in the Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2011. As of September 30, 2012, the Partnership’s total capital was $162,260,379.

September 30, 2012

 

										Three months ended September 30, 2012
Market Sector		Value at Risk				% of Total Capital				High Value at Risk				Low Value at Risk				Average Value at Risk*
Indices		$	32,463,630				20.01	%		$	98,040,400			$	2,710,925			$	23,696,485
Total		$	32,463,630				20.01	%

 

*	Average of month-end Values at Risk.

As of December 31, 2011, the Partnership’s total capitalization was $157,648,425.

December 31, 2011

 

										Twelve months ended December 31, 2011
Market Sector		Value at Risk				% of Total Capitalization				High Value at Risk				Low Value at Risk				Average Value at  Risk*
Indices		$	16,743,916				10.62	%		$	135,350,575			$	4,043,054			$	48,751,848
Total		$	16,743,916				10.62	%

 

*	Annual average of month-end Values at Risk.

 

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Item 4.    Controls and Procedures

The Partnership’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Partnership on the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods expected in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Partnership in the reports it files is accumulated and communicated to management, including the President and Chief Financial Officer (the “CFO”) of the General Partner, to allow for timely decisions regarding required disclosure and appropriate SEC filings.

The General Partner is responsible for ensuring that there is an adequate and effective process for establishing, maintaining and evaluating disclosure controls and procedures for the Partnership’s external disclosures.

The General Partner’s President and CFO have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2012, and, based on that evaluation, the General Partner’s President and CFO have concluded that, at that date, the Partnership’s disclosure controls and procedures were effective.

The Partnership’s internal control over financial reporting is a process under the supervision of the General Partner’s President and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. These controls include policies and procedures that:

 

•

pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

 

•

provide reasonable assurance that (i) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and (ii) the Partnership’s receipts are handled and expenditures are made only pursuant to authorizations of the General Partner; and

 

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended September 30, 2012, that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

The following information supplements and amends the discussion set forth under Part I, Item 3. “Legal Proceedings” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as updated by the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012.

This section describes the major pending legal proceedings, other than ordinary routine litigation incidental to the business, to which CGM or its subsidiaries is a party or to which any of their property is subject. There are no material legal proceedings pending against the Partnership or the General Partner.

CGM is a New York corporation with its principal place of business at 388 Greenwich St., New York, New York 10013. CGM is registered as a broker-dealer and futures commission merchant (“FCM’’), and provides futures brokerage and clearing services for institutional and retail participants in the futures markets. CGM and its affiliates also provide investment banking and other financial services for clients worldwide.

There have been no material administrative, civil or criminal actions within the past five years against CGM (formerly known as Salomon Smith Barney) or any of its individual principals and no such actions are currently pending, except as follows.

RMBS Litigation and Other Matters

On May 4, 2012, the district court in FEDERAL HOUSING FINANCE AGENCY v. UBS AMERICAS, INC., ET AL., a parallel case to FEDERAL HOUSING FINANCE AGENCY v. ALLY FINANCIAL INC., ET AL., FEDERAL HOUSING FINANCE AGENCY v. CITIGROUP INC., ET AL., and FEDERAL HOUSING FINANCE AGENCY v. JPMORGAN CHASE & CO., ET AL., denied defendants’ motion to dismiss plaintiff’s securities law claims and granted defendants’ motion to dismiss plaintiff’s negligent misrepresentation claims. On June 19, 2012, the district court granted defendants’ motion to certify an interlocutory appeal to the United States Court of Appeals for the Second Circuit from the court’s statutes of repose and limitations rulings.

On May 15, 2012, Woori Bank filed a complaint in the United States District Court for the Southern District of New York against Citigroup alleging actionable misstatements and omissions in connection with Woori Bank’s $95 million investment in five collateralized debt obligations.

On May 18, 2012, the Federal Deposit Insurance Corporation filed (“FDIC”) complaints in the United States District Courts for the Southern District of New York and the Central District of California against various defendants, including Citigroup Global Markets Inc., Citicorp Mortgage Securities Inc., and CitiMortgage Inc., in connection with purchases of residential mortgage-backed securities (“RMBS”) by two failed banks for which the FDIC is acting as receiver.

On June 6, 2012, the court granted in part and denied in part defendants’ motions to dismiss in WESTERN & SOUTHERN LIFE INS. CO., ET AL. v. RESIDENTIAL FUNDING CO., LLC, ET AL.

On June 26, 2012, the court overruled defendants’ demurrer to plaintiff’s amended complaint in FEDERAL HOME LOAN BANK OF CHICAGO v. BANC OF AMERICA SECURITIES, LLC, ET AL.

On July 27, 2012, John Hancock Life Insurance Co. and several affiliated entities filed a complaint in the United States District Court for the District of Minnesota against various defendants, including CGM, asserting disclosure claims arising out of purchases of RMBS.

On August 29, 2012, the United States District Court for the Southern District of New York issued an order preliminarily approving the parties’ settlement in IN RE CITIGROUP INC. SECURITIES LITIGATION, pursuant to which Citigroup has agreed to pay $590 million. A fairness hearing is scheduled for January 15, 2013.

On August 30, 2012, Rentokil-Initial Pension Scheme filed a putative class action complaint against Citigroup on behalf of purchasers of 26 Citigroup offerings of medium term Euro Notes issued between October 12, 2005 and February 25, 2009. The complaint asserts claims under Section 90 of the Financial Services and Markets Act 2000 and includes allegations similar to those asserted in IN RE CITIGROUP INC. BOND LITIGATION.

On October 15, 2012, the United States District Court for the Southern District of New York granted lead plaintiffs’ amended motion for class certification in NEW JERSEY CARPENTERS HEALTH FUND v. RESIDENTIAL CAPITAL LLC, ET AL., having previously denied lead plaintiffs’ motion for class certification on January 18, 2011. Plaintiffs in this action allege violations of Sections 11, 12, and 15 of the Securities Act of 1933, as amended, and assert disclosure claims on behalf of a putative class of purchasers of mortgage-backed securities issued by Residential Accredited Loans, Inc. pursuant or traceable to prospectus materials filed on March 3, 2006 and April 3, 2007. CGM is one of the underwriter defendants.

Other Matters

        Citigroup and Citibank, N.A., along with other U.S. Dollar (USD) LIBOR panel banks, are defendants in the multidistrict litigation (MDL) proceeding before Judge Buchwald in the United States District Court for the Southern District of New York captioned IN RE LIBOR-BASED FINANCIAL INSTRUMENTS ANTITRUST LITIGATION. Judge Buchwald has appointed interim lead class counsel for, and consolidated amended complaints have been filed on behalf of, three separate putative classes of plaintiffs: (1) OTC purchasers of derivative instruments tied to USD LIBOR; (2) purchasers of exchange-traded derivative instruments tied to USD LIBOR; and (3) indirect OTC purchasers of U.S. debt securities. Each of these putative classes alleges that the panel bank defendants conspired to suppress USD LIBOR in violation of the Sherman Act and/or the Commodity Exchange Act, thereby causing plaintiffs to suffer losses on the instruments they purchased. Also consolidated into the MDL proceeding are individual civil actions commenced by various Charles Schwab entities that allege that the panel bank defendants conspired to suppress the USD LIBOR rates in violation of the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act, and California state law, causing the Schwab entities to suffer losses on USD LIBOR-linked financial instruments that they owned. Plaintiffs in these actions seek compensatory damages and restitution for losses caused by the alleged violations, as well as treble damages under the Sherman Act. The Schwab and OTC plaintiffs also seek injunctive relief.

In the course of its business, CGM, as a major futures commission merchant and broker-dealer, is a party to various civil actions, claims and routine regulatory investigations and proceedings that the General Partner believes do not have a material effect on the business of CGM. GCM may establish reserves from time to time in connections with such actions. Additional lawsuits containing claims similar to those described above may be filed in the future.

 

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Item 1A.    Risk Factors

There have been no material changes to the risk factors set forth under Part 1, Item 1A. “Risk Factors” in the Partnership’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and under Part II, Item 1A. “Risk Factors” in the Partnership’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, other than as set forth below.

Speculative position and trading limits may reduce profitability.

The CFTC and U.S. exchanges have established speculative position limits on the maximum net long or net short positions which any person may hold or control in particular futures and options on futures. The trading instructions of an advisor may have to be modified, and positions held by the Partnership may have to be liquidated in order to avoid exceeding these limits. Such modification or liquidation could adversely affect the operations and profitability of the Partnership by increasing transaction costs to liquidate positions and foregoing potential profits.

In October 2011, the CFTC adopted new rules governing position limits. In September 2012, these rules were vacated by the United States District Court for the District of Columbia and remanded to the CFTC for further consideration. It is possible, nevertheless, that these rules may take effect in some form via re-promulgation or a successful appeal by the CFTC of the District Court’s ruling. The vacated rules established position limits on certain futures contracts and any economically equivalent futures, options and swaps.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

For the three months ended September 30, 2012, there were subscriptions of 7,087.4179 Class A Redeemable Units totaling $8,375,706. The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(2) of the Securities Act of 1933, as amended, and Section 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors as defined in Regulation D. In determining the applicability of the exemption, the General Partner relied on the fact that the Redeemable Units were purchased by accredited investors in a private offering.

Proceeds of net offering were used in the trading of commodity interests including futures and options contracts.

The following chart sets forth the purchases of Redeemable Units by the Partnership.

 

Period		Class A (a) Total Number of Shares (or Redeemable Units) Purchased*		Class A (b) Average Price Paid per Share (or Redeemable Unit)**		Class D (a) Total Number of Shares (or Redeemable Units) Purchased*		Class D (b) Average Price Paid per Share (or Redeemable Unit)**		(c) Total Number of Shares (or Redeemable Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum  Number (or Approximate Dollar Value) of Shares (or Redeemable Units) that May Yet Be Purchased Under the Plans or Programs
July 1, 2012 – July 31, 2012		844.7840		$  1,182.51		—		$  1,169.71		N/A		N/A
August 1, 2012 – August 31, 2012		2,888.9810		$  1,178.89		—		$  1,168.32		N/A		N/A
September 1, 2012 – September 30, 2012		1,625.4660		$  1,191.30		600.0000		$  1,182.85		N/A		N/A
		5,359.2310		$  1,183.22		600.0000		$  1,182.85

 

*

Generally, Limited Partners are permitted to redeem their Redeemable Units as of the end of each month on three business days’ notice to the General Partner. Under certain circumstances, the General Partner can compel redemption although, to date, the General Partner has not exercised this right. Purchases of Redeemable Units by the Partnership reflected in the chart above were made in the ordinary course of the Partnership’s business in connection with effecting redemptions for Limited Partners.

**	Redemptions of Redeemable Units are effected as of the last day of each month at the net asset value per Redeemable Unit as of that day.

Item 3.    Defaults Upon Senior Securities – None

Item 4.    Mine Safety Disclosures – None

 

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Item 5.    Other Information

The registrant does not have a board of directors. The registrant’s general partner, Ceres Managed Futures LLC (“CMF”), is managed by a board of directors.

Effective November 14, 2012, Mr. Damian George was appointed a director of CMF.

Damian George, age 45, has been a Director of the general partner since November 2012. Since June 2012, Mr. George has been the Chief Financial Officer and a principal of the general partner and is an associate member of the National Futures Association. Since August 2009, Mr. George has been employed by Morgan Stanley Smith Barney LLC (“Morgan Stanley Smith Barney”), a financial services firm, where his responsibilities include oversight of budgeting, finance and Sarbanes-Oxley testing for the Alternative Investments–Managed Futures group. Since August 2009, Mr. George has been registered as an associated person of Morgan Stanley Smith Barney. From November 2005 through July 2009, Mr. George was employed by Citi Alternative Investments, a division of Citigroup Inc. (“Citigroup”), a financial services firm, which administered Citigroup’s hedge fund and fund of funds business, where he served as Director and was responsible for budgeting, finance and Sarbanes-Oxley testing for the Hedge Fund Management group. From November 2004 through July 2009, Mr. George was registered as an associated person of Citigroup Global Markets Inc. Mr. George earned his Bachelor of Science degree in Accounting in May 1989 from Fordham University and his Master of Business Administration degree in International Finance in February 1998 from Fordham University. Mr. George is a Certified Public Accountant.

 

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Item 6.    Exhibits

 

3.1		(a)		Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York on November 21, 2005 (filed as Exhibit 3.1 to general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
		(b)		Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 19, 2008 (filed as Exhibit 3.1(b) to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
		(c)		Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of the State of New York, dated September 28, 2009 (filed as Exhibit 99.1 to the current report on Form 8-K filed on September 30, 2009 and incorporated herein by reference).
		(d)		Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated June 30, 2010 (filed as Exhibit 3.1(d) to the Form 8-K filed on July 2, 2010 and incorporated herein by reference).
		(e)		Certificate of Amendment of the Certificate of Limited Partnership as filed in the office of the Secretary of State of New York, dated September 2, 2011 (filed as Exhibit 3.1 to the Form 8-K on September 7, 2011 and incorporated herein by reference).
3.2		(a)		Fifth Amended and Restated Limited Partnership Agreement, effective January 30, 2012 (filed as Exhibit 3.2(b) to the Form 8-K filed on May 17, 2012 and incorporated herein by reference)
10.1		(a)		Management Agreement among the Partnership, the General Partner and Warrington Asset Management, LLC, effective July 24, 2011 (filed as Exhibit 10.1 to the Form 8-K filed on July 3, 2012 and incorporated herein by reference).
		(b)		Letter from the General Partner to Warrington Asset Management, LLC extending Management Agreement for 2012 (filed as Exhibit 10.1(b) to the annual report on Form 10-K filed on March 30, 2012 and incorporated herein by reference).
10.2				Customer Agreement between the Partnership, the General Partner and CGM, dated February 17, 2005 (filed as Exhibit 10.2 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
10.3				Amended and Restated Agency Agreement between the Partnership, the General Partner and CGM, dated April 26, 2007 (filed as Exhibit 10.3 to the general form for registration of securities on Form 10 filed on April 30, 2007 and incorporated herein by reference).
10.4				Selling Agreement between the Partnership, the General Partner, CGM and Credit Suisse Securities (USA) LLC, dated September 30, 2008 (filed as Exhibit 10.4 to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.5				Form of Subscription Agreement (filed herein).
10.6				Form of Third Party Subscription Agreement (filed as Exhibit 10.6 to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.9				Joinder Agreement among the Partnership, the General Partner, CGM and Morgan Stanley Smith Barney LLC, dated June 1, 2009 (filed as Exhibit 10 to the quarterly report on Form 10-Q filed on August 14, 2009 and incorporated herein by reference).

 

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10.10		Escrow Agreement among the Partnership, the General Partner, CGM and JPMorgan Chase Bank, N.A., dated December 23, 2005 (filed as Exhibit 10.9 to the quarterly report on Form 10-Q filed on November 16, 2009 and incorporated herein by reference).
10.11		Selling Agreement dated January 6, 2011 by and among the Registrant, the General Partner, CGM and Baird (filed as Exhibit 10.11 to current report on Form 8-K filed on January 7, 2011).
10.12		Services Agreement dated January 6, 2011 by and among the Registrant, the General Partner, CGM and Baird (filed as Exhibit 10.12 to current report on Form 8-K filed on January 7, 2011).

31.1		Rule 13a-14(a)/15d-14(a) Certification (Certification of President and Director).
31.2		Rule 13a-14(a)/15d-14(a) Certification (Certification of Chief Financial Officer and Director).
32.1		Section 1350 Certification (Certification of President and Director).
32.2		Section 1350 Certification (Certification of Chief Financial Officer and Director).
101. INS		XBRL Instance Document.
101. SCH		XBRL Taxonomy Extension Schema Document.
101. CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101. LAB		XBRL Taxonomy Extension Label Linkbase Document.
101. PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101. DEF		XBRL Taxonomy Extension Definition Document.

 

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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.

 

WARRINGTON FUND L.P.
By:		Ceres Managed Futures LLC
		(General Partner)
By:		/s/ Walter Davis
		Walter Davis
		President and Director
Date:		November 14, 2012
By:		/s/ Damian George
		Damian George
		Chief Financial Officer and Director
		(Principal Accounting Officer)
Date:		November 14, 2012

 

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