UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-K

 

 

For the fiscal year ended December 31, 2016

OR

For the transition period from                      to                     

Commission File Number 000-52603

 

 

MANAGED FUTURES PREMIER WARRINGTON L.P.

(Exact name of registrant as specified in its charter)

 

 

 

c/o Warrington GP, LLC 200 Crescent Court, Suite 520

Dallas, Texas 75201

(Address and Zip Code of principal executive offices)

(214) 230-2100

(Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes   ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes   ☐    No  ☒

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   ☒    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 the chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K  ☒.

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.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)     Yes   ☐    No  ☒

Limited Partnership Redeemable Units with an aggregate value of $77,276,284 of Class A and $963,791 of Class D were outstanding and held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of February 28, 2017, 55,244.56 Limited Partnership Class A Redeemable Units were outstanding and 920.00 Limited Partnership Class D Redeemable Units were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

[None]

 

 

 

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PART I

Managed Futures Premier Warrington L.P. (formerly known as 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 option 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 and options in the stock indices sector. The Partnership may also hold U.S. Treasury bills. 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.

Subscriptions and redemptions of Redeemable Units and General Partner (as defined below) contributions and redemptions for the years ended December 31, 2016, 2015 and 2014 are reported in the Statements of Changes in Partners’ Capital on page 26 under “Item 8. Financial Statements and Supplementary Data .”

Effective as of the close of business on March 31, 2015, Warrington GP, 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 beneficially owned by Scott C. Kimple. Warrington Advisors, LLC is the Managing Member of the General Partner, which is ultimately controlled by Scott C. Kimple. From inception to the close of business on March 31, 2015, Ceres Managed Futures LLC, a Delaware limited liability company, acted as the general partner (“CMF GP”) and commodity pool operator of the Partnership. On January 9, 2015, Scott C. Kimple proposed in a Proxy Statement, which was filed with the Securities and Exchange Commission (the “SEC”) and distributed to Limited Partners (defined below), that Warrington GP, LLC become the new general partner of the Partnership. The requisite number of each class of limited partnership interests approved the proposals described in the Proxy Statement, and, as a result, Warrington GP, LLC became the new general partner of the Partnership effective as of the close of business on March 31, 2015. CMF GP withdrew as the general partner of the Partnership immediately following Warrington GP, LLC becoming the Partnership’s new general partner. References to the “General Partner” herein refer to Warrington GP, LLC and/or CMF GP, as the context requires.

Effective as of the close of business on March 31, 2015, Warrington SLP, LP, a Delaware limited liability company and an affiliate of the General Partner, became a special limited partner of the Partnership (the “Special Limited Partner”) and receives a quarterly profit share allocation from the Partnership, subject to a high water mark.

All of the trading decisions for the Partnership are made by Warrington Asset Management LLC (the “Advisor”), an affiliate of the General Partner, using the Strategic Trading Program (formerly, the “Core Trading Program”), a proprietary trading program. A description of the trading activities and focus of the Advisor is included on page 10 under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .”

The General Partner is not aware of any material changes to the trading program discussed above during the fiscal year ended December 31, 2016.

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 designated 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. On May 1, 2015, a new share class of units of general partner interest “Class GP” was initiated to accept an investment from the General Partner.

During the twelve months ended December 31, 2016, the Partnership’s commodity broker was Wells Fargo Securities, LLC (“Wells Fargo”), a registered futures commission merchant. Effective April 1, 2015, the Partnership entered into a futures and cleared swaps agreement with Wells Fargo (the “Wells Fargo Customer Agreement”). The Partnership pays Wells Fargo trading fees for the clearing and, if applicable, execution of transactions. In addition, with respect to excess cash, Wells Fargo will pay the Partnership interest on excess cash held in the Partnership’s account at rates customarily paid by Wells Fargo and as advised to the Partnership from time to time.

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During prior periods included in this report, Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant, and/or Citigroup Global Markets Inc. (“CGM”) also served as commodity brokers.

The Partnership’s trading of futures and option contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges. During the twelve months and nine months ended December 31, 2016 and 2015, the Partnership engaged in such trading through commodity brokerage accounts maintained with Wells Fargo. During the first quarter of 2015 and prior periods included in this report, the Partnership engaged in such trading through commodity brokerage accounts maintained with MS&Co. and/or CGM.

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 shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions and losses, if any.

Under the limited partnership agreement of the Partnership, as amended or restated from time to time (the “Limited Partnership Agreement”), the General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The Partnership pays the General Partner a monthly administrative fee in return for its services to the Partnership equal to 1/12 of 1.0% (1.0% per year) of month-end Net Assets per Class, for each outstanding Class, of the Partnership. Prior to October 1, 2014, the Partnership paid the General Partner a monthly administrative fee equal to 1/12 of 0.5% (0.5% per year) of month-end Net Assets per Class, for each outstanding Class, of the Partnership. Month-end Net Assets per Class, for the purpose of calculating administrative fees are Net Assets per Class, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s advisory fee, profit share allocation accrual, the administrative fee and any redemptions or distributions as of the end of such month. This fee may be increased or decreased at the discretion of the General Partner.

The Partnership will be liquidated upon the first to occur of the following: December 31, 2025; when the net asset value per Redeemable Unit of any Class decreases to less than $400 as of the close of trading on any business day; or under certain other circumstances as defined in the Limited Partnership Agreement. In addition, the General Partner may, in its sole discretion, cause the Partnership to dissolve if the Partnership’s aggregate net assets decline to less than $1,000,000.

For the period January 1, 2016 through December 31, 2016, the approximate average market sector allocation for the Partnership was 100% indices.

The Advisor, which is controlled by Scott C. Kimple, has served as the Partnership’s commodity trading advisor since inception. The General Partner and the Partnership have entered into an investment management agreement with the Advisor (the “Management Agreement”). The Advisor makes all commodity trading decisions for the Partnership and is not affiliated with Wells Fargo, MS&Co. or CGM.

The Advisor is not responsible for the organization of the Partnership. Pursuant to the terms of the Management Agreement, the Partnership pays the Advisor a monthly advisory fee equal to 1/12 of 2.00% (2% per year) of month-end Net Assets per Class, for each outstanding Class, managed by the Advisor. Month-end Net Assets per Class, for each outstanding Class, for the purpose of calculating advisory fees are Net Assets per Class, for each outstanding Class, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s advisory fee, profit share allocation accrual, the administrative fee and any redemptions or distributions as of the end of such month. The Management Agreement continues in effect until the earlier of the dissolution of the Partnership or termination upon notice by any party thereunder.

In addition, the Special Limited Partner receives a quarterly profit share allocation to its capital account in the Partnership in the form of Redeemable Units of the Partnership, the value of which shall be equal to 20% of new trading profits, as defined in the Limited Partnership Agreement, earned for each outstanding Class by the Advisor on behalf of the Partnership during each calendar quarter and are issued as Special Limited Partner unit equivalents. 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.

Prior to and during part of the third quarter of 2013, the Partnership was party to a Customer Agreement with CGM (the “CGM Customer Agreement”). During the third quarter of 2013, the Partnership entered into a Customer Agreement with MS&Co. (the “MS&Co. Customer Agreement”). Effective April 1, 2015, the Partnership entered into the Wells Fargo Customer Agreement. The Partnership has terminated the CGM Customer Agreement and the MS&Co. Customer Agreement.

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Under the CGM Customer Agreement, the Partnership paid CGM a monthly brokerage fee equal to (i) 5/16 of 1% (3.75% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 1.50% (1.50% per year) of month-end Net Assets for Class D Redeemable Units, in each case in lieu of brokerage fees on a per trade basis. Month-end Net Assets, for the purpose of calculating brokerage fees were Net Assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s brokerage fees, profit share allocation accrual, the monthly advisory fee, the administrative fee and other expenses and any redemptions or distributions as of the end of such month. The Partnership paid for exchange, service, clearing, user, give-up, floor brokerage and National Futures Association (“NFA”) fees (collectively, the “CGM clearing fees”) directly. During the term of the CGM Customer Agreement, all of the Partnership’s assets were deposited in the Partnership’s account at CGM. The Partnership’s cash was deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading Commission (“CFTC”) regulations. CGM paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s brokerage account 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 (“T-Bills”) maturing 30 days from the date on which such weekly rate is determined or at the U.S. Treasury bill discount rate. The CGM Customer Agreement gave the Partnership the legal right to net unrealized gains and losses on open futures and option contracts.

Under the MS&Co. Customer Agreement, the Partnership paid trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage and NFA fees (collectively, the “MS&Co. clearing fees”) directly. During the term of the MS&Co. Customer Agreement, all of the Partnership’s assets were deposited in the Partnership’s account at MS&Co. The Partnership’s cash was deposited by MS&Co. in segregated bank accounts to the extent required by CFTC regulations. MS&Co. paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate. The MS&Co. Customer Agreement gave the Partnership the legal right to net unrealized gains and losses on open futures and option contracts.

Under the Wells Fargo Customer Agreement, the Partnership pays trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage and NFA fees (collectively, the “Wells Fargo clearing fees,” and together with the CGM clearing fees and the MS&Co. clearing fees, the “clearing fees”) directly. Clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. The portion of the Partnership’s cash held at Wells Fargo is in segregated bank accounts to the extent required by CFTC regulations. Wells Fargo has agreed to pay the Partnership interest on 90% of the average daily equity maintained in cash in the Partnership’s segregated account at the rate equal to the monthly average of the 90-day U.S. Treasury bill rate. The Wells Fargo Customer Agreement gives the Partnership the legal right to net unrealized gains and losses on open futures and option contracts. The Wells Fargo Customer Agreement may generally be terminated upon notice by either party.

Effective October 1, 2013, the Partnership entered into a selling agreement with Morgan Stanley Smith Barney LLC (d/b/a Morgan Stanley Wealth Management). Pursuant to the selling agreement, Morgan Stanley Wealth Management received a monthly ongoing selling agent fee equal to (i) 1/12 of 3.75% (3.75% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 1.50% (1.50% per year) of month-end Net Assets for Class D Redeemable Units. The selling agent fee received by Morgan Stanley Wealth Management was shared with the properly registered/licensed financial advisors of Morgan Stanley Wealth Management who sold Redeemable Units in the Partnership.

Effective April 1, 2014, the monthly ongoing selling agent fee was (i) reduced from an annual rate of 3.75% to an annual rate of 2.50% of month-end Net Assets for Class A Redeemable Units and (ii) reduced from an annual rate of 1.50% to an annual rate of 1.25% of month-end Net Assets for Class D Redeemable Units.

Effective October 1, 2014, the monthly ongoing selling agent fee was (i) reduced from an annual rate of 2.50% to an annual rate of 2.00% for Class A Redeemable Units and (ii) reduced from an annual rate of 1.25% to an annual rate of 0.75% for Class D Redeemable Units. As of the same date, the administrative fee for each class was increased from an annual rate of 0.50% to an annual rate of 1.00%. The October 1, 2014 fee changes offset each other and, accordingly, there was no change to the aggregate fees incurred by the Partnership.

As of April 1, 2015, the Partnership maintains a continuing services agreement with Morgan Stanley Wealth Management. Pursuant to the continuing services agreement, Morgan Stanley Wealth Management will receive a monthly fee in respect of certain partnership interests which have been sold to certain individuals and entities with an ongoing relationship with Morgan Stanley Wealth Management (the “MS Interests”) equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. The fees paid to Morgan Stanley Wealth Management shall continue only for as long as the MS Interests remain outstanding.

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As of April 1, 2015, the Partnership maintains a selling agreement with Robert W. Baird & Co. Incorporated (“Baird”). Pursuant to the selling agreement, Baird will receive a monthly ongoing selling agent fee equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. With respect to current Limited Partners that are customers of Baird, the Partnership shall pay Baird a monthly ongoing maintenance fee equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units for services provided to such current Limited Partners.

As of April 1, 2015, the Partnership maintains a continuing services agreement with Credit Suisse Securities (USA) LLC. Pursuant to the continuing services agreement, Credit Suisse Securities (USA) LLC will receive a monthly fee in respect of certain partnership interests which have been sold to certain individuals and entities with an ongoing relationship with Credit Suisse Securities (USA) LLC (the “CS Interests”) equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. The fees paid to Credit Suisse Securities (USA) LLC shall continue only for as long as the CS Interests remain outstanding.

The Partnership’s business consists of only one segment, speculative trading of commodity interests. The Partnership does not engage in sales of goods or services. The Partnership’s net income (loss) from operations for the years ended December 31, 2016, 2015, 2014, 2013 and 2012 is set forth under “Item 6. Selected Financial Data .” The Partnership’s capital as of December 31, 2016, was $71,800,565.

See Paragraphs (a) and (b) above.

(i) through (xii) — Not applicable.

(xiii) — The Partnership has no employees.

The Partnership does not engage in sales of goods or services or own any long-lived assets, and therefore, this item is not applicable.

The Partnership does not have an Internet address. The Partnership will provide paper copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports free of charge upon request.

Not applicable.

Not applicable.

Not applicable.

As a result of leverage, small changes in the price of the Partnership’s positions may result in major losses.

The trading of commodity interests is speculative, volatile and involves a high degree of leverage. A small change in the market price of a commodity interest contract can produce major losses for the Partnership. Market prices can be influenced by, among other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events, weather and climate conditions, insects and plant disease, purchases and sales by foreign countries and changing interest rates.

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An investor may lose all of its investment.

Due to the speculative nature of trading commodity interests, an investor could lose all of its investment in the Partnership.

The Partnership will pay substantial fees and expenses regardless of profitability.

Regardless of its trading performance, the Partnership will incur fees and expenses, including clearing, ongoing selling agent and advisory fees.

An investor’s ability to redeem Redeemable Units is limited.

An investor’s ability to redeem Redeemable Units is limited and no market exists for the Redeemable Units.

Conflicts of interest exist.

The Partnership is subject to numerous conflicts of interest including those that arise from the facts that:

Investing in Redeemable Units might not provide the desired diversification of an investor’s overall portfolio.

Although the Partnership is an alternative investment, the Partnership’s objective is not to provide any benefit of portfolio diversification.

Past performance is no assurance of future results.

The Advisor’s trading strategies may not perform as they have performed in the past. The Advisor has from time to time incurred substantial losses in trading on behalf of clients.

The Partnership relies on the availability and services of a single trading principal, Scott C. Kimple.

The services of Scott C. Kimple, the Advisor’s sole trading principal, are essential to the business of the Advisor. If his services are no longer available, the continued ability of the Advisor to operate would be subject to substantial uncertainty. In addition, Mr. Kimple will devote to the affairs of the Partnership and will devote to the trading affairs of any particular account only such time as he in his sole discretion deems necessary.

An investor’s tax liability may exceed cash distributions.

Investors are taxed on their share of the Partnership’s income, even though the Partnership does not intend to make any distributions.

Regulatory changes could restrict the Partnership’s operations and increase its operational costs.

Regulatory changes could adversely affect the Partnership by restricting its markets or activities, limiting its trading and/or increasing costs or the taxes to which investors are subject. Pursuant to the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, the CFTC and the SEC have promulgated rules to regulate swaps dealers and to mandate additional reporting and disclosure requirements and continue to promulgate rules regarding capital and margin requirements to require that certain swaps be traded on an exchange or a swap execution facility, and to require that derivatives (such as those traded by the Partnership) be moved into central clearinghouses. In addition, the prudential regulators that oversee many swap dealers have also proposed rules regarding capital requirements for such swap dealers and margin requirements for derivatives. These rules may negatively impact the manner in which swap contracts are traded and/or settled, increase the costs of such trades, and limit trading by speculators (such as the Partnership) in futures and over-the-counter (“OTC”) markets.

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 or a group of persons may hold or control in particular futures, options on futures and swaps that perform a significant price

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discovery function. Most exchanges also limit the amount of fluctuation in commodity futures contract prices on a single trading day. The Advisor believes that established speculative position and trading limits will not materially adversely affect trading for the Partnership. The trading instructions of the Advisor, however, 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 limiting potential profits on the liquidated positions.

In December 2016, the CFTC re-proposed new rules regarding speculative position limits, replacing a prior proposal from November 2013. These rules, if adopted in substantially the same form, will impose position limits on certain futures and option contracts and physical commodity swaps that are “economically equivalent” to such contracts. If enacted, these rules could have an adverse effect on an Advisor’s trading for the Partnership.

The Partnership does not own or lease any properties.

There are no material legal proceedings pending against the Partnership, the General Partner or its affiliates.

Not applicable.

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PART II

The Redeemable Units were issued in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder. The Redeemable Units were purchased by accredited investors as described 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 from additional subscriptions of Redeemable Units are used in the trading of commodity interests including futures and option contracts.

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

 

 

The selected historical financial data presented below has been derived in part from, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 and “Financial

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Statements and Supplementary Data” included in Item 8 of this report. Amounts included in the tables related to income statement data and balance sheet data are derived from the audited financial statements.

Net realized and unrealized trading gains (losses), interest income, net income (loss), increase (decrease) in net asset value per unit and net asset value per unit for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, and total assets at December 31, 2016, 2015, 2014, 2013 and 2012 were as follows:

 

 

 

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Overview

The Partnership aims to achieve capital appreciation through speculative trading, directly and indirectly, primarily in the U.S. market for stock indices. The Partnership may also hold U.S. Treasury bills. The Partnership may employ futures and option contracts in those markets. Additionally, the Partnership does not currently intend to, but may in the future, employ spot and forward contracts in those markets.

The General Partner manages all business of the Partnership. The General Partner has delegated its responsibility for the investment of the Partnership’s assets to the Advisor. In conjunction with the Partnership’s third party administrator, the accounting and operations staff provides processing of subscriptions and redemptions and reporting to limited partners and regulatory authorities. The General Partner also includes staff involved in marketing and sales support. The General Partner may modify or terminate the allocation of assets to the Advisor at any time.

In addition, the General Partner prepares the books and records and provides the administrative and compliance services that are required by law or regulation, from time to time, in connection with operation of the Partnership. These services include the preparation of required books and records and reports to limited partners, government agencies and regulators; computation of net asset value; calculation of fees; assistance in connection with subscriptions, redemptions and limited partner communications; and preparation of offering documents and sales literature.

While the Partnership has the right to seek lower commission rates and fees from other commodity brokers at any time, the General Partner believes that the futures and cleared swaps agreement and other arrangements with the commodity broker are fair, reasonable, and competitive.

The Advisor trades primarily futures contracts and options on futures contracts on the S&P 500^® Index. The Advisor’s trading strategy, however, may also include the trading of additional commodity interests such as U.S. Treasury bonds and currencies. Currently, the Advisor limits its trading to listed futures and options on futures contracts on U.S. futures and option exchanges.

The strategies incorporate both directional and non-directional elements. Directional strategies will utilize options and combinations of options with the goal of capturing specific moves in the price of the underlying commodity interest. Non-directional strategies attempt to capture and retain premiums on the sale of uncovered options and combinations of options. The Advisor may employ combinations of options commonly known as “spreads” or “straddles” in conjunction with both directional and non-directional strategies. “Spreads” and “straddles” involve the simultaneous buying and selling of contracts on the same commodity, but with different delivery dates or markets.

The trading methods and strategies are designed to preserve original equity. Each trade is analyzed using a mathematical pricing model to determine if its potential return justifies the attendant risk. Risk management techniques emphasize low standard deviation trades over those that appear to have greater risk. The Advisor’s Strategic Trading Program (formerly, the “Core Trading Program”), the Advisor’s proprietary, systematic program, attempts to limit the equity at risk on each trade and in each market. The Advisor will attempt to minimize the risks associated with adverse moves in either price or volatility through various hedging techniques. The specific method or extent of hedging at any time will be determined subjectively by the Advisor. There is no assurance that hedging techniques will be effective in reducing risk.

The trading strategies have been internally researched and developed. They are primarily technical in nature, i.e., they are developed from the research and analysis of patterns of intra-day, daily, weekly and monthly price movements, and of proprietary indicators or standard indicators such as volume and open interest. The Advisor considers the effects of some key fundamental factors in certain situations, especially for the purpose of risk control. The time frame for holding a position is usually less than five weeks. The trading program also emphasizes current and ongoing research and analysis of market behavior to continue developing the strategies.

The Advisor believes that the development of a commodity trading strategy is a continual process. As a result of further research and analysis into the performance of the Advisor’s methods, changes may be made from time to time in the specific manner in which these trading methods are employed. As a result of such modifications, the trading methods used in the future might differ from those currently employed.

The exact nature of the Advisor’s methods are proprietary and confidential. The foregoing description is of necessity general and is not intended to be exhaustive. Trading decisions require the exercise of the Advisor’s judgment. The decision not to trade certain commodities or not to make certain trades may result at times in missing price moves and profits, which other advisors who are willing to trade these commodities may be able to capture. There is no assurance that the Advisor’s trading will be profitable.

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Future trading performance may be affected by the increasing amount of funds directed by the Advisor. For example, in certain commodity interests the Advisor will be unable to acquire positions as large as its strategy might otherwise dictate because the size of speculative positions is limited by legal regulations. Also, “skid” or “slippage” (the difference between ideal and actual trade execution prices, and the transaction costs resulting therefrom) will increase with the execution of larger orders.

As a managed futures partnership, the Partnership’s performance is dependent upon the successful trading of the Partnership’s Advisor to achieve the Partnership’s objectives.

Liquidity

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 purchased at fair value and U.S. government securities at fair value), and interest receivable. Because of the low margin deposits normally required in commodity 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 year ended December 31, 2016.

To minimize the risk relating to low margin deposits, the Partnership follows certain trading policies, including:

From January 1, 2016 through December 31, 2016, the Partnership’s average margin to equity ratio (i.e., the percentage of assets on deposit required for margin) was approximately 31.0%.

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 at 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 OTC. Exchange-traded instruments include futures and certain standardized swap, forward and option contracts. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related 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. None of the Partnership’s current contracts are traded OTC, although contracts may be traded OTC in the future.

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.

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Market risk is the potential for changes in the value of the financial instruments traded by the Partnership due to market changes, including interest 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 a 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 had credit risk and concentration risk during the reporting period and prior periods, as Wells Fargo, MS&Co. and/or CGM or their affiliates were counterparties or brokers with respect to the Partnership’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through Wells Fargo, MS&Co. and/or CGM, the Partnership’s counterparty is an exchange or clearing organization. The Partnership continues to be subject to such risks with respect to Wells Fargo.

The Partnership’s trading will be concentrated in exchange-traded futures and options on the S&P 500^® Index. Concentration in a limited number of commodity interests may subject the Partnership’s account to greater volatility than if a more diversified portfolio of contracts were traded on behalf of the Partnership.

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.

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, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions. (See also “Item 8. Financial Statements and Supplementary Data .” for further information on financial instrument risk included in the notes to the financial statements.)

Other than the risks inherent in commodity futures trading, the Partnership knows of no trends, demands, commitments, events or uncertainties which will result in or which are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way. The Limited Partnership Agreement provides that the Partnership will cease trading operations and liquidate all open positions under certain circumstances, including a decrease in net asset value per Redeemable Unit of any Class to less than $400 as of the close of trading on any business day. In addition, the General Partner may, in its sole discretion, cause the Partnership to dissolve if the Partnership’s aggregate net assets decline to less than $1,000,000.

Capital Resources

(i) The Partnership has made no material commitments for capital expenditures.

(ii) 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. Gains or losses on trading cannot be predicted. Market movements in commodities are dependent upon fundamental and technical factors which the Advisor may or may not be able to identify, such as changing supply and demand relationships, weather, government, agricultural, commercial and trade programs and policies, national and international political and economic events and changes in interest rates. Partnership expenses consist of, among other things, clearing, ongoing selling agent, advisory and administrative fees. The level of these expenses is dependent upon the level of trading and the ability of the Advisor to identify and take advantage of price movements in the commodity markets, in addition to the level of Net Assets maintained. In addition, the amount of interest income payable by the Partnership’s commodity broker is dependent upon interest rates over which the Partnership had no control.

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No forecast can be made as to the level of redemptions in any given period. A Limited Partner may require the Partnership to redeem its Redeemable Units at their net asset value as of the end of each month on three business days’ notice to the General Partner. There is no fee charged to limited partners in connection with redemptions. Redemptions generally are funded out of the Partnership’s cash holdings. For the year ended December 31, 2016, the Partnership’s capital decreased 18.7% from $88,330,055 to $71,800,565. This decrease was attributable to redemptions of 16,709.88 Class A Redeemable Units totaling $20,031,468. This decrease was partially offset by net income of $3,282,950, coupled with subscriptions of 165.31 Class D units totaling $216,440 and 2.31 Class GP units from profit share allocations totaling $2,588. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

Use of Estimates. The preparation of financial statements and accompanying notes 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. The General Partner 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 2, “Accounting Policies” of “Item 8. Financial Statements and Supplementary Data .”

Partnerships Fair Value Measurements. 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

For the year ended December 31, 2016 the net asset value per Class A unit increased 4.4% from $1,183.23 to $1,234.93. For the year ended December 31, 2016, the net asset value per Class D unit increased 5.4% from $1,242.14 to $1,309.33. For the year ended December 31, 2015 the net asset value per Class A unit increased 2.1% from $1,158.41 to $1,183.23. For the year ended December 31, 2015, the net asset value per Class D unit increased 3.4% from $1,201.01 to $1,242.14. For the year ended December 31, 2014 the net asset value per Class A unit decreased 1.8% from $1,179.01 to $1,158.41. For the year ended December 31, 2014, the net asset value per Class D unit decreased 0.3% from $1,204.13 to $1,201.01.

The Partnership experienced a net trading gain of $8,034,364 before fees and expenses and interest income for the year ended December 31, 2016. Gains were primarily attributable to the trading of the S&P^® Index futures and S&P^® Index Puts. The net trading gain or loss for the Partnership is disclosed on page 25 under “Item 8. Financial Statements and Supplementary Data. ”

During 2016, the Partnership recorded an increase in Net Asset Value per unit as trading profits recorded during April, May, June, August, September, October, and December. These profits were partially offset by trading losses incurred in January, February, March, July, and November. All loss months were minimal with the largest loss incurred during November as the strong rally on the heels of the U.S. presidential election caused much of the premium spent on long ratio put spreads to expire worthless. The Partnership’s losses in other months were offset by trading gains achieved with some moderate to higher volatility.  The surprise Brexit referendum result in June helped the partnership to post its strongest return of the year.

The Partnership experienced a net trading gain of $9,158,755 before fees and expenses and interest income for the year ended December 31, 2015. Gains were primarily attributable to the trading of the S&P Index futures and S&P Index Puts.

During 2015, the Partnership recorded an increase in Net Asset Value per unit as trading profits recorded during January, March, June, July, November and December, were offset by trading losses incurred in February, April, May, and August through October. The most significant losses were incurred during August as volatile price action in the S&P 500^® Index negatively impacted the Partnership’s ratio put spread positions. In February, April, May, September, and October, the trading losses were much smaller. The Partnership’s losses in those months were offset by trading gains achieved during four of the first seven months of the year, as moderate volatility was present in equity markets. Concerns over the timing of the U.S. Federal Reserve (the “Fed”) ending its “Zero Interest Rate Policy” continued to induce volatility into markets. Additional small trading gains were recorded in November and December.

The Partnership experienced a net trading gain of $7,468,805 before fees and expenses and interest income for the year ended December 31, 2014. Gains were primarily attributable to the trading of the S&P Index futures and S&P Index Puts. The net trading gain or loss for the partnership is discussed on page 18 under “Item 8. Financial Statements and Supplementary Data.

During 2014, the Partnership recorded a loss in Net Asset Value per unit as trading profits recorded during January through May and in July, September and December, were offset by trading losses incurred in June, August, October and November. The most significant losses were incurred during October as volatile price action in the S&P 500^® Index negatively impacted the Partnership’s ratio put spread positions. The Partnership’s loss during August was due to the accrued costs of adjusting ratio put spread options in an attempt to capture a retracement in the advancing stock market. Additional losses were incurred during June as limited volatility in the

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S&P 500^® Index provided the Partnership with limited trading opportunities for its mean-reversion trading methods. Smaller losses were also incurred by the Partnership during November. The Partnership’s losses for the year were offset by trading gains achieved during March as the Partnership was able to profitably close out its ratio put spreads after newly appointed Fed Chairwoman Janet Yellen stated that hikes in the Fed Funds rate might occur six months after the end of the current “Quantitative Easing”, much earlier than analysts’ previous forecasts. During September gains were experienced as the Partnership’s ratio put spread positions were able to take advantage of bearish movements of the S&P 500^® Index. Additional gains were recorded during April as the Partnership was able to capitalize on moderate volatility in the S&P 500^® Index and used the up and down moves to realize a gain in profits. Gains were also recorded during February as the value of the S&P 500^® sharply declined early in the month benefitting the Partnership’s option positions. Smaller gains were recorded during May and December.

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 beginning April 1, 2015 is earned at Wells Fargo at 90% of the 90-day U.S. Treasury bill discount rate on assets maintained in cash and on a percentage of the Partnership’s assets that are directly invested in T-Bills. Prior to that date and during prior periods included in this report, 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 MS&Co. or CGM based on the average non-competitive yield on 3-month U.S. T-Bills maturing in 30 days or at the 4-week U.S. Treasury bill discount rate. Interest income for the three and twelve months ended December 31, 2016 increased by $25,366 and $138,713, respectively, as compared to the corresponding periods in 2015. The increase in interest income is due to higher U.S. Treasury bill rates during the three and twelve months ended December 31, 2016, as compared to the corresponding periods in 2015. Interest earned by the Partnership will increase the net asset value of the Partnership. The amount of interest income earned by the Partnership during the reporting period depended on the average daily equity in the Partnership’s account and upon interest rates over which the Partnership, Wells Fargo, MS&Co. and CGM had no control.

Ongoing selling agent fees are calculated on the Partnership’s adjusted net asset value on the last day 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 value. Ongoing selling agent fees for the three and twelve months ended December 31, 2016 decreased by $82,681 and $470,426, respectively, as compared to the corresponding periods in 2015. This decrease is primarily due to lower average net assets during the three and twelve months ended December 31, 2016, as compared to the corresponding periods in 2015.

Clearing fees are based on the number of trades executed by the Advisor for the Partnership. Accordingly, they must be compared in relation to the number of trades executed during the period. Clearing fees for the three and twelve months ended December 31, 2016 decreased by $29,917 and $86,738, respectively, as compared to the corresponding periods in 2015. The decrease in clearing fees is primarily due to a decrease in the number of trades executed during the three and twelve months ended December 31, 2016, as compared to the corresponding periods in 2015. All clearing fees are borne by the Partnership.

Advisory/management fees, which are paid to the Advisor, 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. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Advisory/management fees for the three and twelve months ended December 31, 2016 decreased by $82,128 and $490,315, respectively, as compared to the corresponding periods in 2015. The decrease in advisory/management fees is due to lower average net assets during the three and twelve months ended December 31, 2016, as compared to the corresponding periods in 2015.

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. Accordingly, they must be analyzed in relation to the fluctuations in the monthly net asset values. Administrative fees for the three and twelve months ended December 31, 2016 decreased by $41,064 and $245,154, respectively, as compared to the corresponding periods in 2015. The decrease in administrative fees for the three and twelve months ended December 31, 2016 is due to lower average net assets during the period as compared to the corresponding periods in 2015.

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 Limited Partnership Agreement among the Partnership, the General Partner, the Special Limited Partner and the Advisor. Profit share allocations for the three and twelve months ended December 31, 2016 increased by $367 and $2,588, respectively, as compared to the corresponding periods in 2015.

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The Partnership pays professional fees, which generally include legal and accounting expenses related to the offering. Professional fees for the years ended December 31, 2016 and 2015 were $272,636 and $309,868, respectively.

The Partnership pays other expenses, which generally include certain offering costs and filing, reporting and data processing fees. Other expenses for the years ended December 31, 2016 and 2015 were $114,191 and $83,139, respectively.

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

Off-balance Sheet Arrangements . None.

Contractual Obligations . None.

Operational Risk

The Partnership is directly exposed to market risk and credit risk, which arise in the normal course of its business activities. Slightly less direct, but of critical importance, are risks pertaining to operational and back office support. This is particularly the case in a rapidly changing and increasingly global environment with increasing transaction volumes and an expansion in the number and complexity of products in the marketplace.

Such risks include:

Operational/Settlement Risk — the risk of financial and opportunity loss and legal liability attributable to operational problems, such as inaccurate pricing of transactions, untimely trade execution, clearance and/or settlement, or the inability to process large volumes of transactions. The Partnership is subject to increased risks with respect to its trading activities in emerging market securities, where clearance, settlement, and custodial risks are often greater than in more established markets.

Technological Risk — the risk of loss attributable to technological limitations or hardware failure that constrain the Partnership’s ability to gather, process, and communicate information efficiently and securely, without interruption, to customers, and in the markets where the Partnership participates. Additionally, the General Partner’s computer systems may be vulnerable to unauthorized access, mishandling or misuse, computer viruses or malware, cyber attacks and other events that could have a security impact on such systems. If one or more of such events occur, this potentially could jeopardize a limited partner’s personal, confidential, proprietary or other information processed and stored in, and transmitted through, the General Partner’s computer systems, and adversely affect the Partnership’s business, financial condition or results of operations.

Legal/Documentation Risk — the risk of loss attributable to deficiencies in the documentation of transactions (such as trade confirmations) and customer relationships (such as master netting agreements) or errors that result in noncompliance with applicable legal and regulatory requirements.

Financial Control Risk — the risk of loss attributable to limitations in financial systems and controls. Strong financial systems and controls ensure that assets are safeguarded, that transactions are executed in accordance with the General Partner’s authorization, and that financial information utilized by the General Partner and communicated to external parties, including the limited partners, creditors, and regulators, is free of material errors.

Introduction

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. This limited liability is a result of the organization of the Partnership as a limited partnership under New York law.

Market movements result in frequent changes in the fair value of the Partnership’s open positions and, consequently, in its earnings and cash balance. 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 positions and the liquidity of the markets in which it trades.

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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.

Materiality as used in this section, “Qualitative and Quantitative Disclosures About Market Risk,” is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Partnership’s market sensitive instruments.

Quantifying the Partnership’s Trading Value at Risk

The following quantitative disclosures regarding the Partnership’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”)). All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor except for statements of historical fact (such as the terms of particular contracts and the number of market risk sensitive instruments held during or at the end of the reporting period).

The Partnership’s risk exposure in the various market sectors traded by the Advisor is quantified below in terms of Value at Risk. Due to the Partnership’s mark-to-market accounting, any loss in the fair value of the Partnership’s open positions is directly reflected in the Partnership’s earnings (realized or unrealized) and cash balance. Exchange margin requirements have been used by the Partnership as the measure of its Value at Risk. 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 intervals. The margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation.

In the case of market sensitive instruments which are not exchange-traded, the margin requirements for the equivalent futures positions have been used as Value at Risk. In those rare cases in which a futures-equivalent margin is not available, dealers’ margins have been used.

The fair value of the Partnership’s futures and forward contracts does not have any optionality component. However, the Advisor does trade commodity options. The Value at Risk associated with options is reflected in the following table as the margin requirement attributable to the instrument underlying each option. Where this instrument is a futures contract, the futures margin has been used. This calculation is conservative in that it assumes that the fair value of an option will decline by the same amount as the fair value of the underlying instrument, whereas, in fact, the fair values of the options traded by the Partnership in almost all cases fluctuate to a lesser extent than those of the underlying instruments.

In quantifying the Partnership’s Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been added to determine each trading category’s aggregate Value at Risk. The diversification effects resulting from the fact that the Partnership’s positions are rarely, if ever, 100% positively correlated have not been reflected.

The Partnership’s Trading Value at Risk in Different Market Sectors

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 positions by market category as of  December 31, 2016 and 2015, and the highest, lowest and average value at any point during the two years. All open position trading risk exposures of the Partnership have been included in calculating the figures set forth below. As of December 31, 2016, the Partnership’s total capitalization was $71,800,565.

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December 31, 2016

 

 

As of December 31, 2015, the Partnership’s total capitalization was $88,330,055.

December 31, 2015

 

 

Material Limitations on Value at Risk as an Assessment of Market Risk

The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirement (margin requirements generally range between 1% and 15% of contract face value, although an exchange may increase margin requirements on short notice) as well as many times the capitalization of the Partnership. The magnitude of the Partnership’s open positions creates a “risk of ruin” not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions — unusual, but historically recurring from time to time — could cause the Partnership to incur severe losses over a short period of time. The foregoing Value at Risk tables — as well as the past performance of the Partnership — give no indication of this “risk of ruin.”

Qualitative Disclosures Regarding Primary Trading Risk Exposures

The following qualitative disclosures regarding the Partnership’s market risk exposures — except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Partnership manages its primary market risk exposures — constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Partnership’s primary market risk exposures, as well as the strategies used and to be used by the General Partner and the Advisor for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the management strategies of the Partnership. There can be no assurance that the Partnership’s current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Partnership.

The following were the primary trading risk exposures of the Partnership as of December 31, 2016, by market sector.

Indices . The Partnership’s primary equity exposure is to equity price risk in the CME S&P Index.

Qualitative Disclosures Regarding Means of Managing Risk Exposure

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.

The General Partner monitors the Partnership’s performance and the concentration of open positions, and consults with the Advisor concerning the Partnership’s overall risk profile. If the General Partner felt it necessary to do so, the General Partner could require the Advisor to close out positions as well as enter positions traded on behalf of the Partnership. However, any such intervention would be a highly unusual event. The General Partner primarily relies on the Advisor’s own risk control policies while maintaining a general supervisory overview of the Partnership’s market risk exposures.

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The Advisor applies its own risk management policies to its trading. The Advisor often follows diversification guidelines, margin limits and stop loss points to exit a position. The Advisor’s research of risk management often suggests ongoing modifications to its trading programs.

 

 

The following financial statements and related items of the Partnership are filed under this Item 8: Oath or Affirmation, Management’s Report on Internal Control over Financial Reporting, Report of Independent Registered Public Accounting Firm, for the years ended December 31, 2016, 2015 and 2014; Statements of Financial Condition at December 31, 2016 and 2015; Condensed Schedules of Investments at December 31, 2016 and 2015; Statements of Income and Expenses for the years ended December 31, 2016, 2015 and 2014; Statements of Changes in Partners’ Capital for the years ended December 31, 2016, 2015 and 2014; and Notes to Financial Statements.

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To the Limited Partners of

Managed Futures Premier Warrington L.P.

To the best of the knowledge and belief of the undersigned, the information contained herein is accurate and complete.

 

 

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Management’s Report on Internal Control Over Financial Reporting

The management of Managed Futures Premier Warrington L.P. (the “Partnership”), Warrington GP, LLC, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a – 15(f) and 15d – 15(f) under the Securities Exchange Act of 1934 and for our assessment of internal control over financial reporting. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Partnership’s internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management of Managed Futures Premier Warrington L.P. has assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, management concluded that the Partnership maintained effective internal control over financial reporting as of   December 31, 2016 based on the criteria referred to above.

 

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Managed Futures Premier Warrington L.P.:

We have audited the accompanying statements of financial condition of Managed Futures Premier Warrington L.P. (the “Partnership”), including the condensed schedules of investments, as of  December 31, 2016 and 2015, and the related statements of income and expenses and changes in partners’ capital for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Managed Futures Premier Warrington L.P. as of  December 31, 2016 and 2015, and the results of its operations and changes in its partners’ capital for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Princeton, New Jersey

March 27, 2017

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Managed Futures Premier Warrington L.P.

Statements of Financial Condition

December 31, 2016 and 2015

 

 

See accompanying notes to financial statements.

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Managed Futures Premier Warrington L.P.

Condensed Schedule of Investments

December 31, 2016

 

 

 

See accompanying notes to financial statements.

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Managed Futures Premier Warrington L.P.

Condensed Schedule of Investments

December 31, 2015

 

 

 

 

 

 

 

 

 

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

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Managed Futures Premier Warrington L.P.

Statements of Income and Expenses

for the years ended December 31, 2016, 2015 and 2014

 

 

**      Class GP commenced on May 1, 2015 (325.0000 units)  

See accompanying notes to financial statements.

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Managed Futures Premier Warrington L.P.

Statements of Changes in Partners’ Capital

for the years ended December 31, 2016, 2015 and 2014

 

 

Net Asset Value Per Unit:

 

 

* Class GP commenced on May 1, 2015.

See accompanying notes to financial statements.

 

 

 

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

 

Managed Futures Premier Warrington L.P. (formerly known as 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 option 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 and options in the stock indices sector. The Partnership may also hold U.S. Treasury bills. 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.

Effective as of the close of business on March 31, 2015, Warrington GP, 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 beneficially owned by Scott C. Kimple. From inception to the close of business on March 31, 2015, Ceres Managed Futures LLC, a Delaware limited liability company, acted as the general partner (“CMF GP”) and commodity pool operator of the Partnership. On January 9, 2015, Scott C. Kimple proposed in a Proxy Statement, which was filed with the Securities and Exchange Commission (the “SEC”) and distributed to Limited Partners (defined below), that Warrington GP, LLC become the new general partner of the Partnership. The requisite number of each class of limited partnership interests approved the proposals described in the Proxy Statement, and, as a result, Warrington GP, LLC became the new general partner of the Partnership effective as of the close of business on March 31, 2015. CMF GP withdrew as the general partner of the Partnership immediately following Warrington GP, LLC becoming the Partnership’s new general partner. References to the “General Partner” herein refer to Warrington GP, LLC and/or CMF GP, as the context requires.

Effective as of the close of business on March 31, 2015, Warrington SLP, LP, a Delaware limited liability company and an affiliate of the General Partner, became a special limited partner of the Partnership (the “Special Limited Partner”) and receives a quarterly profit share allocation equal to 20% of new trading profits from the Partnership in the form of Redeemable Units, subject to a high water mark.

All of the trading decisions for the Partnership are made by Warrington Asset Management LLC (the “Advisor”), an affiliate of the General Partner, using the Strategic Trading Program (formerly, the “Core Trading Program”), a proprietary trading program.

The General Partner is not aware of any material changes to the trading program discussed above during the fiscal year ended December 31, 2016.

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 designated 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. On May 1, 2015, a new share class of units of general partner interest “Class GP” was initiated to accept an investment from the General Partner.

During the twelve months ended December 31, 2016, the Partnership’s commodity broker was Wells Fargo Securities, LLC (“Wells Fargo”), a registered futures commission merchant. Effective April 1, 2015, the Partnership entered into a futures and cleared swaps agreement with Wells Fargo (the “Wells Fargo Customer Agreement”). The Partnership pays Wells Fargo trading fees for the clearing and, if applicable, execution of transactions. In addition, with respect to excess cash, Wells Fargo will pay the Partnership interest on excess cash held in the Partnership’s account at rates customarily paid by Wells Fargo and as advised to the Partnership from time to time.

During prior periods included in this report, Morgan Stanley & Co. LLC (“MS&Co.”), a registered futures commission merchant, and Citigroup Global Markets Inc. (“CGM”) also served as commodity brokers.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

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 shall be liable for obligations of the Partnership in excess of its capital contribution and profits, if any, net of distributions and losses, if any.

The Partnership’s trading of futures and option contracts, if applicable, on commodities is done primarily on U.S. commodity exchanges. During the twelve months ended December 31, 2016, the Partnership engaged in such trading through commodity brokerage accounts maintained with Wells Fargo. During the first quarter of 2015 and prior periods included in this report, the Partnership engaged in such trading through commodity brokerage accounts maintained with MS&Co. and/or CGM.

The Partnership will be liquidated upon the first to occur of the following: December 31, 2025; when the net asset value per Redeemable Unit of any Class decreases to less than $400 as of the close of trading on any business day; or under certain other circumstances as defined in the limited partnership agreement of the Partnership, as amended or restated from time to time (the “Limited Partnership Agreement”). In addition, the General Partner may, in its sole discretion, cause the Partnership to dissolve if the Partnership’s aggregate net assets decline to less than $1,000,000.

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.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

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 futures 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 years ended December 31, 2016 and 2015, 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 from observable inputs (Level 2) or that were priced at fair value using unobservable inputs through the application of the General Partner’s assumptions and internal valuation pricing models (Level 3). As such a rollforward of Level 3 derivative instruments was not presented, nor was a table presenting unobservable inputs used by management in the fair value measurement process. During the years ended December 31, 2016 and 2015, there were no transfers of assets or liabilities between Level 1 and Level 2.

 

 

 

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

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 2012 through 2016 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.

The General Partner administers the business and affairs of the Partnership including selecting one or more advisors to make trading decisions for the Partnership. The Partnership pays the General Partner a monthly administrative fee in return for its services to the Partnership equal to 1/12 of 1% (1% per year) of month-end Net Assets per Class, for each outstanding Class, of the Partnership. Prior to October 1, 2014, the Partnership paid the General Partner a monthly administrative fee equal to 1/12 of 0.5% (0.5% per year) of month-end Net Assets per Class, for each outstanding Class, of the Partnership. Month-end Net Assets per Class, for the purpose of calculating administrative fees are Net Assets per Class, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s advisory fee, profit share allocation accrual, the administrative fee and any redemptions or distributions as of the end of such month. This fee may be increased or decreased at the discretion of the General Partner.

The Advisor or one of its affiliates, all of which are controlled by Scott C. Kimple, has served as the Partnership’s commodity trading advisor since inception. The General Partner and the Partnership have entered into a management agreement (the “Management Agreement”) with the Advisor. As compensation for services, the Partnership pays the Advisor a monthly advisory fee equal to 1/12 of 2% (2% per year) of month-end Net Assets per Class, for each outstanding Class, managed by the Advisor. Month-end Net Assets per Class, for each outstanding Class, for the purpose of calculating advisory fees are Net Assets per Class, for each outstanding Class, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s advisory fee, profit share allocation accrual, the administrative fee and any redemptions or distributions as of the end of such month. The Management Agreement may be terminated upon notice by any party thereunder.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

In addition, the Special Limited Partner receives a quarterly profit share allocation to its capital account in the Partnership in the form of Redeemable Units of the Partnership, the value of which shall be equal to 20% of new trading profits, as defined in the Limited Partnership Agreement, earned for each outstanding Class by the Advisor on behalf of the Partnership during each calendar quarter and are issued as Special Limited Partner unit equivalents. 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 substantially all of the assets of the Partnership to the Advisor, the General Partner considers the Advisor’s past performance, trading style, volatility of the markets traded and fee requirements. The General Partner may modify or terminate the allocation of assets to the Advisor at any time.

Prior to and during part of the third quarter of 2013, the Partnership was party to a Customer Agreement with CGM (the “CGM Customer Agreement”). During the third quarter of 2013, the Partnership entered into a Customer Agreement with MS&Co. (the “MS&Co. Customer Agreement”) and during the fourth quarter of 2013, the Partnership entered into a Selling Agent Agreement with Morgan Stanley Wealth Management (the “Selling Agreement”). Effective April 1, 2015, the Partnership entered into the Wells Fargo Customer Agreement, continuing services agreements with each of Morgan Stanley Wealth Management and Credit Suisse Securities (USA) LLC and a selling agreement with Robert W. Baird & Co. Incorporated (“Baird”). The Partnership has terminated the CGM Customer Agreement and the MS&Co. Customer Agreement.

Under the CGM Customer Agreement, the Partnership paid CGM a monthly brokerage fee equal to (i) 5/16 of 1% (3.75% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 1.50% (1.50% per year) of month-end Net Assets for Class D Redeemable Units, in each case in lieu of brokerage fees on a per trade basis. Month-end Net Assets, for the purpose of calculating brokerage fees were Net Assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s brokerage fees, the profit share allocation accrual, the monthly Advisory fee, the administrative fee and other expenses and any redemptions or distributions as of the end of such month. The Partnership paid for exchange, service, clearing, user, give-up, floor brokerage and National Futures Association (“NFA”) fees (collectively, the “CGM clearing fees”) directly. During the term of the CGM Customer Agreement, all of the Partnership’s assets were deposited in the Partnership’s account at CGM. The Partnership’s cash was deposited by CGM in segregated bank accounts to the extent required by Commodity Futures Trading Commission (“CFTC”) regulations. CGM paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s brokerage account at a 30-day U.S. Treasury bill rate determined weekly by CGM based on the average non-competitive yield on 3-month T-Bills maturing 30 days from the date on which such weekly rate is determined.

Under the MS&Co. Customer Agreement, the Partnership paid trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage and NFA fees (collectively, the “MS&Co. clearing fees”) directly. During the term of the MS&Co. Customer Agreement, all of the Partnership’s assets were deposited in the Partnership’s account at MS&Co. The Partnership’s cash was deposited by MS&Co. in segregated bank accounts to the extent required by CFTC regulations. MS&Co. paid the Partnership interest on 80% of the average daily equity maintained in cash in the Partnership’s brokerage account at the rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate.

Under the Wells Fargo Customer Agreement, the Partnership pays trading fees for the clearing and, where applicable, execution of transactions, as well as exchange, clearing, user, give-up, floor brokerage and NFA fees (collectively, the “Wells Fargo clearing fees,” and together with the CGM clearing fees and the MS&Co. clearing fees, the “clearing fees”) directly. Clearing fees will be paid for the life of the Partnership, although the rate at which such fees are paid may be changed. The portion of the Partnership’s cash held at Wells Fargo is in segregated bank accounts to the extent required by CFTC regulations. At December 31, 2016 and 2015 the amount of cash held for margin requirements was $11,471,701 and $8,235,238, respectively. Wells Fargo has agreed to pay the Partnership interest on 90% of the average daily equity maintained in cash in the Partnership’s segregated account at the rate equal to the monthly average of the 90-day U.S. Treasury bill rate. The Wells Fargo Customer Agreement may generally be terminated upon notice by either party.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

Under the Selling Agreement with Morgan Stanley Wealth Management, the Partnership paid Morgan Stanley Wealth Management a monthly ongoing selling agent fee equal to (i) 1/6 of 1% (2% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. For the period from April 1, 2014 to September 30, 2014, the Partnership paid Morgan Stanley Wealth Management a monthly ongoing selling agent fee equal to (i) 5/24 of 1% (2.5% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 1.25% (1.25% per year) of month-end Net Assets for Class D Redeemable Units. Prior to April 1, 2014, the Partnership paid Morgan Stanley Wealth Management a monthly ongoing selling agent fee equal to (i) 5/16 of 1% (3.75% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 1.50% (1.50% per year) of month-end Net Assets for Class D Redeemable Units. The selling agent fee received by Morgan Stanley Wealth Management was shared with the properly registered/licensed financial advisors of Morgan Stanley Wealth Management who sold Redeemable Units. Month-end Net Assets, for the purpose of calculating ongoing selling agent fees were Net Assets, as defined in the Limited Partnership Agreement, prior to the reduction of the current month’s ongoing selling agent fee, Advisory fee, profit share allocation accrual, the administrative fee and other expenses and any redemptions or distributions as of the end of such month.

Under the continuing services agreement with Morgan Stanley Wealth Management, the Partnership pays Morgan Stanley Wealth Management a monthly fee in respect of certain partnership interests which have been sold to certain individuals and entities with an ongoing relationship with Morgan Stanley Wealth Management (the “MS Interests”) equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. The fees paid to Morgan Stanley Wealth Management shall continue only for as long as the MS Interests remain outstanding.

Under the continuing services agreement with Credit Suisse Securities (USA) LLC, the Partnership pays Credit Suisse Securities (USA) LLC a monthly fee in respect of certain partnership interests which have been sold to certain individuals and entities with an ongoing relationship with Credit Suisse Securities (USA) LLC (the “CS Interests”) equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. The fees paid to Credit Suisse Securities (USA) LLC shall continue only for as long as the CS Interests remain outstanding.

Under the selling agreement with Baird, the Partnership pays Baird a monthly ongoing selling agent fee equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units. With respect to current Limited Partners that are customers of Baird, the Partnership shall pay Baird a monthly ongoing maintenance fee equal to (i) 1/12 of 2.00% (2.00% per year) of month-end Net Assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of month-end Net Assets for Class D Redeemable Units for services provided to such current Limited Partners.

 

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 Wells Fargo Customer Agreement with the Partnership gives, and the MS&Co. Customer Agreement and CGM Customer Agreement with the Partnership gave, the Partnership the legal right to net unrealized gains and losses on open futures and option contracts. The Partnership netted as applicable, for financial reporting purposes, the unrealized gains and losses on open futures and option contracts on the Statements of Financial Condition as the criteria under Accounting Standards Codification 210-20, “Balance Sheet” have been met.

Ongoing selling agent fees paid to Baird, Morgan Stanley Wealth Management and Credit Suisse Securities (USA) LLC and brokerage fees previously paid to CGM were calculated as a percentage of the Partnership’s adjusted net asset value on the last day of each month and were affected by trading performance, subscriptions and redemptions.

Trading and transaction fees are based on the number of trades executed by the Advisor for the Partnership. All clearing fees paid to Wells Fargo and executing brokers, as applicable, are, and all clearing fees paid to MS&Co./CGM were, borne by the Partnership.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of option contracts held during the years ended December 31, 2016 and 2015 were 2,357 and 2,643, respectively.

The following tables summarize the valuation of the Partnership’s investments as of  December 31, 2016 and 2015:

 

 

 

The following table indicates the gross fair values of derivative instruments of option contracts as separate assets and liabilities as of December 31, 2016 and 2015:

 

 

 

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

 

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the years ended December 31, 2016, 2015 and 2014.

 

 

 

The following table rolls forward the transactions in Options Written for the year ended December 31, 2016.

 

 

Subscriptions are accepted monthly from investors and they become Limited Partners on the first day of the month after their subscription is processed. Distributions of profits, if any, will be made at the sole discretion of the General Partner and at such times as the General Partner may decide. A Limited Partner may require the Partnership to redeem its Redeemable Units at their net asset value as of the end of a month on three business days’ notice to the General Partner. There is no fee charged to Limited Partners in connection with redemptions.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

Changes in the net asset value per Unit for the years ended December 31, 2016, 2015 and 2014 were as follows:

 

 

Certain prior period amounts have been reclassified to conform to current period presentation. In the financial highlights, the ongoing selling agent fees and clearing fees which were previously included in net realized and unrealized gains (losses) per unit and excluded from expenses per unit are now excluded from net realized and unrealized gains (losses) per unit and included in expenses per unit. This information was previously included as a footnote to the financial highlights table.

 

 

 

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

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

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

currencies or cash balances, to purchase or sell other financial instruments at 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 OTC. Exchange-traded instruments include futures and certain standardized swap, forward and option contracts. OTC contracts are negotiated between contracting parties and also include certain forward and option contracts. Specific market movements of commodities or futures contracts underlying an option cannot accurately be predicted. The purchaser of an option may lose the entire premium paid for the option. The writer or seller of an option has unlimited risk. Each of these instruments is subject to various risks similar to those related 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. None of the Partnership’s current contracts are traded OTC, although contracts may be traded OTC in the future.

Market risk is the potential for changes in the value of the financial instruments traded by the Partnership due to market changes, including interest 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 a 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 had credit risk and concentration risk during the reporting period and prior periods, as Wells Fargo, MS&Co. and/or CGM or their affiliates were counterparties or brokers with respect to the Partnership’s assets. Credit risk with respect to exchange-traded instruments is reduced to the extent that, through Wells Fargo, MS&Co. and/or CGM, the Partnership’s counterparty is an exchange or clearing organization. The Partnership continues to be subject to such risks with respect to Wells Fargo.

The Partnership’s trading will be concentrated in exchange-traded futures and options on the S&P 500^® Index. Concentration in a limited number of commodity interests may subject the Partnership’s account to greater volatility than if a more diversified portfolio of contracts were traded on behalf of the Partnership.

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.

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, forward and option contracts by sector, margin requirements, gain and loss transactions and collateral positions.

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.

The majority of these 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.

 

 

Management has evaluated the impact of subsequent events through March 27, 2017, which is the date the financial statements were issued, and determined there were no subsequent events outside the normal course of business requiring adjustment to or disclosure in the financial statements.

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Managed Futures Premier Warrington L.P.

Notes to Financial Statements

December 31, 2016

 

 

 

 

 

Selected unaudited quarterly financial data for the years ended December 31, 2016 and 2015 are summarized below:

 

 

 

 

 

 

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Not applicable.

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 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 the General Partner, including the Sole Manager 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 Sole Manager has 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 December 31, 2016, and, based on that evaluation, the General Partner’s Sole Manager has 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 Sole Manager 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:

The report included in “Item 8. Financial Statements and Supplementary Data .” includes management’s report on internal control over financial reporting (“Management’s Report”).

There were no changes in the Partnership’s internal control over financial reporting process during the fiscal quarter ended December 31, 2015, that materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

None.

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PART III

The Partnership has no directors or executive officers and its affairs are managed by its General Partner. Investment decisions are made by the Advisor.

The executive officer of the General Partner is Scott C. Kimple (Sole Manager of the General Partner).

Scott C. Kimple, age 51, is the Founder, Principal, Sole Manager and Portfolio Manager of the Advisor. Mr. Kimple manages the Partnership’s portfolio. Mr. Kimple has been listed as a principal and registered as an associated person of the General Partner since December 15, 2014 and December 23, 2014, respectively, and listed as a principal and registered as an associated person of the Advisor since January 27, 2012 and January 30, 2012, respectively. Mr. Kimple also was registered as an associated person and listed as a principal of Warrington Mgt., L.P., a commodity trading advisor (“CTA”), from July 1995 until October 1996 and again from April 30, 1999 until April 24, 2013. Mr. Kimple also was a principal and an associated person of Warrington Advisors LLC, a CTA and commodity pool operator, from June 2008 through July 2011.

Mr. Kimple first traded commodity futures and options for his own account in July 1989 until April 1991. From April 1991 until June 2009, Mr. Kimple was employed by Citigroup Global Markets, Inc. (“CGM”), a futures commission merchant (“FCM”) and its predecessor firms, beginning as a trading assistant trading speculative positions in multiple futures and options markets. In July 1995, he was appointed Vice President/Financial Advisor. Mr. Kimple was registered as an associated person of CGM from July 1993 until June 2009. As of June 1, 2009, Mr. Kimple ended his registration as an associated person with CGM and became registered as an associated person of Morgan Stanley Smith Barney LLC (“MSSB”), also a FCM. Mr. Kimple was employed by MSSB from June 2009 until December 31, 2014. On December 31, 2014, Mr. Kimple withdrew as an associated person of MSSB, but will continue to be an associated person of both the Advisor and General Partner. As of January 1, 2015, Mr. Kimple has been employed by the Advisor, a CTA.

In May 1989, Mr. Kimple graduated from Southern Methodist University, Dallas, Texas, with a B.B.A. in Finance. In August 1990, he completed the MBA program at SMU’s Cox School of Business, with course emphasis in finance and derivative securities. During the third trimester, he pursued a credited, directed study with a Dallas-based CTA in derivative securities trading. This research provided the theoretical foundations for his current trading strategies. Mr. Kimple holds a Series 3 license and has previously held Series 7 and 63 licenses.

The Sole Manager of the General Partner is responsible for overall corporate governance of the General Partner. Under CFTC rules, the Sole Manager of the General Partner is deemed to be a principal of the General Partner and, as a result, is listed as such with the NFA.

The Partnership has not adopted a code of ethics that applies to officers because it has no officers. In addition, the Partnership has not adopted any procedures by which investors may recommend nominees to the Partnership’s board of directors and has not established an audit committee because it has no board of directors.

The Partnership has no directors or officers. Its affairs are managed by the General Partner. As compensation for its services, the Partnership pays the General Partner administrative fees, as described under “Item 1. Business .” During the year ended December 31, 2016, the General Partner earned $794,540 in administrative fees. As compensation for its services, the Partnership pays the Advisor advisory fees and the Special Limited Partner earns a profit share allocation as described under “Item 1. Business .” For the year ended December 31, 2016, the Advisor earned $1,589,074 in advisory fees. There was a profit share allocation earned by the Special Limited Partner of $2,588 on Class D shares for the year ended December 31, 2016. No profit share allocation was earned in 2015. The Special Limited Partner will not earn a profit share allocation until the Advisor recovers the net loss incurred and earns additional new trading profits for the Partnership.

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The following table indicates securities owned by the General Partner as of December 31, 2016:

 

 

None.

 

 

 

 

 

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PART IV

 

Statements of Financial Condition at December 31, 2016 and 2015.

Condensed Schedules of Investments at December 31, 2016 and 2015.

Statements of Income and Expenses for the years ended December 31, 2016, 2015 and 2014.

Statements of Changes in Partners’ Capital for the years ended December 31, 2016, 2015 and 2014.

Notes to Financial Statements.

 

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Exhibit 31.1 — Rule 13a-14(a)/15d-14(a) Certification (Certification of Sole Manager)(filed herewith).

Exhibit 32.1 — Section 1350 Certification (Certification of Sole Manager)(filed herewith).

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 Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MANAGED FUTURES PREMIER WARRINGTON L.P.

By: Warrington GP, LLC (General Partner)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the date indicated.

 

 

43