Managed Futures Premier Warrington 10-Q2021 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2021

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 of principal executive offices) (Zip Code)

(214) 230-2100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☒

As of April 30, 2021 14,240.55 Limited Partnership Class A Redeemable Units were outstanding and 290.73 Limited Partnership Class D Redeemable Units were outstanding.

MANAGED FUTURES PREMIER WARRINGTON L.P.

FORM 10-Q

INDEX

2

PART I

Item 1. Financial Statements

Managed Futures Premier Warrington L.P.

Statements of Financial Condition

(Unaudited)

See accompanying notes to financial statements.

3

Managed Futures Premier Warrington L.P.

Condensed Schedule of Investments

March 31, 2021

(Unaudited)

4

Managed Futures Premier Warrington L.P.

Condensed Schedule of Investments

December 31, 2020

(Unaudited)

5

Managed Futures Premier Warrington L.P.

Statements of Income and Expenses

(Unaudited)

See accompanying notes to financial statements.

6

Managed Futures Premier Warrington L.P.

Statements of Changes in Partners’ Capital

For the Three Months Ended March 31, 2021 and 2020

(Unaudited)

See accompanying notes to financial statements.

7

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

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 (“T-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 (the “Proxy Statement”) 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.

Effective as of the close of business on March 31, 2015, Warrington SLP, LP, a Delaware limited partnership 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 quarter ended March 31, 2021.

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 together 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 three months ended March 31, 2021, the Partnership’s commodity brokers were Wedbush Securities, Inc. (“Wedbush”) and ADM Investor Services, Inc. (“ADM”), both of whom are registered futures commission merchants.

8

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

Effective November 27, 2018, the Partnership entered into a commodity futures customer agreement with HSBC (the “HSBC Customer Agreement”); however, the Partnership did not engage in any trading activity through HSBC until September 4, 2019. The Partnership paid HSBC trading fees for the clearing and, if applicable, execution of transactions. Effective September 30, 2020, the HSBC customer agreement was terminated because the Partnership is no longer engaged in such trading through accounts at HSBC.

Effective April 21, 2017, the Partnership entered into a commodity futures customer agreement with Wedbush (the “Wedbush Customer Agreement”); however, the Partnership did not engage in any trading activity through Wedbush until June 26, 2017. The Partnership pays Wedbush trading fees for the clearing and, if applicable, execution of transactions. In addition, with respect to excess cash, Wedbush does not pay interest on excess cash held in the Partnership’s account. The excess cash balances will be monitored and are expected to have an immaterial impact on the interest earned.

Effective March 13, 2017, the Partnership entered into a commodity futures customer agreement with ADM (the “ADM Customer Agreement”); however, the Partnership did not engage in any trading activity through ADM until April 6, 2017. The Partnership pays ADM trading fees for the clearing and, if applicable, execution of transactions. In addition, with respect to excess cash, ADM does not pay interest on excess cash held in the Partnership’s account. The excess cash balances will be monitored and are expected to have an immaterial impact on the interest earned.  

The Partnership maintains a continuing services agreement with Morgan Stanley Smith Barney LLC (d/b/a 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 adjusted month-end net assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of adjusted 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. For the purposes of calculating the fees paid to Morgan Stanley Wealth Management, adjusted net assets are month-end Net Assets, as defined in the Partnership Agreement, increased by that month’s ongoing selling agent fee, advisory fee, profit share allocation accrual, the general partner’s administrative fee and other expenses and any redemptions or distributions as of the end of such month.

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 adjusted month-end net assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of adjusted 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 adjusted month-end net assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of adjusted month-end net assets for Class D Redeemable Units for services provided to such current Limited Partners. For the purposes of calculating the fees paid to Baird, adjusted net assets are month-end Net Assets, as defined in the Partnership Agreement, increased by that month’s ongoing selling agent fee, advisory fee, profit share allocation accrual, the general partner’s administrative fee and other expenses and any redemptions or distributions as of the end of such month.

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 adjusted month-end net assets for Class A Redeemable Units and (ii) 1/12 of 0.75% (0.75% per year) of adjusted 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. For the purposes of calculating the fees paid to Credit Suisse Securities (USA) LLC, adjusted net assets are month-end Net Assets, as defined in the Partnership Agreement, increased by that month’s ongoing selling agent fee, advisory fee, profit share allocation accrual, the general partner’s administrative fee and other expenses and any redemptions or distributions as of the end of such month.

The accompanying financial statements and accompanying notes are unaudited but, in the opinion of the General Partner, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Partnership’s financial condition and condensed schedule of investments at March 31, 2021 and December 31, 2020, the results of its operations for the three months ended March 31, 2021 and 2020 and changes in partners’ capital for the three months ended March 31, 2021 and 2020. These financial statements present the results of interim periods and do not include all disclosures normally provided in annual

9

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

financial statements. You should read these financial statements together with the financial statements and notes included in the Partnership’s Annual Report on Form 10-K filed with the SEC as of and for the year ended December 31, 2020. The December 31, 2020 information has been derived from the audited financial statements as of and for the year ended December 31, 2020.

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

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 options contracts, as applicable, on commodities is done primarily on U.S. commodity exchanges. At various times during the three months ended March 31, 2021 and 2020, the Partnership engaged in such trading through commodity brokerage accounts with Wedbush, ADM and HSBC.

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

Partnership’s Investments: The fair value of exchange-traded futures and options contracts is determined by the various exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period.

All commodity interests are held for trading purposes. The commodity interests are recorded on the trade date and open contracts are recorded at fair value (as described below in Note 5 “Fair Value Measurements”) at the measurement date. Investments in commodity interests denominated in foreign currencies are translated into U.S. dollars at the exchange rates prevailing at the measurement date. Gains or losses are realized when contracts are liquidated. Unrealized gains or losses on option contracts are included as a component of equity in trading account on the Statements of Financial Condition. Net realized gains or losses and any change in net unrealized gains or losses from the preceding period are reported in the Statements of Income and Expenses.

Investment Company Status: Based on the General Partner’s assessment, the Partnership has been deemed to be an investment company since inception. Accordingly, the Partnership follows the investment company accounting and reporting guidance of FASB Accounting Standards Codification Topic 946 and reflects its investments at fair value with unrealized gains and losses resulting from changes in fair value reflected in the Statements of Income and Expenses.

Income Taxes: Income taxes have not been provided as each partner is individually liable for the taxes, if any, on its share of the Partnership’s income and expenses. The General Partner 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 2018 through 2020 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.

There have been no material changes with respect to the Partnership’s critical accounting policies as reported in the Partnership’s Annual Report on Form 10-K as of and for the year ended December 31, 2020.

10

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

Financial highlights for each Limited Partner Class for the three months ended March 31, 2021 and 2020 were as follows:

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

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.

11

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

The Wedbush Customer Agreement and the ADM Customer Agreement give and the HSBC Customer Agreement 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 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 trading, exchange, clearing, user, give-up, floor brokerage and National Futures Association (“NFA”) fees (collectively, the “clearing fees”) paid to Wedbush, ADM, HSBC and other executing brokers, as applicable are (or in the case of HSBC, were) borne by the Partnership.

All of the commodity interests owned by the Partnership are held for trading purposes. The monthly average number of option contracts held during the three months ended March 31, 2021 and 2020 were 171 and 0. 

The following tables present the gross and net information about investments eligible for offset in the Statements of Financial Condition at March 31, 2021 and December 31, 2020, respectively:

12

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

The following tables indicate the gross fair values of derivative instruments of futures and option contracts as separate assets and liabilities as of March 31, 2021 and December 31, 2020, respectively:

The following table indicates the trading gains and losses, by market sector, on derivative instruments for the three months ended March 31, 2021 and 2020:

13

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

The following table rolls forward the transactions in Options Written for the three-month period ended March 31, 2021:

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

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

14

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

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.

In August 2018, the FASB issued Accounting Standards Update (ASU) 2018-13, Disclosure Framework-Changes to the Disclosure requirements for Fair Value Measurement, which modifies the disclosure requirements for fair value measurements, primarily as it relates to Level 3 investments. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The effect of adopting this accounting guidance did not have a material impact on the Partnership’s financial statements.

The Partnership considers prices for exchange-traded commodity futures and option contracts to be based on unadjusted quoted prices in active markets for identical assets and liabilities (Level 1). The values of 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 three-month period ended March 31, 2021 and the twelve-month period ended December 31, 2020, the Partnership did not hold any derivative instruments 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). Any transfers between levels are recognized at the beginning of the period. During the three months ended March 31, 2021 and the twelve months ended December 31, 2020, there were no transfers of assets or liabilities between Level 1 and Level 2.

15

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

In the normal course of business, the Partnership is party to financial instruments with off-balance-sheet risk, including derivative financial instruments and derivative commodity instruments. These financial instruments may include futures and options, whose values are based upon an underlying asset, index, or reference rate, and generally represent future commitments to exchange currencies or cash balances, to purchase or sell other financial instruments on specific terms at specified future dates, or, in the case of derivative commodity instruments, to have a reasonable possibility to be settled in cash, through physical delivery or with another financial instrument. These instruments may be traded on an exchange or over-the-counter (“OTC”). Exchange-traded instruments include futures and certain standardized forward and option contracts. OTC contracts are negotiated between contracting parties and include certain forward, option and swap 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 relating to the underlying financial instruments, including market and credit risk. In general, the risks associated with OTC contracts are greater than those associated with exchange-traded instruments because of the greater risk of default by the counterparty to an OTC contract. None of the Partnership’s current contracts are traded OTC, although contracts may be traded OTC in the future.

Futures Contracts. The Partnership trades futures contracts. A futures contract is a firm commitment to buy or sell a specified quantity of investments, currency or a standardized amount of a deliverable grade commodity, at a specified price on a specified future date, unless the contract is closed before the delivery date or if the delivery quantity is something where physical delivery cannot occur (such as the S&P 500^® Index), whereby such contract is settled in cash. Payments (“variation margin”) may be made or received by the Partnership on each business day, depending on the daily fluctuations in the value of the underlying instruments, and are recorded as unrealized gains or losses by the Partnership. When the contract is closed, the Partnership records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Transactions in futures contracts require participants to make both initial margin deposits of cash or other assets and variation margin deposits, through the futures broker, directly with the exchange on which the contracts are traded. Net realized gains (losses) and any change in net unrealized gains (losses) on futures contracts from the preceding period are included in the Statements of Income and Expenses.

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

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 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 included in this report, as Wedbush, ADM and HSBC, or their affiliates, were the sole counterparties or brokers with respect to the Partnership’s assets. Credit risk with respect to exchange-traded instruments is (or in the case of HSBC, was) reduced to the extent that, through Wedbush, ADM or HSBC, or their affiliates, the Partnership’s counterparty is (or in the case of HSBC, was) an exchange or clearing organization.

16

Managed Futures Premier Warrington L.P.

Notes to Financial Statements

March 31, 2021

(Unaudited)

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

The General Partner evaluated events that occurred after the balance sheet date but before financial statements were issued and included in this Quarterly Report on Form 10-Q. The General Partner has determined that there were no subsequent events requiring adjustment of or disclosure in the financial statements.

17

Liquidity and Capital Resources

The Partnership does not engage in sales of goods or services. Its only assets are generally its equity in its trading account (consisting of cash and cash margin, options purchased at fair value), prepaid expenses and other receivables and investments in U.S. government securities, at fair value. 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 first three months of 2021.

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

For the three months ended March 31, 2021, the Partnership’s capital decreased from $21,486,162 to $18,708,361. This decrease was attributable to redemptions of Class A Units totaling 2,979,760 and a net income of $201,959. Future redemptions can impact the amount of funds available for investment in commodity contract positions in subsequent periods.

Critical Accounting Policies

The preparation of financial statements 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 and assumptions 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 of the December 31, 2020 annual Financial Statements.

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

Results of Operations

During the Partnership’s first quarter of 2021, the net asset value per Class A unit increased 1.0% from $1,254.68 to $1,267.33, as compared to a decrease of 1.1% in the first quarter of 2020. During the Partnership’s first quarter of 2021, the net asset value per Class D unit increased 1.3% from $1,388.41 to $1,406.66, as compared to a decrease of 0.7% in the first quarter of 2020. The Partnership experienced a net trading gain before fees and expenses and interest income in the first quarter of 2021 of $591,530. Gains were primarily attributable to the trading of commodity futures in the S&P 500^® Index Futures, S&P 500^® Index Calls and the S&P 500^® Index Puts. The Partnership experienced a net trading gain before fees and expenses and interest income in the first quarter of 2020 of $163,375. Gains were primarily attributable to the trading of commodity futures in the S&P 500^® Index Futures, S&P 500^® Index Calls and S&P 500^® Index Puts.

During the first quarter of 2021, the Partnership recorded gross trading gains in the S&P 500^® Index. The most significant gains were achieved during February and March as moderate market volatility in the S&P 500^® Index provided profitable trading opportunities. The Partnership used positions at multiple expiration dates to capture gains and aggregate to a positive gross return for the quarter. The Partnership recorded gross gains in February and March as the upward rally in the S&P 500^® Index continued.

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, public health epidemics and pandemics, 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.

18

During the reporting period no interest income was earned. Wedbush and ADM do not and HSBC did not pay interest on assets maintained in cash in the Partnership’s brokerage accounts. Interest income for the three months ended March 31, 2021 decreased by $66,147, as compared to the corresponding period in 2020. The decrease in the three months ended March 31, 2021 in interest income is due to no balances maintained in T-Bills as compared to the corresponding period in 2020. Interest earned by the Partnership will increase the net asset value of the Partnership.

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 months ended March 31, 2021 decreased by $63,005, as compared to the corresponding period in 2020. This decrease is due to lower average net assets during the three months ended March 31, 2021, as compared to the corresponding period in 2020.

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 months ended March 31, 2021 decreased by $25,374, as compared to the corresponding period in 2020. The decrease in clearing fees is primarily due to the lower number of trades executed during the three months ended March 31, 2021, as compared to the corresponding period in 2020. All clearing fees are borne by the Partnership.

Advisory 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 fees for the three months ended March 31, 2021 decreased by $62,366, as compared to the corresponding period in 2020. The decrease in advisory fees is due to lower average net assets during the three months ended March 31, 2021, as compared to the corresponding period in 2020.

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 months ended March 31, 2021 decreased by $31,184, as compared to the corresponding period in 2020. The decrease in administrative fees is due to lower average net assets during the three months ended March 31, 2021, as compared to the corresponding period in 2020. 

Special Limited Partner profit share allocations 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. There was no profit share allocation for the three months ended March 31, 2021 and no profit share allocation for the corresponding period in 2020.

Off-Balance Sheet Arrangements and Contractual Obligations

The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments, that would affect its liquidity or capital resources.

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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.