Attached files
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-85755
Bromwell Financial Fund, Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 51-0387638
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
505 Brookfield Drive, Dover, DE 19901
(Address of principal executive offices, including zip code)
(800) 331-1532
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes [ ] No [ ]
Not Applicable.
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
definition of large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller Reporting Company[ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act).
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) f the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ] Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Not Applicable
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The reviewed financial statements for the Registrant for the six months ended
June 30, 2011 are attached hereto at page F-1 and made a part hereof.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General Information
The Fund suspended trading on January 10, 2005. All but the General Partner
and one limited partner who are affiliated with the General Partner redeemed
their Units. The Fund terminated the commodity trading advisor with the view
that a new trading advisor would be selected and the fund would reopen for new
investment. At some time in the future, Registrant will, pursuant to the
terms of the Limited Partnership Agreement, engage in the business of
speculative and high risk trading of commodity futures and options markets
through the services of one or more commodity trading advisors its management
selects. No sales were made since the suspension of trading as of the date
of this Report.
Description of Fund Business
The Fund grants one or more commodity trading advisors ("CTA") a power of
attorney that is terminable at the will of either party to trade the equity
assigned to each CTA by Fund management. From November 1, 2003 to January 10,
2005, Fall River Capital Management, Inc. was the sole commodity trading
advisor of the Fund. The commodity trading advisors have discretion to select
the trades and do not disclose the methods they use to make those
determinations in their disclosure documents or to the Fund or to Fund
management. There is no promise or expectation of a fixed return to the
partners. The partners must look solely to trading profits for a return their
investment as the interest income is expected to be less than the fixed
expenses to operate the Fund.
Assets
The Fund assets consist of cash used as margin to secure futures (formerly
called commodities) trades entered on its behalf by the commodity trading
advisors it selects. The Fund deposits its cash with one or more futures
commission merchants (brokers) that hold and allocate the cash to use as
margin to secure the trades made. The futures held in the Fund accounts are
valued at the market price on the close of business each day by the Futures
Commission Merchant or Merchants that hold the Fund equity made available for
trading. The Capital accounts of the Partners are immediately responsible for
all profit and losses incurred by trading and payment and accrual of the
expenses of offering partnership interests for sale and the operation of the
partnership. The fixed costs of operation until the cessation of trading on
January 10, 2005 were a management fee of 1% and incentive fee of 20% paid to
the commodity trading advisor, fixed annual brokerage commissions of 4%, an
annual continuing service fee of 4%, and accounting, legal and other operating
fees that must be paid before the limited partners may earn a profit on their
investment. It expects to set different terms on any future offerings.
The Fund has not in the past and does not intend in the future to borrow from
third parties. Its trades are entered pursuant to a margin agreement with the
futures commission merchant which obligates the fund to the actual loss, if
any, without reference or limit by the amount of cash posted to secure the
trade. The limited partners are not personally liable for the debts of the
Fund, including any trading losses. At some time in the future, the
Partnership will file another S-1 registration statement and sell its
securities. By a previous registration statement, the Partnership sold
2,525,062 of its securities, which have been redeemed by the non-affiliated
limited partners and will not be resold.
An Investment in the Fund Depends upon Redemption of Fund Units
The Fund Units are not traded and they have no market value. Liquidity of an
investment in the Fund depends upon the credit worthiness of the exchanges,
brokers, and third parties of off exchange traded futures that hold Fund
equity or have a lien against Fund assets for payment of debts incurred.
Those parties must honor their obligations to the Fund for the Fund to be able
to obtain the return of its cash from the futures commission merchant that
holds the Fund account.
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The commodity trading advisor selects the markets and the off exchange
instruments to be traded. The General Partner selects the futures commission
merchants to hold the Fund assets. Both the commodity trading advisor and the
general partner believe all parties who hold Fund assets or are otherwise
obligated to pay value to the Fund are credit worthy. Margin is an amount to
secure the entry of a trade and is not a limit of the profit or loss to be
gained from the trade. The general partner intends to allocate approximately
97% of the Fund equity to be used as margin to enter trades. Although it is
customary for the commodity trading advisors to use 40% or less of the equity
available as margin, there is no limit imposed by the Fund upon the amount of
equity the advisors may commit to margin. It is possible for the Fund to
suffer losses in excess of the margin it posts to secure the trades made.
To have the purchase price or appreciation, if any, of the Units, paid to
them, partners must use the redemption feature of the Partnership.
Distributions, although possible in the sole discretion of the general
partner, are not expected to be made. There is no current market for the
Units sold, none is expected to develop and the partnership agreement limits
the ability of a limited partner to transfer the Units.
Results of Operations
The initial start-up costs attendant to the sale of Units by use of a
Prospectus which has been filed with the Securities and Exchange Commission
are substantial. The Limited Partnership Agreement grants solely to the
General Partner the right to select the CTA and to otherwise manage the
operation of the Fund. See the Registration Statement, incorporated by
reference herein, for an explanation of the operation of the Fund.
The General Partner suspended trading on January 10, 2005, and all but one
limited partner who is affiliated with the General Partner has redeemed its
Units. Accordingly, the Fund was not operational during the prior two years.
The Fund is subject to ongoing offering and operating expenses; however, upon
the commencement of business, profits or losses will be primarily generated by
the commodity trading advisors by methods that are proprietary to them. For
financial reporting purposes, the Fund experienced (losses) of $(6,739)
[$(2,622.28) per Unit] and $(11,841) [$(4,607.40) per Unit] for the three
months ended June 30, 2011 and June 30, 2010, respectively. For the six months
end June 30, 2011 and June 30, 2010, the Fund experienced (losses) of
$(18,722) [$(7,285.12) per Unit] and $(16,732) [$(6,510.51) per Unit],
respectively. The variation in losses over the periods was primarily due to
increases in compliance costs. These results are not to be construed as an
expectation of similar profits or losses in the future.
The Fund has not paid any commissions or earned any interest income since the
General Partner suspended trading on January 10, 2005. The Fund did not have
any additions or withdrawals in the prior two years.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The business of the Fund is speculative and involves a high degree of risk of
loss. See the Fund's Registration Statement and prospectus contained therein,
incorporated herein, for a full description of the risks attendant to Fund
business.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Registrant has adopted procedures in connection with the operation of its
business including, but not limited to, the review of account statements sent
to the General Partner before the open of business each day that disclose the
positions held overnight in the Fund accounts, the margin to hold those
positions, and the amount of profit or loss on each position, and the net
balance of equity available in each account. The Fund brokerage account
statements and financial books and records accounts are prepared by an
independent CPA Firm and then are reviewed each quarter and audited each year
by a different independent CPA firm.
The General Partner of the Fund, under the actions of its sole principal,
Michael Pacult, has evaluated the effectiveness of the design and operation of
its disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Fund as of the
end of the period covered by this Report. Based on their evaluation, Mr.
Pacult has concluded that these disclosure controls and procedures are
effective.
Changes in Internal Control over Financial Reporting
There were no changes in the General Partner's internal control over financial
reporting during the quarter ended June 30, 2011 that have materially
affected, or are reasonably likely to materially affect, internal control over
financial reporting applicable to the Fund.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no legal proceedings against the Fund, its General Partner,
the CTA, the IB or any of their Affiliates, directors or officers. The FCM,
MF Global Inc., has had the following described reportable events, none of
which, in the opinion of the FCM, is material to the performance of the FCM on
behalf of the Fund's account:
In May 2006, MFI was sued by the Receiver for Philadelphia Alternate Asset
Fund ("PAAF") and associated entities for common law negligence, common law
fraud, violations of the Commodity Exchange Act and RICO violations (the
"Litigation"). In December 2007, without admitting any liability of any party
to the Litigation to any other party to the Litigation, the Litigation was
settled with MFI agreeing to pay $69 million, plus $6 million of legal
expenses, to the Receiver, in exchange for releases from all applicable
parties and the dismissal of the Litigation with prejudice. In a related
action, MFI settled a CFTC administrative proceeding (In the Matter of MF
Global, f/k/a Man Financial Inc., and Thomas Gilmartin) brought by the CFTC
against MFI and one of its employees for failure to supervise and
recordkeeping violations. Without admitting or denying the allegations, MFI
agreed to pay a civil monetary penalty of $2 million and accept a cease and
desist order.
On February 20, 2007, MFI settled a CFTC administrative proceeding (In the
Matter of Steven M. Camp and Man Financial Inc., CFTC Docket No. 07-04) in
which MFI was alleged to have failed to supervise one of its former associated
persons ("AP") who was charged with fraudulently soliciting customers to open
accounts at MFI. The CFTC alleged that the former AP misrepresented the
profitability of a web-based trading system and of a purported trading system
to be traded by a commodity trading advisor. Without admitting or denying the
allegation, MFI agreed to pay restitution to customers amounting to
$196,900.44 and a civil monetary penalty of $120,000. MFI also agreed to a
cease and desist order and to strengthen its supervisory system for overseeing
sales solicitations by employees in connection with accounts to be traded
under letters of direction in favor of third party system providers.
On March 6, 2008, and thereafter, 5 virtually identical proposed class action
securities suits were filed against MFG's parent, MF Global Ltd. (now, MF
Global Holdings Ltd.) ("MF Global"), certain of its officers and directors,
and Man Group plc. These suits have now been consolidated into a single
action. The complaints seek to hold defendants liable under Secs. 11, 12 and 15
of the Securities Act of 1933 by alleging that the registration statement and
prospectus issued in connection with MF Global's initial public offering in
July 2007 were materially false and misleading to the extent that
4
representations were made regarding MF Global's risk management policies,
procedures and systems. The allegations are based upon MF Global's disclosure
of $141.5 million in trading losses incurred in a single day by an AP in his
personal trading account ("Trading Incident"), which losses MFG was
responsible to pay as an exchange clearing member. The consolidated cases
have been dismissed on a motion to dismiss by defendants. Plaintiffs have
appealed. In January 2011, the parties reached a preliminary agreement to
settle whereby MF Global will contribute $2.5 million to an overall settlement
amount of $90 million. The preliminary settlement will be subject to Court
review and final approval.
On December 17, 2009, MFG settled a CFTC administrative proceeding in
connection with the Trading Incident and three other matters without admitting
or denying any allegations and accepting a charge of failing to supervise (In
the Matter of MF Global Inc. CFTC Docket No. 10-03). The three additional
matters that were settled involved allegations that MF Global failed to
implement procedures to ensure proper transmissions of price information for
certain options that were sent to a customer, specifically that the price
indications reflected a consensus taken on [a particular] time and date and
were derived from different sources in the market place; failed to diligently
supervise the proper and accurate preparation of trading cards and failed to
maintain appropriate written authorization to conduct trades for a certain
customer. Under the Commission's order, MFG agreed to pay an aggregate civil
monetary penalty of $10 million (which it had previously accrued) and agreed
to a cease and desist order. In addition, MFG agreed to specific undertakings
related to its supervisory practices and procedures and MFG agreed that it
would engage an independent outside firm to review and assess the
implementation of the undertakings and certain recommendations that MFG
previously accepted. At the same time, MFG, without admitting or denying the
allegations made by the CME, settled a CME disciplinary action relating to the
Trading Incident by paying a fine of $495,000.
On August 28, 2009, Bank of Montreal ("BMO") instituted suit against MFG and
its former broker, Joseph Saab ("Saab") (as well as a firm named Optionable,
Inc. and five of its principals or employees), in the United States District
Court for the Southern District of New York. In its complaint, BMO asserts
various claims against all defendants for their alleged misrepresentation of
price quotes to BMO's Market Risk Department ("MRD") as independent quotes
when defendants knew, or should have known, that David Lee ("Lee"), BMO's
trader, created the quotes which, in circular fashion, were passed on to BMO
through MFG's broker, thereby enabling Lee substantially to overvalue his book
at BMO. BMO further alleges that MFG and Saab knew that Lee was fraudulently
misrepresenting prices in his options natural gas book and aided and abetted
his ability to do so by MFG's actions in sending price indications to the BMO
MRD, and substantially assisted Lee's breach of his fiduciary duties to BMO as
its employee. The Complaint seeks to hold all defendants jointly and
severally liable and, although it does not specify an exact damage claim, it
claims CAD 680.0 million (approximately $635.9 million) as a pre-tax loss for
BMO in its natural gas trading, claims that it would not have paid brokerage
commissions to MFG (and Optionable), would not have continued Lee and his
supervisor as employees at substantial salaries and bonuses, and would not
have incurred substantial legal costs and expenses to deal with the Lee
mispricing. MFG has made a motion to dismiss, which was denied.
In or about October 2003, MFI uncovered an apparent fraudulent scheme
conducted by third parties unrelated to MFI that may have victimized a number
of its clients. CCPM, a German Introducing Broker, introduced to MFI all the
clients that may have been victimized. An agent of CCPM, Michael Woertche
(and his asssociates), apparently engaged in a Ponzi scheme in which allegedly
unauthorized transfers from and trading in accounts maintained at MFI were
utilized to siphon money out of these accounts, on some occasions shortly
after they were established. MFI was involved in two arbitration proceedings
relating to these CCPM introduced accounts. The first arbitration involved
claims made by two claimants before a NFA panel. The second arbitration
involves claims made by four claimants before a FINRA panel. The claims in
both arbitrations are based on allegations that MFI and an employee assisted
CCPM in engaging in, or recklessly or negligently failed to prevent,
unauthorized transfers from, and trading in, accounts maintained by MFI.
Damages sought in the NFA arbitration proceeding were approximately $1,700,000
in compensatory damages, unspecified punitive damages and attorney's fees in
addition to the rescission of certain deposit agreements. The NFA arbitration
was settled for $200,000 as to one claimant and a net of $240,000 as to the
second claimant during fiscal 2008. Damages sought in the FINRA proceeding
were approximately $6,000,000 in compensatory damages and $12,000,000 in
punitive damages. During the year ended March 31, 2009, the FINRA arbitration
was settled for an aggregate of $800,000.
5
The Liquidation Trustee ("Trustee") for Sentinel Management Group, Inc.
("Sentinel") sued MFG in June 2009 on the theory that MFG's withdrawal of
$50.2 million within 90 days of the filing of Sentinel's bankruptcy petition
on August 17, 2007 is a voidable preference under Section 547 of the
Bankruptcy Code and, therefore, recoverable by the Trustee, along with
interest and costs.
In May 2009, investors in a venture set up by Nicholas Cosmo ("Cosmo") sued
Bank of America and MFG, among others, in the United States District Court for
the Eastern District of New York, alleging that MFG, among others, aided and
abetted Cosmo and related entities in a Ponzi scheme in which investors lost
$400 million. MFG has made a motion to dismiss which was granted and cannot be
appealed by plaintiffs until the conclusion of the case against the Bank of
America.
In December 2010, the Court-appointed receiver for Joseph Forte, L.P., ("Forte
Partnership") filed a complaint in the United States District Court for the
Eastern District of Pennsylvania, alleging that MFG was negligent in the
handling of a futures account the Forte Partnership maintained at MFG. The
Complaint alleges that as a result of MFG's negligence, Joseph Forte ("Forte")
was able to operate a Ponzi scheme in which he misappropriated at least
$25,000,000 from limited partners in the Forte Partnership. The Complaint
seeks damages "in excess of $150,000." MFG has not been served with the
complaint.
In the late spring of 2009, MFG was sued in Oklahoma State Court by customers
who were substantial investors with Mark Trimble ("Trimble") and/or
Phidippides Capital Management ("Phidippides"). Trimble and Phidippides may
have been engaged in a Ponzi scheme. Plaintiffs allege that MFG "materially
aided and abetted" Trimble's and Phidippides' violations of the anti-fraud
provisions of the Oklahoma securities laws and they are seeking damages "in
excess of" $10,000 each. MFG made a motion to dismiss which was granted by the
court. Plaintiffs have appealed.
In the late spring of 2009, MFG was sued in Oklahoma State Court by customers
who were substantial investors with Mark Trimble ("Trimble") and/or
Phidippides Capital Management ("Phidippides"). Trimble and Phidippides may
have been engaged in a Ponzi scheme. Plaintiffs allege that MFG "materially
aided and abetted" Trimble's and Phidippides' violations of the anti-fraud
provisions of the Oklahoma securities laws and they are seeking damages "in
excess of" $10,000 each. MFG made a motion to dismiss which was granted by the
court. Plaintiffs have appealed.
On August 4, 2010, MFG was added as a defendant to a consolidated class action
complaint filed against Moore Capital Management and related entities in the
United States District Court for the Southern District of New York alleging
claims of manipulation and aiding and abetting manipulation, in violation of
the Commodity Exchange Act. Specifically, the complaint alleges that, between
October 25, 2007 and June 6, 2008, Moore Capital directed MFG, as its
executing broker, to enter "large" market on close orders (at or near the time
of the close) for platinum and palladium futures contracts, which allegedly
caused artificially inflated prices. On August 10, 2010, MFG was added as a
defendant to a related class action complaint filed against the Moore-related
entities on behalf of a class of plaintiffs who traded the physical platinum
and palladium in the relevant time frame, which alleges price fixing under the
Sherman Act and violations of the civil Racketeer Influenced and Corrupt
Organizations Act. On September 30, 2010 plaintiffs filed an amended
consolidated class action complaint that includes all of the allegations and
claims identified above on behalf of subclasses of traders of futures
contracts of platinum and palladium and physical platinum and palladium.
Plaintiffs' claimed damages have not been quantified. This matter is in its
earliest stages.MFG and an affiliate, MF Global Market Services LLC ("Market
Services"), are currently involved in litigation with a former customer of
Market Services, Morgan Fuel & Heating Co., Inc. ("Morgan Fuel") and its
principals, Anthony Bottini, Jr., Brian Bottini and Mark Bottini (the
"Bottinis"). The litigations arise out of trading losses incurred by Morgan
Fuel in over-the-counter derivative swap transactions, which were
unconditionally guaranteed by the Bottinis.
On October 6, 2008, Market Services commenced an arbitration against the
Bottinis to recover $8.3 million, which is the amount of the debt owed to
Market Services by Morgan Fuel after the liquidation of the swap transactions.
MF Global Market Services LLC v. Anthony Bottini, Jr., Brian Bottini and Mark
Bottini, FINRA No. 08-03673. Each of the Bottinis executed a guaranty in favor
of Market Services personally and unconditionally guaranteeing payment of the
obligations of Morgan Fuel upon written demand by Market Services. Market
Services asserted a claim of breach of contract based upon the Bottinis'
failure to honor the guarantees.
6
On October 21, 2008, Morgan Fuel commenced a separate arbitration proceeding
before FINRA against MFG and Market Services. Morgan Fuel claims that MFG and
Market Services caused Morgan Fuel to incur approximately $14.2 million in
trading losses. Morgan Fuel v. MFG and Market Services, FINRA No. 08-03879.
Morgan Fuel seeks recovery of $5.9 million in margin payments that it
allegedly made to Market Services and a declaration that it has no
responsibility to pay Market Services for the remaining $8.3 million in
trading losses because Market Services should not have allowed Morgan Fuel to
enter into, or maintain, the swap transactions. On MFG's motion, the Supreme
Court of the State of New York determined that there was no agreement to
arbitrate such claims. Morgan Fuel appealed and all appeals were denied.
The Bottinis also asserted a third-party claim against Morgan Fuel, which in
turn asserted a fourth-party claim against MFG, Market Services and Steven
Bellino (an MFG employee) in the arbitration proceeding commenced by Market
Services. The Supreme Court of the State of New York denied a motion to stay
the fourth party claim but the denial to stay was reversed. Morgan Fuel filed
a motion to appeal with the New York Court of Appeals which was denied.
On December 12, 2008, MFG settled three CME Group disciplinary actions
involving allegations that on a number of occasions in 2006 and 2007, MFG
employees engaged in impermissible pre-execution communications in connection
with trades executed on the e-cbot electronic trading platform, withheld
customer orders that were executable in the market for the purpose of
soliciting, and brokering contra-orders and crossed orders on the e-cbot
trading platform without allowing for the minimum required exposure period
between the entry of the orders. MFG was also charged with failing to properly
supervise its employees in connection with these trades. Without admitting or
denying any wrongdoing, MFG consented to an order of a CME Business Conduct
Committee Panel which found that MFG violated legacy CBOT Rule 504.00 and
Regulations 480.10 and 9B.13 and 9B.13(c) and ordered MFG to pay a $400,000
fine, cease and desist from similar conduct and, in consultation with CME
Market regulation Staff, enhance its training practices and supervisory
procedures regarding electronic trading practices.
MFG acts only as clearing broker for the Fund's futures accounts and as such
is paid commissions for executing and clearing trades. MFG has not passed
upon the adequacy or accuracy of the Fund's prospectus or this report and will
not act in any supervisory capacity with respect to the CPO or the CTA, as the
case may be, nor participate in the management of the CPO or of the Fund or of
the CTA. Therefore, investors should not rely on MFG in deciding whether or
not to participate in the Fund.
The Fund is not aware of any threatened or potential claims or legal
proceedings to which the Fund is a party or to which any of its assets are
subject. MFG has represented to the General Partner that that none of the
events it has reported will not now, or at any time in the future, interfere
with its performance as the FCM for the Fund's account.
Item 1A. Risk Factors
There have been no material changes from risk factors as previously disclosed
in the Fund's 2010 Form 10-K. The risks of the Fund are (1) described fully
in its prospectus filed with its registration statement on Form S-1, which is
incorporated herein by reference (2) described in summary in Part I of this
Form 10-Q, which is incorporated herein by reference.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
Not Applicable
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Item 5. Other Information
(a) None
(b) None
Item 6. Exhibits
31.1 Certification of Principal Executive Officer and Principal Financial
Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS The Registrant will amend this report within 30 days to include
its financial statements in XBRL format.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-Q for the
period ended June 30, 2011, to be signed on its behalf by the undersigned,
thereunto duly authorized.
Registrant: Bromwell Financial Fund, Limited Partnership
By Belmont Capital Management, Incorporated
Its General Partner
By: /s/ Michael Pacult
Mr. Michael Pacult
Sole Director, Sole Shareholder,
President, and Treasurer of the General Partner
Date: August 15, 2011
8
BROMWELL FINANCIAL FUND, LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
QUARTERLY REPORT
June 30, 2011
GENERAL PARTNER:
Belmont Capital Management, Inc.
% Corporate Systems, Inc.
505 Brookfield Drive
Dover, Kent County, Delaware 19901
Index to the Financial Statements
Page
Report of Independent Registered Public Accounting Firm F-2
Statements of Assets and Liabilities F-3
Statements of Operations F-4
Statements of Changes in Net Assets F-5
Statements of Cash Flows F-6
Notes to the Financial Statements F-7 - F-10
Affirmation of the Commodity Pool Operator F-11
F-1
Patke & Associates, Ltd.
Certified Public Accountants
Report of Independent Registered Public Accounting Firm
To the Partners of
Bromwell Financial Fund, Limited Partnership
Dover, Delaware
We have reviewed the accompanying statements of assets and liabilities of
Bromwell Financial Fund, Limited Partnership, as of June 30, 2011 and the
related statements of operations for the three and six months ended June 30,
2011 and 2010, and the statements of changes in net assets and cash flows for
the six months ended June 30, 2011 and 2010. These financial statements are
the responsibility of the Partnership's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States
of America.
We have previously audited, in accordance with the auditing standards of the
Public Accounting Oversight Board (United States), the statement of assets and
liabilities of Bromwell Financial Fund, Limited Partnership as of December 31,
2010 and the related statements of operations, changes in net assets and cash
flows for the year ended (not presented herein) and in our report dated
February 24, 2011, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
statement of assets and liabilities as of December 31, 2010 is fairly stated,
in all material respects, in relation to the statement of assets and
liabilities from which it has been derived.
/s/ Patke & Associates, Ltd.
Patke & Associates, Ltd.
Lincolnshire, Illinois
August 10, 2011
300 Village Green Drive, Suite 210 * Lincolnshire, Illinois 60069
Phone: (847) 913-5400 * Fax: (847) 913-5435
F-2
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Assets and Liabilities
June 30, December 31,
2011 2010
(A Review)
Assets
Cash $168 $175
Total assets 168 175
Liabilities
Accrued expenses 29,249 29,684
Due to related parties 165,524 146,374
Total liabilities 194,773 176,058
Net assets $(194,605) $(175,883)
Analysis of net assets
Limited partners $(118,883) $(107,446)
General partner (75,722) (68,437)
Net assets (equivalent to $(75,721.89)
and $(68,436.77) per unit) $(194,605) $(175,883)
Partnership units outstanding
Limited partners units outstanding 1.57 1.57
General partner units outstanding 1.00 1.00
Total partnership units outstanding 2.57 2.57
The accompanying notes are an integral part of the financial statements
F-3
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Operations
(A Review)
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
Investment income
Interest income $- $- $- $-
Total investment income - - - -
Expenses
Professional fees 6,444 11,448 18,222 16,134
Other expenses 295 393 500 598
Total expenses 6,739 11,841 18,722 16,732
Net investment (loss) (6,739) (11,841) (18,722) (16,732)
Net (decrease) in net assets resulting
from operations $(6,739) $(11,841) $(18,722) $(16,732)
Net (decrease) per unit
Limited partner Limited partner unit $(2,622.28) $(4,607.40) $(7,285.12) $(6,510.51)
General partner General partner unit $(2,622.28) $(4,607.40) $(7,285.12) $(6,510.51)
The accompanying notes are an integral part of the financial statements
F-4
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Changes in Net Assets
(A Review)
Partners' Capital
General Limited Total
Net assets at December 31, 2009 1.00 $(56,783) 1.57 $(89,150) 2.57 $(145,933)
(Decrease) in net assets from operations:
Net investment (loss) (6,511) (10,221) (16,732)
Net (decrease) in net assets resulting from
operations (6,511) (10,221) (16,732)
Net assets at June 30, 2010 1.00 (63,294) 1.57 (99,371) 2.57 (162,665)
Net assets at December 31, 2010 1.00 $(68,437) 1.57 $(107,446) 2.57 $(175,883)
(Decrease) in net assets from operations:
Net investment (loss) (7,285) (11,437) (18,722)
Net (decrease) in net assets resulting from
operations (7,285) (11,437) (18,722)
Net assets at June 30, 2011 1.00 $(75,722) 1.57 $(118,883) 2.57 $(194,605)
The accompanying notes are an integral part of the financial statements
F-5
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Cash Flows
(A Review)
Six Months Ended June 30,
2011 2010
Cash Flows from Operating Activities
Net (decrease) in net assets resulting from operations $(18,722) $(16,732)
Adjustments to reconcile net (decrease) in net assets from
operations to net cash (used in) operating activities:
(Decrease) in accrued expenses (435) (2,172)
Net cash (used in) operating activities (19,157) (18,904)
Cash Flows from Financing Activities
Increase in due to related parties 19,150 16,500
Net cash provided by financing activities 19,150 16,500
Net (decrease) in cash (7) (2,404)
Cash at the beginning of the period 175 163
Cash (overdraft) at the end of the period $168 $(2,241)
The accompanying notes are an integral part of the financial statements
F-6
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2011
(A Review)
1. Nature of the Business
Bromwell Financial Fund, Limited Partnership (the "Fund") was formed January
12, 1999 under the laws of the State of Delaware. The general partner and
commodity pool operator ("CPO") of the Fund is Belmont Capital Management,
Inc. ("General Partner"). The Fund was actively engaged in the speculative
trading of futures contracts in commodities from its commencement of business
in July 2000 to January 10, 2005, when it ceased trading. In the near future,
the Fund expects to file a post effective amendment to allow it to resume the
sale of its limited partnership interests on an issuer direct best efforts
basis. Once the Fund sells a to be determined minimum in limited partnership
units, it will restart active trading of futures and options on futures
through Covenant Capital Management of Tennessee, LLC, a commodity trading
advisor ("CTA") selected by the General Partner.
2. Significant Accounting Policies
Regulation - The Fund is a registrant with the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933 (the "Act"). The
Fund is subject to the regulations of the SEC and the reporting requirements
of the Securities and Exchange Act of 1934. The Fund is also subject to the
regulations of the Commodities Futures Trading Commission ("CFTC"), an agency
of the U.S. government which regulates most aspects of the commodity futures
industry, the rules of the National Futures Association ("NFA") and the
requirements of various commodity exchanges where the Fund executes
transactions. Additionally, the Fund is subject to the requirements of futures
commission merchants and interbank market makers through which the Fund
trades.
Reorganization Costs and Operating Expenses - For financial reporting
purposes in conformity with U.S. Generally Accepted Accounting Principles
("GAAP"), all accumulated reorganization costs since January 10, 2005 have
been expensed as incurred. The Fund has incurred $196,244 in reorganization
costs from the cessation of trading on January 10, 2005 through June 30, 2011.
For all other purposes, including determining the Net Asset Value per Unit for
subscription and redemption purposes, the Fund will not reflect these costs in
capital until after the reimbursement is made on the resumption of trading
and, thereafter, all costs will be expensed as incurred. The resumption of
business is contingent upon the sale of a to be determined amount of
partnership interests. The Fund has agreed to reimburse the General Partner,
and other affiliated companies for all such expenses upon the sale of the
minimum and resumption of business. All costs after the resumption of
business will be paid directly by the Fund.
Consequently, as of June 30, 2011 and December 31, 2010, the Net Asset Value
and Net Asset Value per unit for financial reporting purposes and for all
other purposes are as follows:
Balance Per Unit Calculation
June 30, December 31, June 30, December 31,
2011 2010 2011 2010
Net Asset Value for financial reporting purposes $(194,605) $(175,883) $(75,721.89) $(68,436.77)
Adjustment for reorganization costs and other
operating expenses 196,244 177,522 76,359.63 69,074.51
Net Asset Value for all other purposes $1,639 $1,639 $637.74 $637.74
Number of Units 2.57 2.57
Registration Costs - Costs incurred for the initial filings with the SEC,
CFTC, NFA and the states where the offering was made were accumulated,
deferred and charged against the gross proceeds of offering at the initial
closing as part of the offering expenses. Costs to maintain the Fund's
registration of its securities and recurring registration costs incurred since
the cessation of trading on January 10, 2005 are treated as reorganization
expenses and, accordingly, are accounted for as described above under
"Reorganization Costs and Operating Expenses".
Revenue Recognition - Futures contracts are recorded on the trade date and
are reflected in the balance sheet at the difference between the original
contract amount and the fair value on the last business day of the reporting
period.
Fair value of futures contracts is based upon exchange or other applicable
market best available closing quotations.
Interest income is recognized when it is earned.
F-7
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2011
(A Review)
2. Significant Accounting Policies - Continued
Use of Accounting Estimates - The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Income Taxes - The Fund is not required to provide a provision for income
taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Fund may be subject to state and
local taxes in jurisdictions in which it operates.
Management has continued to evaluate the application of Financial Accounting
Standards Board Accounting Standards Codification ("ASC") 740, "Income Taxes",
to the Fund and has determined that ASC 740 does not have a material impact on
the Fund's financial statements. The Fund files federal and state tax
returns. The 2007 through 2010 tax years generally remain subject to
examination by the U.S. federal and most state tax authorities.
Statement of Cash Flows - For purposes of the Statement of Cash Flows, the
Fund considers money market funds to be cash equivalents. Net cash used in
operating activities includes no cash payments for interest or income taxes
for the six months ended June 30, 2011 and 2010.
Fund Reopening - The Fund was closed as of June 30, 2011. The Fund will
reopen to new funds at a time to be set by the General Partner.
Reclassifications - Certain prior year amounts were reclassified to conform
to current year presentation.
Fair Value Measurement and Disclosures - ASC 820 establishes a fair value
hierarchy which prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The fair value hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements).
Level 1 inputs are unadjusted quoted prices in active markets for identical
assets or liabilities that the Fund has the ability to access at the
measurement date.
Level 2 inputs are inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for an asset or liability, including
the Fund's own assumptions used in determining the fair value of investments.
Unobservable inputs shall be used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which
there is little, if any, market activity for the asset or liability at the
measurement date. As of and for the six months ended June 30, 2011 and year
ended December 31, 2010, the Fund had no investments.
3. General Partner Duties
The responsibilities of the General Partner, in addition to directing the
trading and investment activity of the Fund, including suspending all trading,
includes executing and filing all necessary legal documents, statements and
certificates of the Fund, retaining independent public accountants to audit
the Fund, employing attorneys to represent the Fund, reviewing the brokerage
commission rates to determine reasonableness, maintaining the tax status of
the Fund as a limited partnership, maintaining a current list of the names,
addresses and numbers of units owned by each limited partner and taking such
other actions as deemed necessary or desirable to manage the business of the
Fund.
If the daily net unit value of the Fund falls to less than 50% of the
highest value earned through trading subsequent to the resumption of business,
then the General Partner will immediately suspend all trading, provide all
limited partners with notice of the reduction and give all limited partners
the opportunity, for fifteen days after such notice, to redeem partnership
interests. No trading will commence until after the lapse of the fifteen day
period.
F-8
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2011
(A Review)
4. The Limited Partnership Agreement
The Limited Partnership Agreement provides, among other things, the
following:
Capital Account - A capital account shall be established for each partner.
The initial balance of each partner's capital account shall be the amount of
the initial contributions to the Fund.
Monthly Allocations - Any increase or decrease in the Fund's net asset value
as of the end of a month shall be credited or charged to the capital account
of each Fund in the ratio that the balance of each account bears to the total
balance of all accounts.
Any distribution from profits or partners' capital will be made solely at
the discretion of the General Partner.
Federal Income Tax Allocations - As of the end of each fiscal year, the
Fund's realized capital gain or loss and ordinary income or loss shall be
allocated among the partners, after having given effect to the fees and
expenses of the Fund.
Subscriptions - Investors must submit subscription agreements and funds at
least five business days prior to month end. Subscriptions must be accepted or
rejected by the General Partner within five business days. The investor also
has five business days to withdraw his subscription. Funds are deposited into
an interest bearing escrow account and will be transferred to the Fund's
account on the first business day of the month after the subscription is
accepted. Interest earned on the escrow funds will accrue to the account of
the investor.
Redemptions - A limited partner may request any or all of his investment be
redeemed at the net asset value as of the end of a month. The written request
must be received by the General Partner no less than ten days prior to a month
end. Redemptions are generally paid within twenty days of the effective month
end. However, in various circumstances the General Partner may be unable to
comply with the request on a timely basis. There are no fees for redemption.
5. Fees
The Fund will be charged various fees upon the sale of the minimum and
resumption of business. These terms are currently being negotiated.
The General Partner has reserved the right to change the fee structure at
its sole discretion.
6. Related Party Transactions
Due to related parties at June 30, 2011 and December 31, 2010 consisted of
amounts due to Ashley Capital Management, Inc., Futures Investment Company,
the introducing broker, Michael Pacult, president of Futures Investment
Company, and the General Partner. The balances result from operating and
reorganization costs paid by the related parties on behalf of the Fund and
cash advances. These amounts bear no interest or due dates and are unsecured.
The balances are expected to be paid back upon the resumption of trading. The
following balances were outstanding as of June 30, 2011 and December 31, 2010:
June 30, December 31,
2011 2010
Futures Investment Company $133,950 $114,800
General Partner 27,541 27,541
Ashley Capital Management, Inc. 3,033 3,033
Michael Pacult 1,000 1,000
Total due to related parties $165,524 $146,374
ASC 460, "Guarantees", identifies certain disclosures to be made by a
guarantor in its financial statements about its obligations under certain
guarantees that it has issued. In the normal course of business, the Fund has
provided general indemnifications to the General Partner, its CTA and others
when they act, in good faith, in the best interests of the Fund. The Fund is
unable to develop an estimate for future payments resulting from hypothetical
claims, but expects the risk of having to make any payments under these
indemnifications to be remote.
7. Indemnifications
In the normal course of business, the Fund enters into contracts and
agreements that contain a variety of representations and warranties and which
provide general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Fund that have not yet occurred. The Fund expects the risk of any
future obligation under these indemnifications to be remote.
F-9
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
June 30, 2011
(A Review)
8. Financial Highlights
Three Months Ended June 30, Six Months Ended June 30,
2011 2010 2011 2010
Performance per unit (1)
Net unit value, beginning of period $(73,099.61) $(58,686.38) $(68,436.77) $(56,783.27)
Expenses (2,622.28) (4,607.40) (7,285.12) (6,510.51)
Net (decrease) for the period (2,622.28) (4,607.40) (7,285.12) (6,510.51)
Net unit value, end of period $(75,721.89) $(63,293.78) $(75,721.89) $(63,293.78)
Net assets, end of period (000) $(195) $(163) $(195) $(163)
Total return (2) (3.59)% (7.85)% (10.65)% (11.47)%
Number of units outstanding at the end of
the period 2.57 2.57 2.57 2.57
Supplemental Data:
Ratio to average net assets (3)
Net investment (loss) (14.35)% (31.40)% (21.29)% (22.93)%
Expenses (14.35)% (31.40)% (21.29)% (22.93)%
Total returns are calculated based on the change in value of a unit during
the period. An individual partner's total returns and ratios may vary from
the above total returns and ratios based on the timing of additions and
redemptions.
(1) Expenses are calculated based on a single unit outstanding during the
period.
(2) Not annualized
(3) Annualized
F-10
Bromwell Financial Fund, Limited Partnership
Affirmation of the Commodity Pool Operator
For the Six Months Ended June 30, 2011 and 2010
*****************************************************************************
To the best of the knowledge and belief of the undersigned, the information
contained in this report is accurate and complete.
/s/ Michael Pacult
Michael Pacult
President, Belmont Capital Management, Inc.
General Partner
Bromwell Financial Fund, Limited Partnership
F-11
