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, 2007
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 is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X]
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
<page>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The reviewed financial statements for the Registrant for the six months ended
June 30, 2007 are attached hereto 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 affiliated limited 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 June 30, 2007. The
Partnership will sell the balance of un-issued registered securities of
$4,474,938, as of June 30, 2007 until the total amount of registered
securities, $7,000,000, is sold or the offering terminates. Upon the sale of
$1,000,000 in Units, the Fund will recommence trading with NuWave Investment
Corp., 1099 Mount Kemble Avenue, Morristown, New Jersey 07960, as sole CTA.
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 sole 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 commodity) 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) who 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 and legal fees that must
be paid before the limited partners may earn a profit on their investment.
It expects to re-open to sell the balance of its registered but un-issued
partnership interests on different terms.
The Fund does not intend 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. The Registrant will in the future offer Units for sale to the public
until the balance of $4,474,938 in face amount of Units are sold. Of the
$7,000,000 of Units registered, $2,525,062 have been sold, have been redeemed
and will not be resold. Capital available will be dependent upon the
marketing and sales effort put in place by Fund management to sell the
remaining $4,474,938 in face amount of limited partnership interests.
2
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Absent the registration of additional Units, the Fund will be capitalized at
$50,000,000 subject to redemption of Units by the holders as they request,
which are expected to be honored by the General Partner.
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.
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 Fund's results after payment and accrual of expenses for the first six
months of 2007, for financial reporting purposes was a loss of $4,743
($1,845.52 per Unit), and for all other purposes, including subscriptions and
redemptions, was a loss of $0 ($0 per Unit). The Fund's restated results
after payment and accrual of expenses for the first six months of 2006, for
financial reporting purposes, was a loss of $645 ($250.97 per Unit), and for
all other purposes, including subscriptions and redemptions, was a loss of
$470 ($182.88 per Unit). The Fund is subject to ongoing offering and
operating expenses; however, profits or losses are primarily generated by
the commodity trading advisor by methods that are proprietary to it. These
results are not to be construed as an expectation of similar profits in the
future.
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.
Item 4. 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 Certified Public Accounting Firm and then are reviewed each
quarter and audited each year by a different independent CPA firm.
In the Fund's previously-filed Annual Report on Form 10-K for the year ended
December 31, 2006 (the "Annual Report"), the General Partner of the Fund,
under the actions of its sole principal, Michael Pacult, 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 December 31, 2006 and found them
adequate. In May, 2007, management was informed by the SEC that its
financials did not conform to SEC requirements because (1) the financials
contained only two, and not three, years of financial information for the
statements of operations, changes in net assets, and cash flows, and (2) the
3
<page>
audit opinion did not cover all financial periods stated. Because of these
omissions, management has re-evaluated its prior conclusion regarding the
effectiveness of the design and operation of its disclosure controls and
procedures as of December 31, 2006 with respect to the Fund. Based upon Mr.
Pacult's re-evaluation, conducted under Exchange Act Rule 13a-15 or 15d-
15(e), he concluded that the omissions were caused by a personnel problem,
were the result of obvious human error and lack of attention to detail, and
that the Fund's disclosure controls and procedures were accordingly not
effective as of December 31, 2006. To remedy the situation, prior to the end
of the period of this report on Form 10-Q, Mr. Pacult severely reprimanded
those persons who prepared and reviewed the financial statements included in
the Annual Report.
Internal Control over Financial Reporting
Each month, the general partner reviews the profit and loss statements for
the month and once approved each partner is sent a statement to disclose
total Fund performance and the amount in the partner's capital account.
Checks are paid for expenses only upon approval of invoices submitted to the
general partner or pursuant to standing authorizations for periodic fixed
expenses. Payment of a redemption is only upon receipt of a request form
signed by the person with authority over the limited partner's account. The
general partner balances the daily account information with the monthly
compilation and financial statements prepared by the independent CPA. There
was no change in the General Partner's internal control over financial
reporting applicable to the Fund identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 in the
quarter ended June 30, 2007 that has materially affected, or is 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 Registrant, its General
Partner, the CTA, the IB or any of their Affiliates, directors or officers.
The FCM, MF Global Inc., has had the following 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:
At any given time, MF Global Inc. ("MFG") , formerly known as Man Financial,
Inc. ("MFI"), is involved in numerous legal actions and administrative
proceedings, which in the aggregate, are not, as of the date of this report,
expected to have a material effect upon its condition, financial or
otherwise, or to the services it will render to the partnership. There have
been no administrative, civil or criminal proceedings pending, on appeal or
concluded against MFG or its principals within the five years preceding the
date of this report that MFG would deem material for purposes of Part 4 of
the Regulations of the Commodity Futures Trading Commission, except as
follows:
MFI has been 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"). The Receiver's claims for damages are not quantified in the
Complaint, but are believed to be substantial. MFI has informed the general
partner that in acting as executing and clearing broker for PAAF it was not
responsible for its losses, that it has denied the material allegations of
the complaint, that it has brought in third party defendants (one of which
has been made a primary defendant), that it will move for summary judgment
and will otherwise vigorously defend the litigation. Further, the outcome of
the Litigation should not materially affect MFI or its ability to perform as
a clearing broker. The Commodity Futures Trading Commission ("CFTC") is also
investigating the events involving PAAF's losses and MFI's relationship to
PAAF. To date, the CFTC has not brought any action against the MFI.
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
Associated Person 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.
4
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As mentioned above, the FCM has assured the Fund that neither of the above
events will interfere with the ability of the FCM to perform its duties on
behalf of the Fund.
Item 1A. Risk Factors
There have been no material changes from risk factors as previously disclosed
in the Fund's 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. Submission of Matters to a Vote of Security Holders
None
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
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, 2007, 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 31, 2007
5
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Index to the Financial Statements
Page
Report of Independent Registered Public Accounting Firm F-2
Financial Statements
Statements of Assets and Liabilities as of June 30, 2007
and December 31, 2006 F-3
Statements of Operations for the Six Months Ended June 30,
2007 and 2006 F-4
Statements of Changes in Net Assets for the Six Months
Ended June 30, 2007 and 2006 F-5
Statements of Cash Flows for the Six Months Ended June
30, 2007 and 2006 F-6
Notes to Financial Statements F-7 - F-14
Affirmation of Commodity Pool Operator F-15
F-1
<page>
Jordan, 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 statement of assets and liabilities of
Bromwell Financial Fund, Limited Partnership, as of June 30, 2007, and the
related statements of operations for the three months and six months ended
June 30, 2007 and 2006, changes in net assets and cash flows for the six
months ended June 30, 2007 and 2006 . These financial statements are the
responsibility of the Fund'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 Company Accounting Oversight Board (United States), the statement of
assets and liabilities of Bromwell Financial Fund, Limited Partnership as of
December 31, 2006 and the related statements of operations, changes in net
assets and cash flows for the year then ended (not presented herein); and in
our report dated August 31, 2007, 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, 2006 is
fairly stated, in all material respects, in relation to the statement of
assets and liabilities from which it has been derived.
As discussed in Note 10 to the financial statements, the three months and six
months ended June 30, 2006 financial statements have been restated to correct
a misstatement.
/s/ Jordan, Patke & Associates, Ltd.
Jordan, Patke & Associates, Ltd.
Lincolnshire, Illinois
August 31, 2007
300 Village Green Drive, Suite 210 * Lincolnshire, Illinois 60069
Phone: (847) 913-5400 * Fax: (847) 913-5435
F-2
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Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Assets and Liabilities
<table>
<s> <c> <c>
June 30, December 31,
2007 2006
(A Review)
Assets
Cash $375 $118
Total assets 375 118
Liabilities
Partner redemptions payable 21,641 21,641
Accrued expenses 17,827 17,827
Advances due to related parties 16,533 11,533
Total liabilities 56,001 51,001
Net assets $(55,626) $(50,883)
Analysis of Net Assets
Limited partners $(33,982) $(31,084)
General partner (21,644) (19,799)
Net assets (equivalent to $(21,644.36)
and $(19,798.83) per share) $(55,626) $(50,883)
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
</table>
F-3
The accompanying notes are an integral part of the financial statements.
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Operations
(A Review)
<table>
<s> <c> <c> <c> <c>
(Restated) (Restated)
---------------- ------------
Three Months Ended June 30, Six Months Ended June 30,
2007 2006 2007 2006
Investment income
Interest income $- $- $- $-
Redemption penalty - - - -
Total investment income - - - -
Expenses
Professional accounting and legal fees 4,308 - 4,308 -
Other operating and administrative expenses 295 470 435 645
Total expenses 4,603 470 4,743 645
Net investment loss (4,603) (470) (4,743) (645)
Realized and unrealized gain (loss) from
investments
Net realized (loss) from Investments - - - -
Foreign currency transactions - - - -
Net increase in unrealized appreciation on
Investments - - - -
Net realized and unrealized (loss) from
investments - - - -
Net (decrease) in net assets resulting
from operations $(4,603) $(470) $(4,743) $(645)
Net income per unit
Limited partner $(1,791.05) $(182.88) $(1,845.53) $(250.97)
General partner $(1,791.05) $(182.88) $(1,845.53) $(250.97)
</table>
F-4
The accompanying notes are an integral part of the financial statements.
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Changes in Net Assets
(A Review)
<table>
<s> <c> <c>
(Restated)
--------------
Six Months Ended June 30,
2007 2006
Increase (decrease) in net assets from operations
Net investment (loss) $(4,743) $(645)
Net realized (loss) from investments - -
Net increase in unrealized appreciation on investments - -
Net (decrease) in net assets resulting from operations (4,743) (645)
Capital contributions from partners - -
Distribution to partners - -
Syndication costs - -
Total (decrease) in net assets (4,743) (645)
Net assets at the beginning of the period (50,883) (22,452)
Net assets at the end of the period $(55,626) $(23,097)
</table>
F-5
The accompanying notes are an integral part of the financial statements.
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Cash Flows
(A Review)
<table>
<s> <c> <c>
(Restated)
--------------
Six Months Ended June 30,
2007 2006
Cash Flows from Operating Activities
Net (decrease) in net assets resulting from operations $(4,743) $(645)
Adjustments to reconcile net increase (decrease) in net assets
from operations to net cash (used in) operating activities:
Decrease in investments - -
(Increase) in reimbursable reorganization costs - -
Decrease in accrued interest receivable - -
(Increase) in prepaid operating costs - -
(Decrease) in accrued management and incentive fees - -
Increase (decrease) in other payables and accruals - -
Net cash (used in) operating activities (4,743) (645)
Cash Flows from Financing Activities
Proceeds from the sale of units net of sales commissions - -
Partner redemptions - -
Increase in advances from related parties 5,000 -
Net cash provided by financing activities 5,000 -
Net increase (decrease) in cash and cash equivalents 257 (645)
Cash at the beginning of the period 118 3,738
Cash at the end of the period $375 $3,093
</table>
F-6
The accompanying notes are an integral part of the financial statements.
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(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 Fund was actively
engaged in the speculative trading of futures contracts in commodities from
its commencement of business in July, 2000 to January 12, 2005. On that
date, all trading was suspended and, subsequently, all limited partners but
one redeemed their Units. Belmont Capital Management, Inc. (Belmont) is the
general partner and commodity pool operator (CPOs) of the Fund. Concurrent
with the effectiveness on April 13, 2005 of post effective amendment no. 9 to
the Fund's registration statement, NuWave Investment Corporation became the
Fund's commodity trading advisor ("CTA"). In the summer of 2007, 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 $1,000,000 in limited partnership units and breaks
escrow, it will restart active trading of futures and options on futures
through NuWave as CTA.
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 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.
Ongoing Business Expenses, Reorganization Expenses and Organizational Costs -
Bromwell Financial Fund, LP, has incurred $56,797 in reorganization costs,
including ongoing business expenses, from the cessation of trading on January
10, 2005 through June 30, 2007. The Fund has agreed to reimburse Belmont
Capital, the General Partner, and other affiliated companies for all such
expenses upon the sale of the minimum and resumption of business. The
resumption of business is contingent upon the sale of at least $1,000,000 of
partnership interests. For financial reporting purposes in conformity with
U.S. GAAP, all reorganization costs since January 12, 2005 have been expensed
as incurred. 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 organizational costs for the Fund were expensed as incurred by
Belmont and were immaterial. Consequently, as of June 30, 2007 and December
31, 2006, the Net Asset Value and Net Asset Value per unit for financial
reporting purposes and for all other purposes are as follows:
June 30, December 31,
2007 2006
Net Asset Value
Financial Reporting $(55,626) $(50,883)
All Other Purposes $1,639 $1,639
Number of Units 2.57 2.57
Net Asset Value per Unit
Financial Reporting $(21,644.36) $(19,798.83)
All Other Purposes $637.74 $637.74
Registration Costs - Costs incurred for the initial filings with the
Securities and Exchange Commission, Commodity Futures Trading Commission,
National Futures Association (the "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 "Ongoing Business Expenses, Reorganization Expenses and
Organizational Costs".
Revenue Recognition - Commodity 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 market value on the last business day of the
reporting period.
Market value of commodity futures contracts is based upon exchange or other
applicable market best available closing quotations.
Interest income is recognized when it is earned.
Use of Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles 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.
Statement of Cash Flows - For purposes of the Statement of Cash Flows, the
Fund considers only cash and money market funds to be cash equivalents. As
of the balance sheet dates, the Fund has no cash equivalents. Net cash used
in operating activities includes no cash payments for interest or income
taxes for the years ended December 31, 2006 and 2005.
Foreign Currency - Investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts at
the date of valuation. Purchases and sales of investment securities and
income and expense items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
The Company does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
F-7
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Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
2. Significant Accounting Policies, con't
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
fund's books and the U.S. dollar equivalent of the amounts actually received
or paid. Net unrealized foreign exchange gains and losses arise from changes
in the fair values of assets and liabilities, other than investments in
securities at fiscal period end, resulting from changes in exchange rates.
Net Income Per Unit - Net income per unit is calculated based on the weighted
average number of units outstanding during the period.
Fund Reopening - The Fund was closed as of June 30, 2007. The Fund will
reopen to new funds at a time set by the general partner. The minimum amount
of interests that the general partner expects to require to reopen the fund
is $1,000,000 and the maximum available registered interests is the balance
of unsold registered units, which is $4,474,938.
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 Partnership.
If the daily net unit value of the partnership 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.
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 partnership.
Monthly Allocations - Any increase or decrease in the Partnership's net asset
value as of the end of a month shall be credited or charged to the capital
account of each Partner 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
Partnership'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 business days prior
to a month end. Redemptions will generally be paid within twenty days of the
effective month end. However, in various circumstances due to liquidity, etc.
the general partner may be unable to comply with the request on a timely
basis. There are no fees for redemption.
F-8
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
5. Fees
Effective November 1, 2005, the Fund will be charged the following fees upon
the sale of the minimum and resumption of business:
A selling commission of 6% which may be deducted from the subscription amount
for sales made in those states in which the Fund is registered as a dealer.
A management fee to the CTA of 3% (annual rate) of the equity assigned to the
current CTA, paid on a monthly basis and a 20% quarterly incentive fee to the
CTA on all new net profits (as defined).
A brokerage commission of 7% (annual rate) of the investment in the fund (as
defined) will be paid to the affiliated introducing broker on a monthly
basis, from which round turn commissions on domestic trades will be paid to
the futures commission merchant.
A 4% management fee on net assets will be paid to the general partner.
Prior to November 1, 2005 and subsequent to April 1, 2005, the Fund was
organized under a different fee structure, but was not operational.
Effective November 1, 2003, the Fund was charged the following fees:
A management fee of 1% (annual rate) of the equity assigned to each CTA, paid
on a monthly basis and a 20% quarterly incentive fee on all new net profits
(as defined).
A continuing service fee of 4% (annual rate) of the investment in the Fund
(as defined) will be paid to the selling agent.
A $22 per round turn brokerage commission (from which brokerage commissions
will be paid to the futures commission merchant) and a 5% quarterly incentive
fee on all new net profits (as defined) will be paid to the general partner.
Effective March 1, 2004, the brokerage commission was changed from $22 per
round turn to a 4% (annual rate) of the equity deposit for trading as a fixed
annual brokerage commissions, paid on the monthly basis.
The General Partner has reserved the right to change the management fee and
the incentive fee at its sole discretion.
F-9
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
6. Related Party Transactions
The Fund has received cash advances to help pay for various costs, including
operating and reorganization costs. These advances are recorded as due to
related party. The advance is expected to be paid within a year from the
date the Fund begins to trade or when the Fund is financially capable of
repaying the advance. These amounts bear no interest or due dates and are
unsecured. The Fund has received advances from three related parties,
Ashley Capital Management, Futures Investment Company, the introducing broker
and Michael Pacult, who is president of Futures Investment Company, Ashley
Capital Management, Inc. and Belmont Capital Management, Inc., The Fund's
general partner. The Fund had the following advances payable to related
parties at June 30, 2007 and December 31, 2006:
June 30, December 31,
2007 2006
Futures Investment Company $12,500 $7,500
Ashley Capital Management, Inc. 3,033 3,033
Michael Pacult 1,000 1,000
Total advances payable to related parties $16,533 $11,533
The Fund has an agreement to pay commissions to two related parties, Belmont
Capital Management, the Fund's general partner and Futures Investment
Company, the introducing broker. Related party commissions were as follows:
Six Months Ended June 30,
2007 2006
Belmont Capital Management, Inc. $- $-
Futures Investment Company - -
Total related party expenses $- $-
Financial Accounting Standards Board Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, 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.
F-10
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
7. Trading Activities and Related Risks
The Fund is engaged in speculative trading of U.S. and foreign futures
contracts in commodities. The Fund is exposed to both market risk, the risk
arising from changes in market value of the contracts, and credit risk, the
risk of failure by another party to perform according to the terms of a
contract.
A certain portion of cash in trading accounts is pledged as collateral for
commodities trading on margin. Additional deposits may be necessary for any
loss on contract value. The Commodity Exchange Act requires a broker to
segregate all customer transactions and assets from such broker's proprietary
activities.
The amount of required margin with the broker and interbank market makers is
subject to management judgment, but should never fall below 10% of the Net
Asset Value. Since trading ceased, no cash is deposited in trading accounts
at June 30, 2007 and December 31, 2006.
Trading in futures contracts involves entering into contractual commitments
to purchase or sell a particular commodity at a specified date and price. The
gross or face amount of the contract, which is typically many times that of
the Fund's net assets being traded, significantly exceeds the Fund's future
cash requirements since the Fund intends to close out its open positions
prior to settlement. As a result, the Fund is generally subject only to the
risk of loss arising from the change in the value of the contracts. The
market risk is limited to the gross or face amount of the contracts held of
$0.00 and $0.00 on long positions at June 30, 2007 and December 31, 2006,
respectively. However, when the Fund enters into a contractual commitment to
sell commodities, it must make delivery of the underlying commodity at the
contract price and then repurchase the contract at prevailing market prices
or settle in cash. Since the repurchase price to which a commodity can rise
is unlimited, entering into commitments to sell commodities exposes the Fund
to unlimited potential risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and
volatility of interest rates, foreign currency exchange rates, the
diversification effects among the derivative instruments the Fund holds and
the liquidity and inherent volatility of the markets in which the Fund
trades.
The unrealized gains (losses) on open commodity futures contracts at June 30,
2007 and December 31, 2006, was $0.00 and $0.00, respectively.
Open contracts generally mature within three months and as of June 30, 2007,
there were no open contracts.
Credit risk is the possibility that a loss may occur due to the failure of a
counter party to perform according to the terms of a contract.
The Fund has a substantial portion of its assets on deposit with financial
institutions. In the event of a financial institution's insolvency, recovery
of Fund deposits may be limited to account insurance or other protection
afforded deposits.
The Fund has established procedures to actively monitor market risk and
minimize credit risk although there can be no assurance that it will succeed.
The basic market risk control procedures consist of continuously monitoring
open positions, diversification of the portfolio and maintenance of a
desirable margin-to-equity ratio. The Fund seeks to minimize credit risk
primarily by depositing and maintaining its assets at financial institutions
and brokers which it believes to be creditworthy.
F-11
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
8. Partnership Unit Transactions
As of June 30, 2007 and June 30, 2006 partnership units were valued at
$(21,644.36) and $(8,987.16), respectively.
Transactions in partnership units were as follows:
<table>
<s> <c> <c> <c> <c>
Restated
------------
Units Amount
2007 2006 2007 2006
Limited Partner Units
Subscriptions - - $- $-
Redemptions - - - -
Net decrease in net assets resulting
from operations for the period ended 06/30 - - (2,897) (394)
Total - - (2,897) (394)
General Partner Units
Subscriptions - - - -
Redemptions - - - -
Net decrease in net assets resulting from
operations for the period ended 06/30 - - (1,846) (251)
Total - - (1,846) (251)
Total Units
Subscriptions - - - -
Redemptions - - - -
Net decrease in net assets resulting from
operations for the period ended 06/30 - - (4,743) (645)
Total - - $(4,743) $(645)
</table>
9. Operations of Fund
Because the CTA selected to trade for the Fund did not perform as expected,
the general partner suspended trading on January 10, 2005 and recommended to
the limited partners to redeem their partnership units voluntarily. All
limited partners, except for those holding 22.89 units, had requested
redemption as of January 31, 2005 and were paid on February 1, 2005. The
remaining unaffiliated limited partners (22.89 units) requested redemption in
February 2005 and were paid on March 1, 2005. Shira Pacult invested $1,000 in
the Fund as a limited partner during February, 2005.
The general partner and the affiliated limited partner intend to reopen the
Fund under revised business terms with one or more different CTA's.
Effective April 1, 2005, the corporate general partner redeemed 33.88 units
of the Fund, leaving 1 remaining general partner unit outstanding and in
possession of the corporate general partner.
F-12
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
10. Restatement and Correction of an Error
We have restated our financial statements and other financial information
contained in our Quarterly Report on Form 10-Q, as amended, for the three and
six month periods ended June 30, 2006 to correct our accounting for the
treatment of offering and organizational costs. The accompanying financial
statements were restated only to reflect the adjustments described below and
do not modify or update disclosures that have been affected by subsequent
events. Accordingly, these financials should be read in conjunction with our
filings made with the SEC.
On August 17, 2007, during the preparation of our 2007 second quarter 10-Q,
our management concluded that we would amend our previously filed Annual
Report on Form 10-K for the year ended December 31, 2006 and our previously
filed Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 to
expense as incurred the ongoing business expenses and reorganization costs
incurred since the cessation of trading on January 10, 2005. The Audit
Committee of our Board of Directors, composed of the sole director, owner and
principal of the general partner, Mr. Michael Pacult, ratified the decision
to amend our previously filed reports on August 17, 2007. These changes are
for financial reporting purposes only. For all other purposes, including
determining the net asset value per unit for subscription and redemption
purposes, the Fund will not reimburse these costs until after the
commencement of business. Accordingly, we do not believe the change is
material to the limited partners of the Fund.
We are restating our previously issued financial statements in accordance
with the guidance provided in SFAS 154, Accounting Changes and Error
Corrections.
The following table sets forth the effects of the restatement on certain line
items within our previously reported financial statements:
<table>
<s> <c> <c> <c> <c> <c> <c>
Three Months Ended June 30, 2006 Six Months Ended June 30, 2006
As previously As previously
reported Adjustments Restated reported Adjustments Restated
Statement of Operations
Other operating and administrative expenses $295 $175 $470 $470 $175 $645
Expenses 295 175 470 470 175 645
Net Investment (loss) 295 175 470 470 175 645
Net income per unit (114.79) (68.09) (182.88) (182.88) (68.09) (250.97)
Statement of Changes in Net Assets
Net Investment gain (loss) (470) (175) (645)
Total decrease in net assets (470) (175) (645)
Net assets at the beginning of the year 1,639 (24,091) (22,452)
Net assets at the end of the year 1,169 (24,266) (23,097)
Statement of Cash Flows
Net decrease in net assets resulting from
operations (470) (175) (645)
Net cash (used in) operating activities (470) (175) (645)
Reorganization expenses (175) 175 -
Net increase in cash from financing activities $(175) $175 $-
</table>
F-13
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
The Six Months Ended June 30, 2007 and 2006
(A Review)
11. Financial Highlights
<table>
<s> <c> <c> <c> <c>
(Restated) (Restated)
--------------- ---------------
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Performance per Unit (3)
Net unit value, beginning of period $(19,853.31) $(8,804.28) $(19,798.83) $(8,736.19)
Net realized and unrealized gains/
losses on commodity transactions - - - -
Investment and other income - - - -
Expenses (1,791.05) (182.88) (1,845.53) (250.97)
Net increase (decrease) for the period (1,791.05) (182.88) (1,845.53) (250.97)
Net unit value, end of period $(21,644.36) $(8,987.16) $(21,644.36) $(8,987.16)
Net assets, end of period (000) $(56) $(23) $(56) $(23)
Total return (1) -7.02% -2.08% -9.32% -2.87%
Ratio to average net assets (2)
Investment and other income (3) 0.00% 0.00% 0.00% 0.00%
Expenses (3) -7.02% -2.83% -9.32% -2.87%
</table>
(1) Not annualized
(2) Annualized for all periods
(3) Investment and other income and expenses is calculated using average
number of units (limited and general) outstanding during the year. Net
realized and unrealized gains/losses on commodity transactions is a
balancing amount necessary to reconcile the change in net unit value.
F-14
<page>
Bromwell Financial Fund, Limited Partnership
Affirmation of the Commodity Pool Operator
The Six Months Ended June 30, 2007 and 2006
(A Review)
*****************************************************************************
To the best of the knowledge and belief of the undersigned, the information
contained in this report is accurate and complete.
/s/ Michael Pacult August 31, 2007
Michael Pacult Date
President, Belmont Capital Management, Inc.
General Partner
Bromwell Financial Fund, Limited Partnership
F-15
<page>