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 September 30, 2009
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 [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
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
<page>
Part 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
The reviewed financial statements for the Registrant for the nine months ended
September 30, 2009 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. The Partnership will sell the balance of un-issued registered
securities of $4,474,938, as of the date of this Report 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 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 re-open to sell the balance of its registered but
un-issued partnership interests on different terms.
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. 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 is sold as of the date of this Report. Of the $7,000,000 of Units
registered, $2,525,062 has 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. Absent the registration of
additional Units, the Fund will be capitalized at $7,000,000 subject to
redemption of Units by the holders as they request, which are expected to be
honored by the General Partner.
2
<page>
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 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 and in between the
nine months ended September 30, 2009 and September 30, 2008. For non-
financial reporting purposes (subscription and redemption purposes), its net
asset value (NAV) per Unit was $637.74 and $637.74 as of September 30, 2009
and September 30, 2008 respectively.
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 $(22,350)
[$(8,696.50) per Unit] and $(19,605) [$(7,628.40) per Unit] for the nine
months ended September 30, 2009 and September 30, 2008. The increase in
losses was primarily due to higher compliance costs with respect to keeping
the registration of the Fund's securities current. 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 during or in between the
nine months ended September 30, 2009 and September 30, 2008.
Inflation has had no material impact on the operations or on the financial
condition of the Fund from inception through September 30, 2009.
3
<page>
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.
Item 4T. 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 September 30, 2009 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. ("MFG"), (MFG was formerly known as Man Financial Inc. ("MFI")
until the change of name to MFG was effected on July 19, 2007), has had the
following described reportable events. Neither the Fund nor the General
Partner is a party to any of these events and they are included in reliance
upon a report supplied by MFG without verification by the General Partner.
MFG has represented to the General Partner that that none of the events it has
reported below will not now, or at any time in the future, interfere with its
performance as the FCM for the Fund's account.
MF Global Inc. ("MFG") is registered under the Commodity Exchange Act, as
amended, as a futures commission merchant and a commodity pool operator, and
is a member of the National Futures Association in such capacities. In
addition, MFG is registered with the Financial Industry Regulatory Authority
as a broker-dealer. MFG was formerly known as Man Financial Inc. ("MFI")
until the change of name to MFG was effected on July 19, 2007. MFG is a
member of all major U.S. futures exchanges and most major U.S. securities
exchanges. MFG's main office is located at 717 Fifth Avenue, 9th Floor, New
York, New York 10022-8101. MFG's telephone number at such location is (212)
589-6200.
At any given time, MFG 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 Fund. 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 MFI would deem material for purposes of Part 4 of the
Regulations of the Commodity Futures Trading Commission, except as follows:
4
<page>
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 accepted a cease and
desist order. MFI has informed the CPO, the CTA and the Selling Agent that
the settlements referenced above will not materially affect MFG or its ability
to perform as a clearing broker.
On February 20, 2007, MFI also 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. ("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 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,
which losses MFG was responsible to pay as an exchange clearing member.
In connection with the incident involving the trading losses referenced above,
the CFTC issued a formal order of investigation naming MFG and the AP. The
CFTC, in coordination with the Chicago Mercantile Exchange ("CME"), has been
collecting documentation and taking depositions of MFG employees. This
investigation is ongoing and it is not yet certain what actions the CFTC
and/or the CME might take. MF Global has established an accrual of $10.0
million to cover potential CFTC civil monetary penalties in this matter and
the two CFTC matters referred to below. This is MFG's best estimate at this
time and there is no assurance that the $10.0 million accrual will be
sufficient for these purposes or that the CFTC will not require remedial
measures. No accrual has been made for the CME matter.
In May 2007, MFG and two of its employees received what is commonly referred
to as a "Wells notice" from the staff of the Division of Enforcement of the
CFTC. The notice relates to two trades MFG executed in 2004 for a customer and
reported to NYMEX. The notice indicates that the Division of Enforcement is
considering recommending to the CFTC that a civil proceeding be commenced
against MFG and the two employees, in which the CFTC would assert that MFG and
the two employees violated Section 9(a)(4) of the Commodity Exchange Act,
which generally prohibits any person from willfully making any false,
fictitious, or fraudulent statements or representations, or making or using
any false writing or document knowing the same to contain any false,
fictitious, or fraudulent statement to a board of trade. The Division of
Enforcement staff contends that MFG and the individuals presented or
participated in the submission of information to NYMEX that falsely
represented the dates on which the trades in question occurred. MFG and the
individuals dispute these contentions. It is not yet certain what action the
CFTC will take, but see the reference to a $10.0 million accrual above.
5
<page>
On August 28, 2009, BMO instituted suit against MFG and our former broker,
Joseph 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, BMO's trader, created the quotes which, in
circular fashion, were passed on to BMO through our 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 our 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 facts underlying
this action also relate to the on-going CFTC natural gas price information
investigation described above in "CFTC Natural Gas Price Information
Investigation." 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, and claims that it would not have paid
brokerage commissions to us (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. This litigation is in its very earliest stages. No provision for
losses has been recorded in connection with this matter.
Additionally, MFG is currently cooperating in an investigation conducted by a
New York County Grand Jury in conjunction with the U.S. Attorneys Office in
the Southern District of New York, with which the CFTC and the SEC are also
involved. The investigation centers around trading by a market making energy
trader at Bank of Montreal (BMO) who allegedly mismarked his book. An MFG
broker did business with the BMO trader, and used bid and offer prices for
forward OTC trades the BMO trader sent to him as a basis for prices which the
MFG broker disseminated to MFG's customers, including BMO, as price
indications that reflected a consensus. MFG has been told that neither MFG nor
the broker are targets of the Grand Jury investigation. In connection with
this investigation, MFG has been served by the CFTC with a Wells notice in
anticipation of civil charges against the broker under the anti-fraud
provisions of CFTC Regulation 33.10 and MFG with derivative liability for the
broker's actions. It is not yet certain what action the CFTC may take against
MFG or the broker, but see the reference to a $10.0 million accrual above.
In or about October 2003, the Company uncovered an apparent fraudulent scheme
conducted by third parties unrelated to the Company that may have victimized a
number or its clients. CCPM, a German Introducing Broker, introduced to the
Company all the clients that may have been victimized. An agent of CCPM,
Michael Woertche (and his confederates), apparently engaged in a Ponzi scheme
in which allegedly unauthorized transfers from and trading in accounts
maintained at the Company were utilized to siphon money out of these accounts,
on some occasions shortly after they were established. The Company 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 the Company and an employee assisted CCPM in engaging in, or
recklessly or negligently failed to prevent, unauthorized transfers from, and
trading in, accounts maintained by the Company. 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.
MFG was named as a co-defendant in an action filed in Florida State Court by
Eagletech Communications Inc. ("Eagletech") and three of its alleged
shareholders against 21 defendants, including banks, broker-dealers and
clearing brokers, as well as "100 John Doe defendants or their nominee
entities". The complaint alleges that the defendants engaged in a criminal
conspiracy designed to manipulate the publicly traded share price of Eagletech
stock. Plaintiffs seek unspecified compensatory and special damages, alleging
that "Man Group PLC d/b/a Man Financial Inc" participated in the conspiracy by
acting as a clearing broker for a broker-dealer that traded in Eagletech
stock. The complaint asserts claims under RICO, the Florida Securities and
Investor Protection Act, the Florida Civil Remedies for Criminal Practices Act
and a related negligence claim. On May 9, 2007, defendants filed a notice
removing the State Court action to Federal Court pursuant to 28 U.S.C.
Sec 1441(a). On October 2, 2007, Plaintiffs filed a first amended complaint in
the Federal Court action asserting additional claims against Man Financial Inc
under Florida common law, including civil conspiracy, conversion and trespass
to chattels. On February 26, 2008, the financial institution defendants,
including MF Global Inc., filed a motion to
6
<page>
dismiss seeking dismissal of all claims asserted in the amended complaint on
the ground that the claims are barred by the Private Securities Litigation
Reform Act ("PSLRA") and preempted by the federal securities laws. On June 27,
2008, the Court partially granted the motion, holding that the federal RICO
claims are barred by the PSLRA and dismissing the RICO claims with prejudice.
The Court declined to exercise supplemental jurisdiction over the state law
claims and remanded those claims to the Florida State Court. On July 25, 2008,
plaintiffs filed a notice of appeal of the Court's June 27, 2008 decision to
the United States Court of Appeals for the Eleventh Circuit but subsequently
withdrew its appeal. MFG is unsure of whether plaintiffs will pursue the State
Court action. Since the case is in its earliest stages, it is difficult to
determine exposure, if any. MFG intends to vigorously defend this matter. No
provision for losses has been recorded in connection with this litigation.
In December 2007, the Company, along with four other futures commission
merchants ("FCMs"), were named as defendants in an action filed in the United
States District Court in Corpus Christi, Texas by 47 individuals who were
investors in a commodity pool (RAM I LLC) operated by Renaissance Asset
Management LLC. The complaint alleges that MFG and the other defendants
violated the Commodity Exchange Act and alleges claims of negligence, common
law fraud, violation of a Texas statute relating to securities fraud and
breach of fiduciary duty for allegedly failing to conduct due diligence on the
commodity pool operator and commodity trading advisor, having accepted
executed trades directed by the commodity trading advisor, which was engaged
in a fraudulent scheme with respect to the commodity pool, and having
permitted the improper allocation of trades among accounts. The plaintiffs
claim damages of $32.0 million, plus exemplary damages, from all defendants.
All of the FCM defendants moved to dismiss the complaint for failure to state
a claim upon which relief may be granted. Following an initial pre-trial
conference, the court granted plaintiffs leave to file an amended complaint.
On May 9, 2008, plaintiffs filed an amended complaint in which plaintiffs
abandoned all claims except a claim alleging that the FCM defendants aided and
abetted violations of the Commodity Exchange Act. Plaintiffs now seek $17.0
million in claimed damages plus exemplary damages from all defendants. MFG
filed a motion to dismiss the amended complaint which was granted by the court
and appealed by the plaintiffs. The case is at its earliest stages so it is
not possible to determine our exposure, if any. In any event, MFG intends to
vigorously defend this matter. No provision for losses has been recorded in
connection with this litigation.
The Liquidation Trustee ("Trustee") for Sentinel Management Group, Inc.
("Sentinel") sued the Company in June 2009 on the theory that our 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. MFG believes there are substantial defenses available to
us and MFG intends to resist the Trustee's attempt to recover those funds from
us. In addition, to the extent the Trustee recovered any funds from us, MFG
would be able to assert an offsetting claim in that amount against the assets
available in Sentinel's bankruptcy case. The matter is in its early stages and
litigation has just commenced. No provision for losses has been recorded in
connection with this claim.
In May 2009, investors in a venture set up by Nicholas 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 is currently pending
before the court. The litigation is in its earliest stages. MFG believes we
have meritorious defenses and intend to vigorously defend this matter. No
provision for losses has been recorded in connection with this matter.
In the late spring of 2009, the Company was sued in Oklahoma State Court by
customers who were substantial investors with Mark Trimble and/or Phidippides
Capital Management. 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" $0.01 million
each. MFG made a motion to dismiss which was granted by the court. Plaintiffs
have appealed. MFG believes we have meritorious defenses and intend to
vigorously defend this matter. No provision for losses has been recorded in
connection with this matter.
The Company and 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
Bottini principals.
7
<page>
MF Global Market Services LLC v. Anthony Bottini, Jr., Brian Bottini and Mark
Bottini, FINRA No. 08-03673. On October 6, 2008, Market Services commenced an
arbitration against the Bottinis before the Financial Industry Regulatory
Authority ("FINRA") 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. 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.
Morgan Fuel v. MFG and Market Services, FINRA No. 08-03879. 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 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. Morgan Fuel contends that MFG and Market Services should not
have allowed Morgan Fuel to enter into, or maintain, the swap transactions.
The Supreme Court of New York for the County of New York has temporarily
stayed the arbitration commenced by Morgan Fuel on the ground that there is no
agreement to arbitrate. The motion for a permanent stay was denied and MFG has
appealed that decision.
The Bottinis 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.
A motion to stay the fourth-party was also denied and MFG has appealed that
decision as well.
It is difficult at this stage to determine exposure, if any. In any event, MFG
intends to vigorously defend this matter. No provision for losses has been
recorded in connection with this matter.
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.
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. 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.
Item 1A. Risk Factors
There have been no material changes from risk factors as previously disclosed
in the Fund's 2008 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.
8
<page>
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 September 30, 2009, 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: November 16, 2009
9
<page>
BROMWELL FINANCIAL FUND, LIMITED PARTNERSHIP
(A Delaware Limited Partnership)
QUARTERLY REPORT
September 30, 2009
GENERAL PARTNER:
Belmont Capital Management, Inc.
% Corporate Systems, Inc.
505 Brookfield Drive
Dover, Kent County, Delaware 19901
<page>
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-13
Affirmation of the Commodity Pool Operator F-14
F-1
<page>
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 September 30, 2009 and the
related statements of operations for the three and nine months ended September
30, 2009 and 2008, and the statements of changes in net assets and cash flows
for the nine months ended September 30, 2009 and 2008. 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,
2008 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 27, 2009, 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, 2008 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
November 9, 2009
300 Village Green Drive, Suite 210 * Lincolnshire, Illinois 60069
Phone: (847) 913-5400 * Fax: (847) 913-5435
F-2
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Assets and Liabilities
<table>
<s> <c> <c>
September 30, December 31,
2009 2008
(A Review)
Assets
Cash $298 $493
Total assets 298 493
Liabilities
Accrued expenses 26,878 27,123
Due to related parties 107,474 85,074
Total liabilities 134,352 112,197
Net assets $(134,054) $(111,704)
Analysis of net assets
Limited partner $(81,893) $(68,239)
General partner (52,161) (43,465)
Net assets (equivalent to $(52,161.09) and $(43,464.59) per unit) $(134,054) $(111,704)
Partnership units outstanding
Limited partner units outstanding 1.57 1.57
General partner units outstanding 1.00 1.00
Total partnership units outstanding 2.57 2.57
</table>
The accompanying notes are an integral part of the financial statements
F-3
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Operations
(A Review)
<table>
<s> <c> <c> <c> <c>
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 2009 2008
Investment income
Interest income $- $- $- $-
Total investment income - - - -
Expenses
Professional accounting and legal fees 1,699 4,893 21,025 19,080
Other operating and administrative expenses 850 9 1,325 525
Total expenses 2,549 4,902 22,350 19,605
Net investment (loss) (2,549) (4,902) (22,350) (19,605)
Net (decrease) in net assets resulting from operations $(2,549) $(4,902) $(22,350) $(19,605)
Net income (loss) per unit
Limited partner Limited partner unit $(991.83) $(1,907.39) $(8,696.50) $(7,628.40)
General partner General partner unit $(991.83) $(1,907.39) $(8,696.50) $(7,628.40)
</table>
The accompanying notes are an integral part of the financial statements
F-4
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Changes in Net Assets
(A Review)
<table>
<s> <c> <c> <c>
Partners' Capital
General Limited Total
Nine Months Ended September 30, 2008
Net assets at December 31, 2007 $(30,563) $(47,984) $(78,547)
(Decrease) in net assets from operations:
Net investment (loss) (7,628) (11,977) (19,605)
Net (decrease) in net assets resulting from operations (7,628) (11,977) (19,605)
Net Assets September 30, 2008 $(38,191) $(59,961) $(98,152)
Nine Months Ended September 30, 2009
Net assets at December 31, 2008 $(43,465) $(68,239) $(111,704)
(Decrease) in net assets from operations:
Net investment (loss) (8,696) (13,654) (22,350)
Net (decrease) in net assets resulting from operations (8,696) (13,654) (22,350)
Net assets at September 30, 2009 $(52,161) $(81,893) $(134,054)
</table>
The accompanying notes are an integral part of the financial statements
F-5
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Statements of Cash Flows
(A Review)
<table>
<s> <c> <c>
Nine Months Ended September 30,
2009 2008
Cash Flows from Operating Activities
Net (decrease) in net assets resulting from operations $(22,350) $(19,605)
Adjustments to reconcile net (decrease) in net assets from
operations to net cash (used in) operating activities:
(Decrease) in accrued expenses (245) (2,666)
Net cash (used in) operating activities (22,595) (22,271)
Cash Flows from Financing Activities
Increase in due to related parties 22,400 22,900
Net cash provided by financing activities 22,400 22,900
Net increase (decrease) in cash and cash equivalents (195) 629
Cash at the beginning of the period 493 109
Cash at the end of the period $298 $738
</table>
The accompanying notes are an integral part of the financial statements
F-6
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(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 10, 2005. On that date,
all trading was suspended and, subsequently, all limited partners, except an
affiliate of the general partner, redeemed their Units. Belmont Capital
Management, Inc. ("Belmont") is the general partner and commodity pool
operator ("CPO") 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 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 $1,000,000 in
limited partnership units, it will restart active trading of futures and
options on futures through NuWave as CTA.
2. Significant Accounting Policies
"FASB 168 ""Accounting Standards Codification"" - On July 1, 2009, the
Financial Accounting Standards Board ("FASB") officially released the
Accounting Standards Codification (the "Codification" or "ASC"). Pursuant to
FASB Statement No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles will be effective for
interim and annual periods ending after September 15, 2009. The Fund adopted
FASB 168 ""Accounting Standards Codification"" on July 1, 2009.
"
The Codification does not change accounting principles generally accepted in
the United States of America ("U.S. GAAP") but it is a major restructuring of
how accounting and reporting standards that constitute how U.S. GAAP are
organized. That is, the Codification will be the single source of
authoritative non governmental U.S. GAAP. The organizational changes are
expected to make U.S. GAAP easier to research by simplifying user access to
all authoritative guidance. As a result, content will reside in new locations
within the Codification which means referencing to specific guidance will
change.
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.
Reorganization Costs and Operating Expenses - For financial reporting
purposes in conformity with U.S. GAAP, all accumulated reorganization costs
since January 10, 2005 have been expensed as incurred. Bromwell Financial
Fund, LP, has incurred $135,693 in reorganization costs from the cessation of
trading on January 10, 2005 through September 30, 2009. 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 at least $1,000,000 of partnership
interests. 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. All costs after the resumption of
business will be paid directly by the Fund.
Consequently, as of September 30, 2009 and December 31, 2008, the Net Asset
Value and Net Asset Value per unit for financial reporting purposes and for
all other purposes are as follows:
<table>
<s> <c> <c> <c> <c>
Balance Per Unit Calculation
September 30, December 31, September 30, December 31,
2009 2008 2009 2008
Net Asset Value for financial reporting purposes $(134,054) $(111,704) $(52,161.09) $(43,464.59)
Adjustment for reorganization costs and other operating expenses 135,693 113,343 52,798.83 44,102.33
Net Asset Value for all other purposes $1,639 $1,639 $637.74 $637.74
Number of Units 2.57 2.57
</table>
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 "Reorganization Costs and Operating Expenses".
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.
F-7
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(A Review)
2. Significant Accounting Policies - Continued
Use of Accounting Estimates - The preparation of financial statements in
conformity with U.S. 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 Accounting Standards
Codification 740-10-25, "Income Taxes-Overall-Recognition" to the Fund and has
determined that ASC 740-10-25 does not have a material impact on the Fund's
financial statements. The Fund files federal and state tax returns. The 2005
through 2008 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 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 periods ending September 30, 2009 and 2008.
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 Fund 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.
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.
Fund Reopening - The Fund was closed as of September 30, 2009. The Fund
will reopen to new funds at a time to be 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.
Fair Value Measurement and Disclosures - The Fund adopted the provisions of
Accounting Standards Codification 820 - "Fair Value Measurement and
Disclosures" (ASC 820) as of January 1, 2008. ASC 820 provides guidance for
determining fair value and requires increased disclosure regarding the inputs
to valuation techniques used to measure fair value. ASC 820 clarifies the
definition of fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.
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 period and year ending September 30, 2009 and December 31,
2008, the Fund had no investments.
Recently Issued Accounting Pronouncement - The Fund adopted the provisions
of Accounting Standards Codification 815 - "Derivatives and Hedging" ("ASC
815"), as of January 1, 2009. ASC 815 provides for disclosures about
derivative instruments and hedging activities. ASC 815 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand how
those instruments and activities are accounted for; how and why they are used;
and their effects on a Fund's financial position, performance and cash flows.
ASC 815 is effective for financial statements issued for fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years. The Fund ceased operation on January 10, 2005. As a result, the
adoption of ASC 815 imposes no impact on the presentation of the Fund's
financial statements for the reporting period.
F-8
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(A Review)
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 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.
F-9
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(A Review)
5. Fees
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.
The General Partner has reserved the right to change the management fee and
the incentive fee at its sole discretion.
6. Related Party Transactions
Amounts due to related parties at September 30, 2009 and December 31, 2008
consisted of amounts due to Ashley Capital Management, Inc., Futures
Investment Company, the introducing broker, Michael Pacult, president of
Futures Investment Company, and Belmont Capital Management, Inc., the Fund's
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 September 30, 2009 and December 31, 2008:
September 30, December 31,
2009 2008
Futures Investment Company $75,900 $53,500
Belmont Capital Management, Inc. 27,541 27,541
Ashley Capital Management, Inc. 3,033 3,033
Michael Pacult 1,000 1,000
Total due to related parties $107,474 $85,074
The Fund has an agreement to pay commissions to related parties, Belmont
Capital Management, the Fund's General Partner and Futures Investment Company,
the introducing broker. There were no related party commissions for the nine
months ended September 30, 2009 or September 30, 2008.
Accounting Standards Codification 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.
F-10
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(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 not fall below 10% of the Net Asset
Value. Since trading ceased on January 10, 2005, no cash is deposited in
trading accounts.
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 September 30, 2009, and December 31, 2008 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
September 30, 2009 and December 31, 2008, was $0.00 and $0.00, respectively.
Open contracts generally mature within three months and as of September 30,
2009 and December 31, 2008, 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
September 30, 2009
(A Review)
8. Derivative Financial Instruments and Fair Value of Financial Instruments
A derivative financial instrument is a financial agreement whose value is
linked to, or derived from, the performance of an underlying asset. The
underlying asset can be currencies, commodities, interest rates, stocks, or
any combination. Changes in the underlying asset indirectly affect the value
of the derivative. As the instruments are recognized at fair value, those
changes directly affect reported income.
All investment holdings are recorded in the statement of assets and
liabilities at their net asset value (fair value) at the reporting date.
Financial instruments (including derivatives) used for trading purposes are
recorded in the statement of assets and liabilities at fair value at the
reporting date. Realized and unrealized changes in fair values are recognized
in net investment gain (loss) in the period in which the changes occur.
Interest income arising from trading instruments is included in the statement
of operations as part of interest income.
Notional amounts are equivalent to the aggregate face value of the
derivative financial instruments. Notional amounts do not represent the
amounts exchanged by the parties to derivatives and do not measure the Fund's
exposure to credit or market risks. The amounts exchanged are based on the
notional amounts and other terms of the derivatives.
9. Financial Instruments with Off-Balance Sheet Credit and Market Risk
All financial instruments are subject to market risk, the risk that future
changes in market conditions may make an instrument less valuable or more
onerous. As the instruments are recognized at fair market value, those
changes directly affect reported income.
Included in the definition of financial instruments are securities,
restricted securities and derivative financial instruments. Theoretically,
the investments owned by the Fund directly are exposed to a market risk (loss)
equal to the notional value of the financial instruments purchased and
substantial liability on certain financial instruments purchased short.
Generally, financial instruments can be closed. However, if the market is not
liquid, it could prevent the timely close-out of any unfavorable positions or
require the Fund to hold those positions to maturity, regardless of the
changes in their value or the trading advisor's investment strategies.
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise
from financial instruments exist for groups of counterparties when they have
similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or
other conditions.
10. 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.
11. Partnership Unit Transactions
As of September 30, 2009 and 2008 partnership units were valued at
$(52,161.09), and $(38,191.44), respectively.
Transactions in membership units were as follows:
<table>
<s> <c> <c> <c> <c>
Units Amount
2009 2008 2009 2008
Limited Partner Units
Subscriptions - - $- $-
Redemptions - - - -
Syndication costs - - - -
Net (loss) for the period ended 9/30 - - (13,654) (11,977)
Total - - (13,654) (11,977)
General Partner Units
Subscriptions - - - -
Redemptions - - - -
Syndication costs - - - -
Net (loss) for the period ended 9/30 - - (8,696) (7,628)
Total - - (8,696) (7,628)
Total Units
Subscriptions - - - -
Redemptions - - - -
Syndication costs - - - -
Net (loss) for the period ended 9/30 - - (22,350) (19,605)
Total - - $(22,350) $(19,605)
</table>
F-12
<page>
Bromwell Financial Fund, Limited Partnership
(A Delaware Limited Partnership)
Notes to the Financial Statements
September 30, 2009
(A Review)
12. 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 unit holders, except for 22.89 units had requested redemption as of
January 31, 2005 and were paid on February 1, 2005. The remaining unaffiliated
limited unit holders (22.89 units) requested redemption in February 2005 and
were paid on March 1, 2005. Shira Pacult, an affiliate of the General Partner,
invested $1,000 in the Fund as a limited unit holder 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 General Partner redeemed 33.88 units of the
Fund, leaving one remaining General Partner unit.
13. Subsequent Events
The General Partner evaluated subsequent events through November 9, 2009.
There were no subsequent events to disclose.
14. Financial Highlights
<table>
<s> <c> <c> <c> <c>
Three Months Ended September 30,Nine Months Ended September 30,
2009 2008 2009 2008
Performance per unit (1)
Net unit value, beginning of period $(51,169.26) $(36,284.05) $(43,464.59) $(30,563.04)
Net realized and unrealized gains/
(losses) on commodity transactions - - - -
Investment and other income - - - -
Expenses (991.83) (1,907.39) (8,696.50) (7,628.40)
Net (decrease) for the period (991.83) (1,907.39) (8,696.50) (7,628.04)
Net unit value, end of period $(52,161.09) $(38,191.44) $(52,161.09) $(38,191.44)
Net assets, end of period (000) $(134) $(98) $(134) $(98)
Total return (2) (1.94)% (5.26)% (20.01)% (24.96)%
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
Investment and other income (3) 0.00% 0.00% 0.00% 0.00%
Expenses (3) (7.75)% (21.03)% (26.68)% (33.28)%
</table>
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) 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.
(2) Not annualized
(3) Annualized
F-13
<page>
Bromwell Financial Fund, Limited Partnership
Affirmation of the Commodity Pool Operator
For the Nine Months Ended September 30, 2009 and 2008
*****************************************************************************
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-14
<page>