1
EXHIBIT 1.02
MAXIMUS FUND I, LLC
ANNUAL REPORT
JULY 31, 1999
INDEPENDENT AUDITOR'S REPORT
To the Members of Maximus Fund I, LLC:
We have audited the accompanying statement of financial condition of Maximus
Fund I, LLC at July 31, 1999, and December 31, 1998, and the related statements
of operations, and changes in member's equity for the periods January 1, 1999 to
July 31, 1999 (liquidation) and March 16, 1998 (inception) to December 31, 1998.
These financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Maximus Fund I, LLC at July 31,
1999, and December 31, 1998 and the results of its operations for the periods
ended July 31, 1999, and December 31, 1998 in conformity with generally accepted
accounting principles.
Vorisek & Company, LLC
Certified Public Accountants
McHenry, IL
March 18, 2000
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MAXIMUS FUND I, LLC
STATEMENT OF FINANCIAL CONDITION
JULY 31, 1999 AND DECEMBER 31, 1998
ASSETS 7/31/99 12/31/98
------- --------
Cash $ 384,175 $ 175,990
Cash at Broker -- 370,272
Unrealized net trading gains -- 4,737
----------- -----------
Total Assets $ 384,175 $ 550,999
=========== ===========
LIABILITIES
Accrued commissions -- $ 8,435
Accrued management fees -- 288
Accrued administrative fees -- 5,057
Organization costs payable $ 1,166 443
Redemptions Payable 383,009 --
Pending Member additions -- 267
----------- -----------
Total Liabilities 384,175 14,490
----------- -----------
MEMBER EQUITY
Managing Member,
25 units outstanding -- 23,804
Class A Members,
310 units outstanding -- 294,914
Class B Members,
229 units outstanding -- 217,791
----------- -----------
Total Member Equity -- 536,509
----------- -----------
Total Liabilities and Member
Equity $ 384,175 $ 550,999
=========== ===========
See accompanying notes to financial statements.
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MAXIMUS FUND I, LLC
STATEMENT OF OPERATIONS
FOR THE PERIODS JANUARY 1, 1999 TO JULY 31, 1999 AND
MARCH 16, 1998 TO DECEMBER 31, 1998
REVENUES 7/31/99 12/31/98
------- --------
Realized net trading gains $ 42,204 $ 27,366
Change in unrealized net
trading gains (4,737) 4,737
Interest income 10,577 20,950
-------- --------
Total Revenue 48,044 53,053
-------- --------
EXPENSES
Commissions 56,733 40,046
Management fees -- 3,288
Administrative fees 6,750 30,718
Organizational costs 2,060 7,093
-------- --------
Total Expenses 65,543 81,145
-------- --------
Net loss $(17,499) $(28,092)
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Per unit information
Managing Member net loss
per unit $ (45.72) $ (47.84)
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Class A Members net loss
per unit $ (45.72) $ (47.84)
======== ========
Class B Members net loss
per unit $ (45.72) $ (47.84)
======== ========
See accompanying notes to financial statements.
MAXIMUS FUND I, LLC
AFFIRMATION OF THE MANAGING MEMBER
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
/s/ Darren R. Frye
- -----------------------------
Darren R. Frye, President
Maximus Capital Management, Inc.
General Partner and CPO
Maximus Fund I, LLC
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MAXIMUS FUND I, LLC
STATEMENT OF CHANGES IN MEMBER'S EQUITY
FOR THE PERIODS JANUARY 1, 1999 TO JULY 31, 1999
AND MARCH 16, 1998 TO DECEMBER 31, 1998
Class A Class B
Limited Limited Managing
Members Members Member Total
------- ------- -------- -----
Beginning
Equity -- -- -- --
Additions $862,355 $253,812 $25,000 $1,141,167
Net Loss (20,228) (6,668) (1,196) (28,092)
Withdrawals (547,214) (29,353) -- (576,567)
------------------------------------------
12/31/98
Equity $294,913 $217,791 $23,804 $ 536,508
==========================================
Additions 267 4,961 -- 5,228
Net Loss (7,084) (9,271) (1,144) (17,499)
Withdrawals (288,096) (213,481) (22,660) (524,237)
------------------------------------------
7/31/99
Equity -- -- -- --
==========================================
Per unit
information
7/31/99
Net asset
value -- -- -- --
==========================================
Units
outstanding -- -- -- --
==========================================
12/31/98
Net asset
value $ 951.36 $ 951.36 $951.36 $ 951.36
==========================================
Units
outstanding 310 229 25 564
==========================================
See accompanying notes to financial statements.
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MAXIMUS FUND I, LLC
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies:
NATURE OF BUSINESS AND ORGANIZATION: Maximus Fund I, LLC (the "Fund") is
a limited liability company organized under the Delaware Limited Liability
Company Act on January 17, 1997. The Fund seeks capital appreciation through the
speculative trading of futures and options on futures in US markets. The Fund
commenced trading During February 1998. The Fund ceased trading in July 1999.
NET ASSETS: The valuation of net assets includes unliquidated commodity
futures and options contracts owned by the Fund, if any, at the end of the
period. The unrealized gain or loss on these contracts, if any, was calculated
based on closing prices on the last business day of the year. Net asset value is
determined by subtracting liabilities from assets, which also equals Member
equity. Net asset value per unit is determined by dividing member capital, by
units outstanding at period end for each Class.
THE FUND accounts for subscriptions, allocations, redemption's and
management and incentive fees on a per unit basis by class.
INCOME TAXES: No provision for income taxes has been made since the Fund
is not subject to taxes on income. Each member is individually liable for the
tax on its share of income or loss. The Fund prepares a calendar year
information tax return.
REVENUE RECOGNITION: Commodity futures and options are recorded on the
trade date, and open futures positions are reflected in the accompanying
statement of financial condition as the difference between the original contract
value and the market value on the last business day of the reporting period. The
market values of commodity futures and options contracts are based upon the most
recent available settlement prices on the appropriate commodity exchanges. US
Treasury Securities are reported at cost plus accrued interest, which
approximates market. Changes in unrealized gains or (losses) represent the total
increases (decreases) in unrealized gains or (increases) decreases in unrealized
losses on open positions during the period.
INTEREST INCOME RECOGNITION: The Fund records interest income in the
period it is earned.
STATEMENT OF CASH FLOWS: The Fund has elected not to provide a statement
of cash flows as permitted by Statement of Accounting Standards 102 "Statement
of Cash Flows".
Note 2. Agreements and Related Party Transactions:
The Limited Liability Company Agreement vests all responsibility and
powers for the management of the business and affairs of the Fund with the
Managing Member, Maximus Capital Management, Inc.
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MAXIMUS FUND I, LLC
NOTES TO FINANCIAL STATEMENTS
The Managing Member is registered with the Commodity Futures Trading
Commission as a Commodity Pool Operator and Commodity Trading Advisor; and is
also a member of the National Futures Association. The Managing Member is the
Trading Advisor for the Fund.
The Fund pays the Managing Member a monthly management fee as follows:
Class A Interests - .083 (approximately 1% annually) of month end net
asset value.
Class B Interests - .083 (approximately 1% annually of month end net
asset value.
Class B Interests also pay a quarterly incentive fee to the Managing
Member equal to 25% of new trading profits.
The registered commodity broker is Iowa Grain Company, which clears
futures transactions for the Partnership. The Partnership pays commissions to
the commodity broker. The introducing broker of the Fund is D&R Commodities. The
introducing broker may share in the commissions paid by the Fund to the
commodity broker. The principal of the Managing Member is also a principal of
the introducing broker.
Administrative expenses are borne by the Fund.
Note 3. Member Equity and Redemptions:
Members may withdraw all or part of their interests at month end net
asset value with 10 days prior written notice.
New Members are admitted at net asset value per unit as of the end of
each calendar month.
Note 4. Financial Instruments with Off-Balance Sheet Credit and Market Risk:
Included in the definition of financial instruments forward contracts,
options, and futures. The Fund invests in various futures and futures option
contracts for speculative purposes. These contracts are marked to market daily,
with variations in the value settled on a daily basis with the exchange upon
which they are traded. For these contracts the unrealized gain or loss rather
than the notional amounts, represents the approximate future cash requirements.
At December 31, 1998 the Fund owned open positions that would have provided
$4,737 if settled.
Theoretically, the Fund is exposed to a market risk (loss) equal to the
notional value of financial instruments purchased and unlimited liability on
financial instruments sold short. Generally financial instruments can be closed
out at the discretion of the Trading Advisor. However, if the market is
illiquid, it could prevent the timely closeout of any unfavorable positions or
require the Fund to hold these positions until maturity, regardless of the
changes in their value or the Trading Advisor's investment strategies.
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MAXIMUS FUND I, LLC
NOTES TO FINANCIAL STATEMENTS
Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely 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.
Futures contracts have little credit risk because futures exchanges are the
counterparties.
Note 5. 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. All trading 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.
Financial instruments (including derivatives) used for trading purposes
are recorded in the statement of financial condition at fair value at the
reporting date. Realized and unrealized changes in fair values are recognized 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.
The Fund engages in the speculative trading of derivative financial
instruments, which includes futures contracts. Futures contracts are commitments
to either purchase or sell designated financial instruments at a future date for
a specified price and may be settled in cash or through delivery. The Fund has
assets at the Clearing Broker in accounts, which are used to meet minimum margin
requirements for all of the Fund's open positions. These requirements are
adjusted, as needed, due to daily fluctuations in the values of the underlying
assets. At December 31, 1998 the Fund had assets at the Commodity broker of
$375,009.
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MAXIMUS FUND I, LLC
NOTES TO FINANCIAL STATEMENTS
The Fund had realized net gains from trading for the periods ended July
31, 1999 and December 31, 1998 of $42,204 and $27,366, respectively, as reported
in the statement of operations. The Fund had income/-loss from the change in
unrealized gains/-losses of $-4,737 and $4,737 for the same periods, as reported
in the statement of operations.
Note 6. Selected Financial Data:
Net realized and unrealized trading gains/-losses, interest income, net
income/-loss and increases/-decreases in net asset value per unit for the
periods ended July 31, 1999 and December 31, 1998 and total assets as of July
31, 1999 and December 31, 1998.
7/31/99 12/31/98
Net realized and unrealized
trading gains (losses) net
of brokerage commissions
and fees $(19,266) $ 7,943
======== ========
Interest income $ 10,577 $ 20,950
======== ========
Net loss $(17,499) $(28,092)
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Decrease in net asset value
per unit $ (45.72) $ (47.84)
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Total assets $384,175 $550,999
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Note 7. Cessation of Trading:
As of July 1999 Maximus Fund I, LLC had permanently ceased trading
operations. All trading positions were liquidated. Subsequent to the audit date
final liquidating distributions were made to all members.