UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number |
811-22251 | |||||||
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HATTERAS VC CO-INVESTMENT FUND II, LLC | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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8540 COLONNADE CENTER DRIVE, SUITE 401 RALEIGH, NORTH CAROLINA |
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27615 | ||||||
(Address of principal executive offices) |
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(Zip code) | ||||||
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DAVID B. PERKINS 8540 COLONNADE CENTER DRIVE, SUITE 401 RALEIGH, NORTH CAROLINA 27615 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrants telephone number, including area code: |
(919) 846-2324 |
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Date of fiscal year end: |
JUNE 30 |
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Date of reporting period: |
JUNE 30, 2013 |
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Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (OMB) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Financial Statements
For the period from September 1, 2012 to June 30, 2013
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Table of Contents
Report of Independent Registered Public Accounting Firm |
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1 |
Schedule of Investments |
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2-6 |
Statement of Assets, Liabilities and Members Capital |
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7 |
Statement of Operations |
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8 |
Statements of Changes in Members Capital |
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9 |
Statement of Cash Flows |
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10 |
Notes to Financial Statements |
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11-22 |
Board of Managers (unaudited) |
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23-24 |
Fund Management (unaudited) |
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25 |
Other Information (unaudited) |
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26-27 |
Privacy Policy (unaudited) |
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28-30 |
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Report of Independent Registered Public Accounting Firm
To the Board of Managers and Members
Hatteras VC-Co Investment Fund II, LLC
New York, New York
We have audited the accompanying statement of assets, liabilities and members capital, including the schedule of investments, of Hatteras VC Co-Investment Fund II, LLC (the Fund) as of June 30, 2013, and the related statements of operations and cash flows for the period from September 1, 2012 to June 30, 2013 and the statements of changes in members capital for the period from September 1, 2012 to June 30, 2013 and the year ended August 31, 2012. These financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those 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. Our procedures included confirmation of investments owned as of June 30, 2013 by correspondence with the custodian and the private companies which are held by the Fund. 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 opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hatteras VC Co-Investment Fund II, LLC as of June 30, 2013, the results of its operations and its cash flows for the period from September 1, 2012 to June 30, 2013, and the changes in its members capital for period from September 1, 2012 to June 30, 2013 and the year ended August 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
New York, New York
August 29, 2013
Member of the RSM International network of independent accounting, tax and consulting firms.
ONE
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2013
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Initial |
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% of |
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Investment |
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Fair |
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Members |
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Description of Investment |
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Date |
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Cost |
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Value |
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Capital |
| ||
Private Company: |
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Consumer: |
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Ooma, Inc. (a),(b) |
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Palo Alto, California |
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162,287 shares of |
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|
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|
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Series Alpha Preferred Stock |
|
Oct. 2009 |
|
$ |
371,317 |
|
$ |
462,942 |
|
5.87 |
% |
|
|
|
|
|
|
|
|
|
| ||
Sonim Technologies, Inc. (a),(b) |
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San Mateo, California |
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180,208 shares of |
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|
|
|
|
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Series B Preferred Stock |
|
Nov. 2009 |
|
167,180 |
|
174,160 |
|
2.21 |
% | ||
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Sonim Technologies, Inc. (a),(b) |
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San Mateo, California |
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440,312 shares of |
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|
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Series A Preferred Stock |
|
Nov. 2012 |
|
174,794 |
|
177,120 |
|
2.24 |
% | ||
Total Consumer |
|
|
|
713,291 |
|
814,222 |
|
10.32 |
% | ||
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Healthcare: |
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Clinipace, Inc. (a),(b) |
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Raleigh, North Carolina |
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3,816,881 shares of |
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|
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|
|
|
|
| ||
Series C Preferred Stock |
|
Sep. 2011 |
|
500,000 |
|
824,408 |
|
10.45 |
% | ||
|
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Information Technology: |
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Stoke, Inc. (a),(b) |
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Santa Clara, California |
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76,453 shares of |
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|
|
|
|
| ||
Series E Preferred Stock |
|
Nov. 2010 |
|
250,001 |
|
66,350 |
|
0.84 |
% | ||
|
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|
|
|
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|
| ||
Medical Technology: |
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Anulex Technologies, Inc. (a),(b) |
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Minnetonka, Minnesota |
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150,000 shares of |
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Series E Preferred Stock |
|
May 2010 |
|
150,000 |
|
118,820 |
|
1.51 |
% | ||
|
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|
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Lineagen, Inc. (b) |
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Salt Lake City, Utah |
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Convertible Promissory Note |
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|
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Principal of $300,000, |
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|
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|
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5.25%, due on demand |
|
Jul. 2011 |
|
300,000 |
|
|
|
|
% | ||
Total Medical Technology |
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|
|
450,000 |
|
118,820 |
|
1.51 |
% | ||
(continued)
See notes to financial statements.
TWO
|
|
Initial |
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% of |
| ||
|
|
Investment |
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|
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Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Semiconductor: |
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GainSpan Corporation (a),(b) |
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San Jose, California |
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312,500 shares of |
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|
|
|
|
|
| ||
Series C Preferred Stock |
|
Sep. 2011 |
|
$ |
250,000 |
|
$ |
281,250 |
|
3.56 |
% |
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GainSpan Corporation (a),(b) |
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San Jose, California |
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156,292 shares of |
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|
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Series D Preferred Stock |
|
Jun. 2012 |
|
140,663 |
|
140,663 |
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1.78 |
% | ||
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Luxtera, Inc. (a),(b) |
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Carlsbad, California |
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|
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2,203,210 shares of |
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|
|
|
|
|
|
| ||
Series C Preferred Stock |
|
Apr. 2012 |
|
301,413 |
|
13,987 |
|
0.18 |
% | ||
|
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|
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|
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|
| ||
Magnum Semiconductor, Inc. (a),(b) |
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Milpitas, California |
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|
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|
| ||
134,219 shares of |
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|
|
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|
|
|
|
| ||
Series E-1 Preferred Stock |
|
Jun. 2010 |
|
161,063 |
|
15,938 |
|
0.20 |
% | ||
|
|
|
|
|
|
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|
| ||
Quantenna Communications, Inc. (a),(b) |
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Fremont, California |
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|
|
|
|
|
|
|
| ||
1,893,223 shares of |
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|
|
|
|
|
|
|
| ||
Series D Preferred Stock |
|
Apr. 2010 |
|
150,000 |
|
169,427 |
|
2.15 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Quantenna Communications, Inc. (a),(b) |
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|
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|
| ||
Fremont, California |
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|
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|
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|
| ||
673,734 shares of |
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|
|
|
|
|
|
|
| ||
Series E Preferred Stock |
|
Oct. 2010 |
|
75,000 |
|
81,913 |
|
1.04 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Quantenna Communications, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
Fremont, California |
|
|
|
|
|
|
|
|
| ||
256,158 shares of |
|
|
|
|
|
|
|
|
| ||
Series F-1 Preferred Stock |
|
Nov. 2011 |
|
39,084 |
|
42,293 |
|
0.54 |
% | ||
Total Semiconductor |
|
|
|
1,117,223 |
|
745,471 |
|
9.45 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Software: |
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|
|
|
|
|
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|
| ||
Clustrix, Inc. (a),(b) |
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|
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|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
248,663 shares of |
|
|
|
|
|
|
|
|
| ||
Series B Preferred Stock |
|
Dec. 2010 |
|
250,001 |
|
64,230 |
|
0.81 |
% | ||
(continued)
See notes to financial statements.
THREE
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Software (continued): |
|
|
|
|
|
|
|
|
| ||
|
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|
| ||
KnowledgeTree, Inc. (a),(b) |
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|
| ||
Raleigh, North Carolina |
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|
|
|
|
|
|
|
| ||
59,695 shares of |
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|
|
|
|
|
|
|
| ||
Series B Preferred Stock |
|
Jun. 2012 |
|
$ |
250,002 |
|
$ |
250,002 |
|
3.17 |
% |
|
|
|
|
|
|
|
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|
| ||
Kontiki, Inc. (a),(b) |
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| ||
Sunnyvale, California |
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|
|
|
|
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|
| ||
45,670 shares of |
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|
|
|
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|
| ||
Common Stock |
|
Jan. 2012 |
|
|
|
3,750 |
|
0.05 |
% | ||
|
|
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|
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|
| ||
Kontiki, Inc. (a),(b) |
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| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
333,334 shares of |
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|
|
|
|
|
|
|
| ||
Series B Preferred Stock |
|
Jul. 2010 |
|
250,001 |
|
250,001 |
|
3.17 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (a),(b) |
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|
|
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| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
234,522 shares of |
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|
|
|
|
|
|
|
| ||
Series C Preferred Stock |
|
Jan. 2012 |
|
91,463 |
|
133,589 |
|
1.69 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
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|
|
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| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $32,847 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Mar. 2013 |
|
32,847 |
|
33,519 |
|
0.43 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $16,423 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Apr. 2013 |
|
16,423 |
|
16,640 |
|
0.21 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $41,059 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Jun. 2013 |
|
41,059 |
|
41,223 |
|
0.52 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Posit Science Corporation (a),(b) |
|
|
|
|
|
|
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|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
80,515 shares of |
|
|
|
|
|
|
|
|
| ||
Common Stock |
|
Dec. 2009 |
|
200,000 |
|
39,208 |
|
0.50 |
% | ||
(continued)
See notes to financial statements.
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Software (continued): |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
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|
| ||
Posit Science Corporation (a),(b) |
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|
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|
|
|
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|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
21,429 shares of |
|
|
|
|
|
|
|
|
| ||
Series AA Preferred Stock |
|
Sep. 2010 |
|
$ |
11,893 |
|
$ |
10,435 |
|
0.13 |
% |
|
|
|
|
|
|
|
|
|
| ||
Sailthru, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
New York, New York |
|
|
|
|
|
|
|
|
| ||
57,047 shares of |
|
|
|
|
|
|
|
|
| ||
Series A Preferred Stock |
|
Sep. 2011 |
|
299,999 |
|
460,301 |
|
5.83 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
278,500 shares of |
|
|
|
|
|
|
|
|
| ||
Series BB Preferred Stock |
|
Dec. 2009 |
|
150,000 |
|
235,474 |
|
2.99 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
579,375 shares of |
|
|
|
|
|
|
|
|
| ||
Series CC Preferred Stock |
|
Feb. 2011 |
|
350,000 |
|
527,815 |
|
6.69 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
73,119 shares of |
|
|
|
|
|
|
|
|
| ||
Series DD Preferred Stock |
|
Dec. 2011 |
|
68,000 |
|
90,442 |
|
1.15 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $127,400, |
|
|
|
|
|
|
|
|
| ||
4.00%, 11/15/2013 |
|
May 2013 |
|
127,400 |
|
128,031 |
|
1.62 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Univa Corporation (a),(b) |
|
|
|
|
|
|
|
|
| ||
Austin, Texas |
|
|
|
|
|
|
|
|
| ||
939,541 shares of |
|
|
|
|
|
|
|
|
| ||
Series I Preferred Stock |
|
Oct. 2010 |
|
432,114 |
|
288,295 |
|
3.65 |
% | ||
Total Software |
|
|
|
2,571,202 |
|
2,572,955 |
|
32.61 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total Private Company |
|
|
|
5,601,717 |
|
5,142,226 |
|
65.18 |
% | ||
(continued)
See notes to financial statements.
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Short-Term Investments: |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Federated Prime Obligations Fund #10, 0. 04% (c) |
|
|
|
$ |
2,736,548 |
|
$ |
2,736,548 |
|
34.69 |
% |
|
|
|
|
|
|
|
|
|
| ||
Total Short-Term Investments |
|
|
|
2,736,548 |
|
2,736,548 |
|
34.69 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total Investments (United States) |
|
|
|
8,338,265 |
|
7,878,774 |
|
99.87 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Other Assets in Excess of Liabilities |
|
|
|
|
|
10,167 |
|
0.13 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Members Capital |
|
|
|
|
|
$ |
7,888,941 |
|
100.00 |
% | |
(a) Non-income producing.
(b) Portfolio holdings are subject to substantial restrictions as to resale.
(c) The rate shown is the annualized 7-day yield as of June 30, 2013.
The cost and fair value of restricted private company investments are $5,601,717 and $5,142,226, respectively.
See notes to financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS CAPITAL
June 30, 2013
Assets |
|
|
| |
Investments in private companies, at fair value (cost $5,601,717) |
|
$ |
5,142,226 |
|
Short-term investments, at fair value (cost $2,736,548) |
|
2,736,548 |
| |
Receivable for investment sold |
|
115,829 |
| |
Interest receivable |
|
107 |
| |
Total assets |
|
$ |
7,994,710 |
|
Liabilities and members capital |
|
|
| |
Management fee payable |
|
$ |
39,643 |
|
Professional fees payable |
|
54,387 |
| |
Accounting and administration fees payable |
|
10,000 |
| |
Custodian fees payable |
|
1,739 |
| |
Total liabilities |
|
105,769 |
| |
|
|
|
| |
Members capital |
|
7,888,941 |
| |
Total liabilities and members capital |
|
$ |
7,994,710 |
|
|
|
|
| |
Components of members capital: |
|
|
| |
Capital contributions |
|
$ |
10,514,912 |
|
Accumulated net investment loss |
|
(1,548,645 |
) | |
Accumulated net realized loss on investments |
|
(617,835 |
) | |
Accumulated net unrealized depreciation on investments |
|
(459,491 |
) | |
Members capital |
|
$ |
7,888,941 |
|
|
|
|
| |
Net asset value per unit |
|
$ |
68.79 |
|
Number of authorized units |
|
Unlimited |
| |
Number of outstanding units |
|
114,678.93 |
|
See notes to financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF OPERATIONS
For the period from September 1, 2012 to June 30, 2013
Investment income |
|
|
| |
Interest |
|
$ |
3,484 |
|
Total investment income |
|
3,484 |
| |
Operating expenses |
|
|
| |
Management fee |
|
159,230 |
| |
Professional fees |
|
79,182 |
| |
Accounting and administration fees |
|
33,333 |
| |
Managers fees |
|
29,167 |
| |
Custodian fees |
|
11,339 |
| |
Other expenses |
|
1,120 |
| |
Total expenses, before management fee waiver |
|
313,371 |
| |
|
|
|
| |
Management fee waived |
|
13,335 |
| |
Net expenses |
|
300,036 |
| |
|
|
|
| |
Net investment loss |
|
(296,552 |
) | |
Net realized and unrealized loss on investments |
|
|
| |
Net realized loss on investments in private companies |
|
(617,835 |
) | |
Net change in unrealized depreciation on investments in private companies |
|
(1,126,726 |
) | |
Net loss on investments |
|
(1,744,561 |
) | |
Net decrease in members capital resulting from operations |
|
$ |
(2,041,113 |
) |
See notes to financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
For the period from September 1, 2012 to June 30, 2013 and the year ended August 31, 2012
|
|
Members |
| |
Members capital, at August 31, 2011 |
|
$ |
9,925,408 |
|
Net investment loss |
|
(319,008 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
323,654 |
| |
Members capital, at August 31, 2012 |
|
9,930,054 |
| |
Net investment loss |
|
(296,552 |
) | |
Net realized loss on investments in private companies |
|
(617,835 |
) | |
Net change in unrealized depreciation on investments in private companies |
|
(1,126,726 |
) | |
Members capital, at June 30, 2013 |
|
$ |
7,888,941 |
|
See notes to financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF CASH FLOWS
For the period from September 1, 2012 to June 30, 2013
Cash flows from operating activities: |
|
|
| |
Net decrease in members capital resulting from operations |
|
$ |
(2,041,113 |
) |
Adjustments to reconcile net decrease in members capital resulting from operations to net cash used in operating activities: |
|
|
| |
Purchases of investments |
|
(541,797 |
) | |
Net proceeds on sale of short-term investments |
|
456,569 |
| |
Net realized loss on investments |
|
617,835 |
| |
Net change in unrealized depreciation on investments in private companies |
|
1,126,726 |
| |
Decrease in receivable for investment sold |
|
378,994 |
| |
Decrease in interest receivable |
|
299 |
| |
Decrease in management fee payable |
|
(4,672 |
) | |
Increase in professional fees payable |
|
5,717 |
| |
Increase in accounting and administration fees payable |
|
3,333 |
| |
Increase in custodian fees payable |
|
855 |
| |
Decrease in other expenses payable |
|
(2,746 |
) | |
Net cash used in operating activities |
|
|
| |
Net change in cash |
|
|
| |
|
|
|
| |
Cash at beginning of period |
|
|
| |
Cash at end of period |
|
$ |
|
|
See notes to financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
1. ORGANIZATION
Hatteras VC Co-Investment Fund II, LLC (the Fund) was organized as a limited liability company under the laws of the State of Delaware on November 7, 2008 and commenced operations on September 1, 2009. The Fund is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end, non-diversified management investment company. The Fund is managed by Hatteras Capital Investment Management, LLC (the Adviser), an investment adviser registered with the Securities and Exchange Commission (the SEC) under the Investment Advisers Act of 1940, as amended. The Funds placement agent, an affiliate of the Adviser, is Hatteras Capital Distributors, LLC. The Fund had an initial closing on September 1, 2009 (Initial Closing) and a final closing August 31, 2010 (Final Closing), as determined by the Board of Managers (the Board) of the Fund. The Funds investment period (the Investment Period) is three years following the Initial Closing of the Fund. The Fund will continue until the date that is six years from the date of the Initial Closing, unless terminated earlier pursuant to applicable terms of the Funds limited liability company agreement (LLC Agreement). The term may be extended for two one-year periods at the discretion of the Board.
The Board has overall responsibility for the management and supervision of the business operations of the Fund on behalf of the members of the Fund (Members), subject to the laws of the State of Delaware and the Funds LLC Agreement, including authority to oversee and establish policies regarding the management, conduct and operation of the Funds business. The Funds investment objective is to seek superior risk-adjusted returns by investing in venture-backed companies. The Fund intends to achieve its investment objective by investing all or substantially all of its assets in venture-backed companies alongside of top-tier venture capital firms.
At a Board meeting held on August 23, 2012, the Board approved a change in fiscal year-end for the Fund from August 31 to June 30, effective as of the end of the fiscal year ended August 31, 2012.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting and reporting policies used in preparing the financial statements.
a. Basis of Accounting
The Funds accounting and reporting policies conform to accounting principles generally accepted within the United States of America (U.S. GAAP).
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b. Cash
Cash, if any, includes short-term interest bearing deposit accounts. At times, such deposits may be in excess of federally insured limits. The Fund has not experienced any losses in such accounts and does not believe it is exposed to significant credit risk on such accounts. At June 30, 2013, the Fund held no cash balances in deposit accounts.
c. Valuation of Portfolio Investments
All portfolio investments are recorded at fair value in accordance with the Funds valuation procedures. The Funds valuation procedures have been approved by and are subject to continued oversight by the Funds Board. The valuation procedures are implemented by the Adviser and the Funds third-party administrator, which report to the Board. For third-party information, the Funds administrator monitors and reviews the methodologies of the various pricing services employed by the Fund.
Investments in Private Companies Investments for which observable market prices in active markets do not exist are reported at fair value, as determined in good faith by the Adviser. Fair value is based on the best information available and is determined by reference to information including, but not limited to, the following: projected sales, net earnings, earnings before interest, taxes, depreciation and amortization (EBITDA), balance sheets, public or private transactions, valuations for publicly traded comparable companies, recent rounds of financing in the companys stock, and/or other measures, and consideration of any other pertinent information including the types of securities held and restrictions on disposition. The amount determined to be fair value may incorporate the Advisers own assumptions (including appropriate risk adjustments for nonperformance and/or lack of marketability). The methods used to estimate the fair value of private companies include: (1) the market approach (whereby fair value is derived by reference to observable valuation measures for comparable companies or assets e.g., multiplying a key performance metric of the investee company or asset, such as projected revenue or EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions adjusted by the Adviser for differences between the investment and the referenced comparables and in some instances by reference to option pricing models or other similar methods), (2) the income approach (e.g., the discounted cash flow method), (3) cost for a period of time after an acquisition (where such amount is determined by the Adviser to be the best indicator of fair value), and (4) based upon a recent round of financing, which usually includes referencing recent or pending transactions in the same or similar securities of the issuer. These valuation methodologies involve a significant degree of judgment. Due to the absence of readily determinable fair values and the inherent uncertainty of valuations, the estimated fair values for private companies may differ significantly from values that would have been used had a ready market for the securities existed, and the differences could be material.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
Short-Term Investments - During period from September 1, 2012 to June 30, 2013, the Fund held its short-term investment in the Federated Prime Obligation Fund #10, an open-ended money market fund (the MMF) incorporated in the United States of America. The MMFs objective is to seek and provide current income consistent with the stability of principal. The MMF invests in a portfolio of short-term, high-quality, fixed income securities issued by banks, corporations and the U.S. government. The MMF held by the Fund seeks to preserve a net asset value of $1.00 per share. The MMF is valued at a yield-adjusted net asset value per share, which is currently equal to $1.00 per share as represented on one or more of the U.S. national securities exchanges.
The Fund classifies its investments into three levels based on the lowest level of input that is significant to the fair value measurement. The three-tier hierarchy distinguishes between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Funds investments.
The inputs are summarized in the three broad levels listed below:
Valuation of Investments
· Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities
· Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
· Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (Continued)
The following table presents the Funds fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2013:
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Private Company(1) |
|
|
|
|
|
|
|
|
| ||||
Convertible Promissory Notes |
|
$ |
|
|
$ |
|
|
$ |
219,413 |
|
$ |
219,413 |
|
Preferred Stock |
|
|
|
|
|
4,879,855 |
|
4,879,855 |
| ||||
Common Stock |
|
|
|
|
|
42,958 |
|
42,958 |
| ||||
Total Private Company |
|
|
|
|
|
5,142,226 |
|
5,142,226 |
| ||||
Short-Term Investments |
|
2,736,548 |
|
|
|
|
|
2,736,548 |
| ||||
Total |
|
$ |
2,736,548 |
|
$ |
|
|
$ |
5,142,226 |
|
$ |
7,878,774 |
|
(1) All private companies held in the Fund are Level 3 securities. For a detailed break-out of private companies by industry classification, please refer to the Schedule of Investments.
There were no transfers among Levels 1, 2 and 3 during the period from September 1, 2012 to June 30, 2013. Should a transfer between Levels occur, the Fund would recognize the transfer at the beginning of the reporting period following the actual date of the event or change in circumstance that caused the transfer.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
|
|
Bridge |
|
Convertible |
|
Preferred |
|
Common |
|
Total |
| |||||
Balance as of September 1, 2012 |
|
$ |
1,001,166 |
|
$ |
317,748 |
|
$ |
4,980,756 |
|
$ |
45,320 |
|
$ |
6,344,990 |
|
Net Realized Loss |
|
(467,835 |
) |
|
|
|
|
(150,000 |
) |
(617,835 |
) | |||||
Change in Unrealized Appreciation/(Depreciation) |
|
(533,331 |
) |
(316,064 |
) |
(424,969 |
) |
147,638 |
|
(1,126,726 |
) | |||||
Gross Purchases |
|
|
|
217,729 |
|
324,068 |
|
|
|
541,797 |
| |||||
Gross Sales |
|
|
|
|
|
|
|
|
|
|
| |||||
Balance as of June 30, 2013 |
|
$ |
|
|
$ |
219,413 |
|
$ |
4,879,855 |
|
$ |
42,958 |
|
$ |
5,142,226 |
|
Change in unrealized depreciation included in the statement of operations attributable to Level 3 investments held as of the reporting date is $(743,393).
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
The following is a summary of quantitative information about significant unobservable inputs used for Level 3 fair value measurements for investments held as of June 30, 2013:
Type of |
|
Fair Value as of |
|
Valuation Technique |
|
Unobservable |
|
Weighted |
|
Range |
|
Impact to |
| ||
Private Company : |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Notes |
|
$ |
219,413 |
|
Most Recent Capitalization |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Preferred Stock |
|
2,507,722 |
|
Market Comparable Companies |
|
Forward Revenue Multiple |
|
3.12x |
|
1.20x -5.24x |
|
Increase |
| ||
|
|
|
|
|
|
Discount Rate |
|
15% |
|
15% |
|
Decrease |
| ||
|
|
2,372,133 |
|
Most Recent Capitalization |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Common Stock |
|
42,958 |
|
Market Comparable Companies |
|
Forward Revenue Multiple |
|
2.38x |
|
2.11x- 5.24x |
|
Increase |
| ||
|
|
|
|
|
|
Discount Rate |
|
15% |
|
15% |
|
Decrease |
| ||
Total Private Company |
|
$ |
5,142,226 |
|
|
|
|
|
|
|
|
|
|
| |
Investments in private companies are generally valued using most recent capitalization technique and market comparable companies techniques. The significant unobservable input used in the most recent capitalization technique is private financing. Two significant unobservable inputs used in the market comparable companies technique is the particular type of market multiple relied upon and a discount rate. Different types of multiples (e.g., forward revenue multiple) are relied upon across the Funds portfolio. A significant decrease in one of these multiples in isolation would result in a significantly lower fair value measurement. A significant increase in the discount rate in isolation would result in a significantly lower fair value measurement.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
The significant unobservable inputs used in the fair value measurement of the Funds bridge financing notes and the convertible promissory notes are the likelihood that cash flows or shares will not be received in the future. Significant increases in the probability of default for these securities would result in a lower fair value measurement. The significant unobservable inputs used in the fair value measurement of the Funds preferred and common stock are generally the financial results of privately held entities. If the financial condition of these companies were to deteriorate, or if market comparables were to fall, the value of the preferred stock or common stock in these private companies held by the Fund would be lower.
d. Investment Income
Interest income is recorded when earned. Interest income is not recognized when collection is doubtful, but instead, such amounts are tracked in a memorandum account. At June 30, 2013, all interest was deemed collectible. Disbursements received from investments in private companies are ordinarily accounted for as a reduction of cost, or allocated between cost and realized gains and losses dependent upon information received from the private company. Investments in short-term investments are recorded on a trade-date basis. Investments in private companies are recorded on a subscription effective date basis. Realized gains and losses are determined on a specific identified cost basis.
e. Fund Expenses
Fund expenses that are specifically attributed to the Fund are charged to the Fund and recorded on an accrual basis. Expenses of the Fund include, but are not limited to, the following: all costs and expenses related to portfolio transactions, legal fees, accounting, auditing, and tax preparation fees, custodial fees, fees for data and software providers, costs of insurance, registration expenses, management fee, and expenses of meetings of the Board.
f. Income Taxes
The Fund is treated as a partnership for federal income tax purposes and therefore is not subject to U.S. federal income tax. For income tax purposes, the individual Members will be taxed upon their distributive share of each item of the Funds profit and loss.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. Income taxes (CONTINUED)
The Fund has reviewed any potential tax positions as of June 30, 2013 and has determined that it does not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period from September 1, 2012 to June 30, 2013, the Fund did not incur any interest or penalties. The Fund files income tax returns in U.S. federal jurisdictions and various states, which remain open for examination by the tax authorities for a period of three years from when they are filed. The tax years subject to evaluation by tax authorities are 2010, 2011 and 2012.
g. Distributions
The Fund may make distributions to Members at least annually, or more frequently, at the Funds discretion, as permitted by applicable laws, rules and regulations. Amounts distributed will be intended to represent the amounts of distributions received by the Fund from underlying investments during the period since the last distribution (or from commencement of operations in the case of the first distribution). Any distributions to Members will be made pro-rata.
h. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Fund 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 the reported amounts of increases and decreases in Members capital from operations during the reporting period. Actual results could differ from those estimates.
i. Recent Accounting Pronouncement
In December 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-11 related to disclosures about offsetting assets and liabilities. The amendments in ASU 2011-11 require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all comparative periods presented. Since the pronouncement is disclosure related, management does not believe that ASU 2011-11 will have a material impact on the financial statement disclosures.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
3. MANAGEMENT FEE AND RELATED PARTY TRANSACTIONS
The Adviser is responsible for providing day-to-day investment management services to the Fund, subject to the ultimate supervision of and subject to any policies established by the Board, pursuant to the terms of an investment management agreement with the Fund (the Investment Management Agreement). Under the Investment Management Agreement, the Adviser is responsible for developing, implementing and supervising the Funds investment program.
In consideration for such services, the Fund pays the Adviser a quarterly investment management fee equal to 2.00% on an annualized basis of the net assets of the Fund as of each quarter-end. The Adviser has committed to waive permanently a portion of its contractual fee rate under the Investment Management Agreement as of the end of any quarter at which (or month-end during the period from the Initial Closing to the Final Closing) the cost basis of the Funds portfolio companies plus cash and cash equivalents, including short-term investments, is less than the Funds net asset value (NAV) as of such quarter-end (or month-end during the period from the Initial Closing to the Final Closing). When this occurs, the Adviser will waive the portion of its management fee that is in excess of the annual rate equal to 2.00% of the cost basis of the Funds portfolio companies plus cash and cash equivalents, including short-term investments. The management fee for the period from September 1, 2012 to June 30, 2013 was $159,230. For the period from September 1, 2012 to June 30, 2013, the Adviser waived $13,335 of the management fee.
Each member of the Board who is not an interested person of the Fund, as defined by Section 2(a)(19) of the 1940 Act (each an Independent Manager), receives an annual retainer of $5,000 from the Fund for services on the Board and for services as a member of the audit committee of the Fund. All Board members are reimbursed by the Fund for all reasonable out-of-pocket expenses incurred by them in performing their duties. For the period from September 1, 2012 to June 30, 2013, retainers to the Independent Managers totaled $29,167 and are included in the statement of operations under Managers fees.
4. ACCOUNTING, ADMINISTRATION, AND CUSTODIAL AGREEMENT
In consideration for accounting, administrative, and recordkeeping services, the Fund pays J.D. Clark & Company, a division of UMB Fund Services, Inc. (the Administrator) a monthly administration fee based on the month-end net asset value of the Fund. The Administrator also provides regulatory administrative services, transfer agency functions, and Member services at an additional cost. For the period from September 1, 2012 to June 30, 2013, the total accounting and administration fee was $33,333, and is included in the statement of operations under accounting and administration fees.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
4. ACCOUNTING, ADMINISTRATION, AND CUSTODIAL AGREEMENT (CONTINUED)
UMB Bank, n.a., an affiliate of the Administrator, serves as custodian of the Funds assets and provides custodial services for the Fund.
5. INVESTMENT TRANSACTIONS
Total purchases of investments in private companies for the period ended June 30, 2013 amounted to $541,797. There were no sales of investments in private companies for the period ended June 30, 2013. The cost of investments in private companies for U.S. federal income tax purposes is adjusted for items of taxable income allocated to the Fund from the investments in private companies. The Fund relies upon actual and estimated tax information provided by the private companies in which it invests as to the amounts of taxable income allocated to the Fund as of June 30, 2013.
The Fund intends to invest substantially all of its available capital in private companies. These investments will generally be restricted securities that are subject to substantial holding periods or are not traded in public markets at all, so that the Fund may not be able to resell some of its securities holdings for extended periods.
6. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Funds maximum exposure under these agreements is dependent on future claims that may be made against the Fund, and therefore cannot be established; however, based on experience, the risk of loss from such claims is considered remote.
7. COMMITMENTS
As of June 30, 2013, the Fund did not have any outstanding investment commitments to private companies.
8. RISK FACTORS
An investment in the Fund involves significant risks, including liquidity risk, non-diversification risk and economic conditions risk, that should be carefully considered prior to investing and should only be considered by persons financially able to maintain their investment and who can afford a loss of a substantial part or all of such investment.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
8. RISK FACTORS (CONTINUED)
Liquidity risk: Transfer of the units of limited liability company interests (Units) of the Fund is subject to significant restrictions. Because of these restrictions and the absence of a public market for the Units, a Member may be unable to liquidate his, her or its investment even though his, her or its personal financial circumstances would make liquidation advisable or desirable. The Units will not be readily acceptable as collateral for loans and the Units are not permitted to be pledged as collateral for loans. Moreover, even if a Member were able to dispose of his, her or its Units, adverse tax consequences could result.
Non-diversification risk: If there is an industry in which the Fund concentrates its investments, the Fund may be subject to greater investment risk as companies engaged in similar businesses are more likely to be similarly affected by any adverse market conditions and other adverse industry-specific factors.
Economic risk: The Funds investments expose Members to a range of potential economic risks that could have an adverse effect on the Fund. These may include, but are not limited to, declines in economic growth, inflation, deflation, taxation, governmental restrictions and/or adverse regulation.
9. FINANCIAL HIGHLIGHTS
The financial highlights are intended to help an investor understand the Funds financial performance for past periods. The total return in the table represents the rate that a typical Member would be expected to have earned or lost on an investment in the Fund.
The ratios and total return amount are calculated based on the Member group taken as a whole. An individual Members results may vary from those shown below due to the timing of capital transactions.
The ratios are calculated by dividing total dollars of net investment income/(loss) or expenses, as applicable, by the average of total monthly Members capital. The total return amount is calculated by geometrically linking returns based on the change in the net asset value during each accounting period.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONTINUED)
9. FINANCIAL HIGHLIGHTS (CONTINUED)
Per Unit Operating Performance:
Net Asset Value, September 1, 2009 |
|
$ |
100.00 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(4.81 |
) | |
Net change in unrealized depreciation on investments in private companies |
|
(7.28 |
) | |
Total from investment operations |
|
(12.09 |
) | |
Net Asset Value, August 31, 2010 |
|
$ |
87.91 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(3.36 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
2.00 |
| |
Total from investment operations |
|
(1.36 |
) | |
Net Asset Value, August 31, 2011 |
|
$ |
86.55 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(2.78 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
2.82 |
| |
Total from investment operations |
|
0.04 |
| |
Net Asset Value, August 31, 2012 |
|
$ |
86.59 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(2.59 |
) | |
Net realized loss and change and unrealized depreciation on investments in private companies |
|
(15.21 |
) | |
Total from investment operations |
|
(17.80 |
) | |
Net Asset Value, June 30, 2013 |
|
$ |
68.79 |
|
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
for the period from September 1, 2012 to June 30, 2013
(CONCLUDED)
9. FINANCIAL HIGHLIGHTS (CONTINUED)
|
|
For the period |
|
For the years ended August 31, |
|
For the period |
| ||||||
|
|
30, 2013* |
|
2012 |
|
2011 |
|
2010 |
| ||||
Total return (1) |
|
(20.56 |
)%(3) |
0.05 |
% |
(1.55 |
)% |
(12.09 |
)% | ||||
Members capital, end of period (000s) |
|
$ |
7,889 |
|
$ |
9,930 |
|
$ |
9,925 |
|
$ |
10,081 |
|
Portfolio turnover |
|
0.00 |
%(3) |
8.00 |
% |
0.00 |
% |
0.00 |
% | ||||
Net investment loss: |
|
|
|
|
|
|
|
|
| ||||
Before reimbursement of placement agent fees |
|
(3.58 |
)%(4) |
(3.15 |
)% |
(3.84 |
)% |
(13.76 |
)% | ||||
After reimbursement of placement agent fees |
|
(3.58 |
)%(4) |
(3.15 |
)% |
(3.84 |
)% |
(13.34 |
)% | ||||
Total expenses (2): |
|
|
|
|
|
|
|
|
| ||||
Before reimbursement of placement agent fees |
|
3.62 |
%(4) |
3.29 |
% |
3.94 |
% |
13.92 |
% | ||||
After reimbursement of placement agent fees |
|
3.62 |
%(4) |
3.29 |
% |
3.94 |
% |
13.50 |
% | ||||
* At a Board meeting held on August 23, 2012, the Board approved a change in fiscal year-end for the Fund from August 31 to June 30 effective as of the end of the fiscal year ended August 31, 2012; as a result, this report covers the period from September 1, 2012 to June 30, 2013.
(1) Internal rate of return since inception: As of June 30, 2013 was (9.30)%; As of August 31, 2012 was (4.69)%; As of August 31, 2011 was (6.97)%.
(2) Total expenses before and after waiver of the management fee for the period from September 1, 2012 to June 30, 2013 were 3.78% and 3.62%, respectively. Total expenses before and after waiver of the management fee for the year ended August 31, 2012 were 3.46% and 3.29%, respectively. Total expenses before and after waiver of the management fee for the period from September 1, 2010 to August 31, 2011 were 3.98% and 3.94%, respectively. There was no management fee waived for the period from September 1, 2009 (commencement of operations) to August 31, 2010.
(3) Not annualized.
(4) Not annualized.
10. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the date the financial statements were issued, and determined there were no subsequent events that required disclosure in or adjustment to the financial statements.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
BOARD OF MANAGERS
(Unaudited)
The identity of the Board members (each a Manager) and brief biographical information, as of June 30, 2013, is set forth below. The business address of each Manager is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615. The Managers serve on the Board for terms of indefinite duration. A Managers position in that capacity will terminate if the Manager is removed or resigns or, among other events, upon the Managers death, incapacity, retirement or bankruptcy. The Funds Statement of Additional Information includes additional information about the Managers and may be obtained without charge by calling Hatteras at 1-866-388-6292.
Name and |
|
Position(s) |
|
Length of |
|
Principal Occupation(s) During |
|
Number of Portfolios in |
INTERESTED MANAGERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David B. Perkins(2) |
|
President and Chairman of the Board of Managers |
|
Since Inception |
|
Mr. Perkins has been Chairman of the Board of Directors and President of the Fund since inception. Mr. Perkins is the Chief Executive Officer of Hatteras and its affiliated entities. He founded the firm in September 2003. Prior to that, he was the co-founder and Managing Partner of CapFinancial Partners, LLC. |
|
18 |
|
|
|
|
|
|
|
|
|
INDEPENDENT MANAGERS |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
H. Alexander Holmes |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Holmes founded Holmes Advisory Services, LLC, a financial consultation firm, in 1993. |
|
18 |
|
|
|
|
|
|
|
|
|
Steve E. Moss, CPA |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Moss is a principal of Holden, Moss, Knott, Clark & Copley, P.A. and has been a member manager of HMKCT Properties, LLC since January 1996. |
|
18 |
|
|
|
|
|
|
|
|
|
Gregory S. Sellers |
|
Manager; Audit Committee Member |
|
|
|
Mr. Sellers has been the Chief Financial Officer of Imagemark Business Services, Inc., a strategic communications provider of marketing and print communications solutions, since June 2009. From 2003 to June 2009, Mr. Sellers was the Chief Financial Officer and a director of Kings Plush, Inc., a fabric manufacturer. |
|
18 |
(1) The Fund Complex consists of the Fund, Hatteras Master Fund, L.P., Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras Alternative Mutual Funds Trust (consisting of five funds), Hatteras Variable Trust, and Underlying Funds Trust (consisting of five funds).
(2) Mr. Perkins is deemed to be an interested Manager of the Fund because of his affiliations with the Adviser.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
BOARD OF MANAGERS
(Unaudited)
Name and |
|
Position(s) |
|
Length of |
|
Principal Occupation(s) During |
|
Number of Portfolios in |
INDEPENDENT MANAGERS (CONTINUED) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Daniel K. Wilson |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Wilson was Executive Vice President and Chief Financial Officer of Parksdale Mills, Inc. from 2004 - 2008. Mr. Wilson currently is in private practice as a Certified Public Accountant. |
|
18 |
|
|
|
|
|
|
|
|
|
Joseph E. Breslin |
|
Manager; Audit Committee Member |
|
Since 2012 |
|
Mr. Breslin is currently a private investor. Mr. Breslin has been a Director of Kinetics Mutual Funds, Inc. (mutual fund) from 2000 to Present (8 portfolios); Trustee, Kinetics Portfolios Trust (mutual fund) from 2000 to Present (8 portfolios). From 2007 to 2009, Mr. Breslin was the Chief Operating Officer of Central Park Credit Holdings, Inc. and prior to that, was the Chief Operating Officer of Aladdin Capital Management LLC, beginning in 2005. |
|
18 |
|
|
|
|
|
|
|
|
|
Thomas Mann |
|
Manager; Audit Committee Member |
|
Since 2012 |
|
Mr. Mann is currently a private investor. From 2003 until 2012, Mr. Mann was the Managing Director and Group Head Financial Institutions Group, Société Générale, Sales of Capital Market Solutions and Products. Mr. Mann is also a Director of Virtus Global Multi-Sector Income Fund since 2011, Virtus Total Return Fund since 2012, and F-Squared Investments, Inc since January 2012. |
|
18 |
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
FUND MANAGEMENT
(Unaudited)
Set forth below is the name, date of birth, position with the Fund, length of term of office, and the principal occupation for the last five years, as of June 30, 2013, of each of the persons currently serving as Executive Officer. The business address of each officer is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615.
Name and |
|
Position(s) |
|
Length of Time |
|
Principal Occupation(s) During |
|
Number of Portfolios in |
OFFICERS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Michael Fields |
|
Secretary of each fund in the Fund Complex |
|
Since Inception |
|
Prior to becoming Secretary of each of the funds in the Fund Complex, Mr. Fields was Treasurer of each of the funds in the Fund Complex. Mr. Fields is Chief Operating Officer of the Adviser and its affiliates and has been employed by the Hatteras firm since its inception in September 2003. |
|
N/A |
|
|
|
|
|
|
|
|
|
Andrew P. Chica |
|
Chief Compliance Officer of each fund in the Fund Complex |
|
Since Inception |
|
Mr. Chica joined Hatteras in November 2007 and became Chief Compliance Officer of each of the funds in the Fund Complex and the Adviser as of January 2008. |
|
N/A |
|
|
|
|
|
|
|
|
|
Robert Lance Baker |
|
Treasurer of each fund in the Fund Complex |
|
Since Inception |
|
Mr. Baker joined Hatteras in March 2008 and became Treasurer of each of the funds in the Fund Complex in December 2008. Mr. Baker serves as the Chief Financial Officer of the Adviser and its affiliates. |
|
N/A |
(1) The Fund Complex consists of the Fund, Hatteras Master Fund L.P., Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras Alternative Mutual Funds Trust (consisting of five funds), Hatteras Variable Trust, and Underlying Funds Trust (consisting of five funds).
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
OTHER INFORMATION
(Unaudited)
Proxy Voting
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and the Funds record of actual proxy votes cast is available at www.sec.gov and by calling 1-800-504-9070 and may be obtained at no additional charge.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Form N-Q is available, without charge and upon request, on the SECs website at http://www.sec.gov or may be reviewed and copied at the SECs Public Reference Room in Washington, D.C.
Annual Renewal of Investment Management Agreement
At a meeting of the Funds Board held on May 21, 2013, by a unanimous vote, the Board, including a majority of the Managers who are not interested persons within the meaning of Section 2(a)(19) of the 1940 Act, approved the continuation of the Investment Management Agreement (the Investment Management Agreement) for an additional year.
In advance of the May 21, 2013 meeting, the Independent Managers requested and received extensive materials from the Adviser to assist them in considering the renewal of the Agreement. The Independent Managers reviewed reports from the Adviser relating to the below factors. The Board did not consider any single factor as controlling in determining whether or not to approve the Agreement, nor were the items described herein all encompassing of the matters considered by the Board.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment advisory services proposed to be provided by the Adviser to the Fund under the Investment Management Agreement. The Board noted that the Funds investment period ended on September 1, 2012. The Adviser will continue to evaluate current additional investment opportunities that may be available with the Funds current investment portfolio. In doing so, the Adviser will continue to evaluate the selection of Fund investments, access to select top-tier venture capital firms for co-investment opportunities, evaluation of risk exposure and risk controls, experience and training of the Advisers investment professionals, and day-to-day portfolio management and general investment selection. The Board also reviewed and considered the qualifications of the portfolio managers, and other key personnel of the Adviser who provide the investment advisory and administrative services to the Fund. The Board determined that the Advisers portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board also took into account the Advisers compliance policies and procedures, including the procedures used to determine the value of each of the Funds investments. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services to be provided by the Adviser under the Investment Management Agreement including, among other things, providing office facilities, equipment, and personnel.
The Board noted that the Funds performance since inception and during the period ended December 1, 2012 trailed that of each of the three comparative funds selected by management. The Board noted that the Funds performance was not unreasonable especially given the difficulty of constructing a truly meaningful peer universe.
The Board concluded that the overall quality of the advisory and administrative services was satisfactory.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY THE ADVISER AND OTHER ADVISERS
The Board reviewed the advisory fee rates and expected total expense ratio of the Fund. The Board also noted that the Adviser committed to waive permanently a portion of its contractual advisory fee rate under the Investment Management Agreement as of the end of any quarter at which the cost basis of the Funds portfolio companies plus
Annual Renewal of Investment Management Agreement (CONTINUED)
cash and cash equivalents, including short-term investments, is less than the Funds net asset value as of such quarter-end. When this occurs, the Adviser will waive the portion of its management fee that is in excess of the annual rate equal to 2.00% of the cost basis of the Funds portfolio companies plus cash and cash equivalents, including short-term investments. The Board noted that the Adviser waived a portion of its management fee for the fiscal year ended August 31, 2012 and the period from September 1, 2012 to December 31, 2012.
The Board noted that although the Fund is closed to new investors, a placement fee described in the current Fund Prospectus, was paid to an affiliate of the Adviser. The Board noted that Hatteras Capital Distributors, LLC (the Placement Agent) entered into an expense reduction agreement pursuant to which it rebated to the Fund 1.00% of all investments made after the initial closing, for which the placement agent received a placement fee. In addition, the Board considered that the Placement Agent and/or its affiliates made payments to selected affiliated or unaffiliated third parties from time to time in connection with the placement of Fund shares and/or shareholder servicing. The Board noted that these payments were made out of the Placement Agents and/or affiliates own assets and did not represent an additional charge to the Fund.
The Board compared the advisory fee, and total expense ratio for the Fund with various closed-end fund of funds, including funds advised by the Adviser. The Board noted that the Funds gross advisory fee was higher than the gross advisory fee of all five of the comparative funds. However, the Board discussed how the Funds total expense ratio is within the range of the comparative funds, with four comparative funds having a lower total expense ratio and one comparative fund having a higher total expense ratio.
The Board also reviewed a profitability analysis and an income statement showing the Advisers profitability with respect to the services it provides to the Fund. The Board did not believe that the Adviser received excessive revenues or profits.
The Board concluded that the advisory fees paid by the Fund and total expense ratio were reasonable and satisfactory in light of the services proposed to be provided.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure of the investment management fees, noting that no change in fees had been proposed. The Board noted that the Fund is closed to new investors and believed that it was unlikely that economies of scale will be achieved. Further, the Board believed that breakpoints are not appropriate considering that the Fund is closed.
PROFITABILITY OF ADVISER AND AFFILIATES
As described above, the Board reviewed a profitability analysis and an income statement prepared by management for the period ended December 31, 2012. The analysis and income statement showed that the Adviser earned a profit margin with respect to its management of the Fund. Given the services provided to the Fund, the Board determined that the Adviser did not earn excessive profits.
FALL-OUT BENEFITS
The Board considered the placement fees earned by affiliates of the Adviser.
GENERAL CONCLUSION
Based on its consideration of all factors that it deemed material, and assisted by the advice of its counsel, the Board concluded it would be in the best interest of the Fund and its investors to approve the Investment Management Agreement for an additional one-year term.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
PRIVACY POLICY
(Unaudited)
Privacy Policy
| |||
FACTS |
WHAT DOES Hatteras Funds DO WITH YOUR PERSONAL INFORMATION? | ||
Why? |
Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | ||
What? |
The types of personal information we collect and share depend on the product or service you have with us. This information can include: · Social Security number · account balances · account transactions · transaction history · wire transfer instructions · checking account information When you are no longer our customer, we continue to share your information as described in this notice.
| ||
How? |
All financial companies need to share customers' personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers' personal information; the reasons Hatteras Funds chooses to share; and whether you can limit this sharing.
| ||
| |||
Reasons we can share your personal information |
Does Hatteras Funds |
Can you limit this sharing? | |
For our everyday business purposes
|
Yes |
No | |
For our marketing purposes
|
No |
We dont share | |
For joint marketing with other financial companies
|
No |
We dont share | |
For our affiliates everyday business purposes information about your transactions and experiences
|
Yes |
No | |
For our affiliates everyday business purposes information about your creditworthiness
|
No |
We dont share
| |
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
PRIVACY POLICY
(Unaudited)
Privacy Policy (Continued)
| ||
For our affiliates to market to you
|
No |
We dont share |
For non-affiliates to market to you
|
No |
We dont share |
Questions? |
Call (919) 846-2324 or go to www.hatterasfunds.com
|
What we do
| |
Who is providing this notice? |
Funds advised by Hatteras entities. A complete list is included below.
|
How does Hatteras Funds protect my personal information? |
To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings.
|
How does Hatteras Funds collect my personal information? |
We collect your personal information, for example, when you
▪ open an account ▪ provide account information ▪ give us your contact information ▪ make a wire transfer ▪ tell us where to send the money
We also collect your information from others, such as credit bureaus, affiliates, or other companies.
|
Why cant I limit all sharing? |
Federal law gives you the right to limit only
▪ sharing for affiliates everyday business purposes information about your creditworthiness ▪ affiliates from using your information to market to you ▪ sharing for non-affiliates to market to you
State laws and individual companies may give you additional rights to limit sharing.
|
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
PRIVACY POLICY
(Unaudited)
Privacy Policy (Concluded) | ||
Definitions
|
| |
Affiliates |
Companies related by common ownership or control. They can be financial and nonfinancial companies.
▪ Our affiliates include companies with a Hatteras name, such as Hatteras Investment Partners, LLC, Hatteras Capital Investment Management, LLC and Hatteras Alternative Mutual Funds, LLC, registered investment advisers; Hatteras Capital Distributors, LLC, a registered broker-dealer; and unregistered funds managed by Hatteras entities such as Hatteras Core Alternatives 3(c)(1) Fund, L.P., Hatteras Core Alternatives Offshore Fund, Ltd., Hatteras GPEP Fund, L.P. and Hatteras Late Stage VC Fund I, L.P.
|
|
Non-affiliates |
Companies not related by common ownership or control. They can be financial and nonfinancial companies.
▪ Hatteras Funds doesnt share with non-affiliates so they can market to you.
| |
Joint marketing |
A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
▪ Hatteras Funds doesnt jointly market.
| |
List of funds providing this notice
| ||
Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras VC Co-Investment Fund II, LLC, Hatteras Alternative Mutual Funds Trust, and Underlying Funds Trust.
|
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.
(c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this item.
(d) The registrant has not granted any waivers, during the period covered by this report, including an implicit waiver, from a provision of the code of ethics that applies to the registrants principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this Item.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrants board of managers has determined that Messrs. Steve E. Moss, H. Alexander Holmes, Gregory S. Sellers, Daniel K. Wilson, Joseph E. Breslin, and Thomas Mann are each qualified to serve as audit committee financial experts serving on its audit committee and that each is independent, as defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
(a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrants annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $47,500 for 2012 and $49,500 for 2013.
Audit-Related Fees
(b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrants financial statements and are not reported under paragraph (a) of this Item were $0 for 2012 and $0 for 2013.
Tax Fees
(c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $0 for 2012 and $0 for 2013.
All Other Fees
(d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item were $0 for 2012 and $0 for 2013.
(e)(1) Disclose the audit committees pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The Registrants Audit Committee must pre-approve the audit and non-audit services of the Auditors prior to the Auditors engagement.
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) 0%
(c) 0%
(d) 0%
(f) The percentage of hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants full-time, permanent employees was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrants accountant for services rendered to the registrant, and rendered to the registrants investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were $0.
(h) The registrants audit committee of the board of managers has considered whether the provision of non-audit services that were rendered to the registrants investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountants independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Proxy Voting Policies are attached herewith.
PROXY VOTING POLICIES AND PROCEDURES
The Fund has delegated proxy voting responsibilities with respect to the Funds portfolio securities to the Adviser, subject to the Boards general oversight and with the direction that proxies should be voted consistent with the Funds best economic interests. In general, the Adviser believes that voting proxies in accordance with the policies described below will be in the best interests of the Fund. If an analyst, trader or partner of the Adviser believes that voting in accordance with stated proxy-voting guidelines would not be in the best interests of a Fund, the proxy will be referred to the Advisers Chief Compliance Officer for a determination of how such proxy should be voted.
The Adviser will generally vote to support management recommendations relating to routine matters such as the election of directors (where no corporate governance issues are implicated), the selection of independent auditors, an increase in or reclassification of common stock, the addition or amendment of indemnification provisions in the companys charter or by-laws, changes in the board of directors and compensation of outside directors. The Adviser will generally vote in favor of management or shareholder proposals that the Adviser believes will maintain or strengthen the shared interests of shareholders and management, increase shareholder value, maintain or increase shareholder influence over the companys board of directors and management and maintain or increase the rights of shareholders.
On non-routine matters, the Adviser will generally vote in favor of management proposals for mergers or reorganizations, reincorporation plans, fair-price proposals and shareholder rights plans so long as such proposals are in the best economic interests of the Fund.
If a proxy includes a matter to which none of the specific policies described above or in the Advisers stated proxy-voting guidelines is applicable or a matter involving an actual or potential conflict of interest as described below, the proxy will be referred to the Advisers Chief Compliance Officer for a determination of how such proxy should be voted.
In exercising its voting discretion, the Adviser and its employees will seek to avoid any direct or indirect conflict of interest presented by the voting decision. If any substantive aspect or foreseeable result of the matter to be voted on presents an actual or potential conflict of interest involving the Adviser (or an affiliate of the Adviser), any issuer of a security for which the Adviser (or an affiliate of the Adviser) acts as sponsor, Adviser, manager, custodian, distributor, underwriter, broker or other similar capacity or any person with whom the Adviser (or an affiliate of the Adviser) has an existing material contract or business relationship not entered into in the ordinary course of business (the Adviser and such other persons having an interest in the matter being called Interested Persons), the Adviser will make written disclosure of the conflict to the Independent Managers of the Fund indicating how the Adviser proposes to vote on the matter and its reasons for doing so. If the Adviser does not receive timely written instructions as to voting or non-voting on the matter from the Funds Independent Managers, the Adviser may take any of the following actions which it deems to be in the best interests of the Fund: (i) engage an independent third party to determine whether and how the proxy should be voted and vote or refrain from voting on the matter as determined by the third party; (ii) vote on the matter in the manner proposed to the Independent Managers if the vote is against the interests of all Interested Persons; or (iii) refrain from voting on the matter.
The Fund will be required to file Form N-PX, with its complete proxy voting record for the twelve months ended June 30, no later than August 31 of each year. Once filed, the Funds Form N-PX filing will be available: (i) without charge, upon request, by calling the Fund at 800-504-9070 or (ii) by visiting the SECs website at www.sec.gov.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1) Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members
The following table provides biographical information about the members of the Investment Committee, who are primarily responsible for the day-to-day portfolio management of the Fund as of September 9, 2013:
Name of |
|
Title |
|
Length of |
|
Business Experience During the Past 5 |
|
Role of |
|
|
|
|
|
|
|
|
|
David B. Perkins |
|
Chief Executive Officer of the Investment Manager and President of the Fund |
|
Since Inception |
|
Mr. Perkins is the Chief Executive Officer of Hatteras and founded Hatteras and its affiliated entities. He founded the firm in September 2003. Prior to that, he was co-founder and Managing Partner of CapFinancial Partners, LLC. |
|
Strategic Recommendations & Portfolio Oversight |
|
|
|
|
|
|
|
|
|
Robert L. Worthington |
|
President of the Investment Manager |
|
Since January 14, 2010 |
|
Mr. Worthington became the President of the Investment Manager in February 2007. Previously, Mr. Worthington was Managing Director at JPMorgan Asset Management from 2004 to 2006. Mr. Worthington joined JPMorgan Asset Management in 2004 after its purchase of Undiscovered Managers, LLC, where he had been President from 2001 and a Managing Director for the three years prior. |
|
Portfolio Management |
|
|
|
|
|
|
|
|
|
J. Michael Fields |
|
Chief Operating Officer of the Investment Manager |
|
Since June 1, 2012 |
|
Mr. Fields is the Chief Operating Officer of Hatteras and its affiliates and has been employed by Hatteras since its inception in 2003. |
|
Portfolio Management |
|
|
|
|
|
|
|
|
|
Frank A. Burke |
|
Vice President, Portfolio Management |
|
Since June 1, 2012 |
|
Mr. Burke joined the Investment Manager in June 2011 and is currently a Vice President in the Portfolio Management Group. Prior to joining Hatteras Funds, Mr. Burke served as a financial planner from 2008-2011. Prior to that, he was employed at GenSpring Family Offices from 2007-2008 and was an Associate with Calibre Investment Consulting (now known as Abbott Downing) from 2003-2007. |
|
Portfolio Management |
(a)(2) Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
The following table provides information about portfolios and accounts other than the Fund for which the members of the Investment Committee of the Adviser are primarily responsible for the day-to-day portfolio management as of June 30, 2013:
Name of |
|
Type of Accounts |
|
Total |
|
Total Assets |
|
Number of |
|
Total Assets for Which |
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
David B. Perkins |
|
Registered Investment Companies |
|
3 |
|
$ |
1,208,561,000 |
|
3 |
|
$ |
1,208,561,000 |
|
|
|
Other Pooled Investment Vehicles |
|
2 |
|
$ |
16,141,000 |
|
1 |
|
$ |
2,889,000 |
|
|
|
Other Accounts |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Robert L. Worthington |
|
Registered Investment Companies |
|
2 |
|
$ |
25,351,000 |
|
2 |
|
$ |
25,351,000 |
|
|
|
Other Pooled Investment Vehicles |
|
2 |
|
$ |
16,141,000 |
|
1 |
|
$ |
2,889,000 |
|
|
|
Other Accounts |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
J. Michael Fields |
|
Registered Investment Companies |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
|
|
Other Pooled Investment Vehicles |
|
1 |
|
$ |
13,252,000 |
|
0 |
|
$ |
0 |
|
|
|
Other Accounts |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Frank A. Burke |
|
Registered Investment Companies |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
|
|
Other Pooled Investment Vehicles |
|
1 |
|
$ |
13,252,000 |
|
0 |
|
$ |
0 |
|
|
|
Other Accounts |
|
0 |
|
$ |
0 |
|
0 |
|
$ |
0 |
|
Potential Conflicts of Interests
Messrs. Perkins, Worthington, Fields and Burke are responsible for managing other accounts, including proprietary accounts, separate accounts and other pooled investment vehicles, including unregistered hedge funds and funds of hedge funds. They may manage separate accounts or other pooled investment vehicles which may have materially higher or different fee arrangements than the registrant and may also be subject to performance-based fees. The side-by-side management of these separate accounts and/or pooled investment vehicles may raise potential conflicts of interest relating to cross trading and the allocation of investment opportunities. The Adviser has a fiduciary responsibility to manage all client accounts in a fair and equitable manner. They seek to provide best execution of all securities transactions and to allocate investments to client accounts in a fair and timely manner. To this end, the Adviser developed policies and procedures designed to mitigate and manage the potential conflicts of interest that may arise from side-by-side management.
(a)(3) Compensation Structure of Portfolio Manager(s) or Management Team Members
The compensation of the members of the Investment Committee includes a combination of the following: (i) fixed annual salary; and (ii) a discretionary bonus tied to the overall profitability of the Adviser.
(a)(4) Disclosure of Securities Ownership
The following table sets forth the dollar range of equity securities beneficially owned by each member of the Investment Committee in the Fund as of June 30, 2013:
Investment Committee |
|
Dollar Range of Fund Shares |
| |
|
|
|
| |
David B. Perkins |
|
$ |
0 |
|
Robert L. Worthington |
|
$ |
0 |
|
J. Michael Fields |
|
$ |
0 |
|
Frank A. Burke |
|
$ |
0 |
|
(b) Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrants board of managers, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K (17CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrants principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act, as amended (the 1940 Act) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrants second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) |
HATTERAS VC CO-INVESTMENT FUND II, LLC |
| ||
|
|
| ||
By (Signature and Title)* |
/s/ David B Perkins |
| ||
|
David B. Perkins, President |
| ||
|
(principal executive officer) |
| ||
|
|
| ||
Date |
September 9, 2013 |
| ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* |
/s/ David B Perkins |
| ||
|
David B. Perkins, President |
| ||
|
(principal executive officer) |
| ||
|
|
| ||
Date |
September 9, 2013 |
| ||
|
|
| ||
|
|
| ||
By (Signature and Title)* |
/s/ R. Lance Baker |
| ||
|
R. Lance Baker, Treasurer |
| ||
|
(principal financial officer) |
| ||
|
|
| ||
Date |
September 9, 2013 |
| ||
* Print the name and title of each signing officer under his or her signature.
Exhibit 99.CERT
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, David B. Perkins, certify that:
1. I have reviewed this report on Form N-CSR of Hatteras VC Co-Investment Fund II, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
September 9, 2013 |
|
/s/ David B Perkins |
|
|
David B. Perkins, President | |
|
|
(principal executive officer) |
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, R. Lance Baker, certify that:
1. I have reviewed this report on Form N-CSR of Hatteras VC Co-Investment Fund II, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
September 9, 2013 |
|
/s/ R. Lance Baker |
|
|
R. Lance Baker, Treasurer | |
|
|
(principal financial officer) |
UMB FUND SERVICES, INC.
803 West Michigan Street, Suite A
Milwaukee, Wisconsin 53233
(414) 299-2000
September 9, 2013
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
Re: Hatteras VC Co-Investment Fund II, LLC
Registration No: 811-22251
Filing pursuant to Rule 30b2-1 and Section 24(b) of the Investment Company Act of 1940
Dear Sir or Madam:
On behalf of the above-named registrant (the Fund) and pursuant to Rule 30b2-1 and Section 24(b) under the Investment Company Act of 1940, as amended, is the Funds Form N-CSR for the annual period ended June 30, 2013. Any questions regarding this filing may be directed to the undersigned at the telephone number provided above.
Sincerely, |
|
|
|
|
|
/s/ Benjamin D. Schmidt |
|
Benjamin D. Schmidt |
|
Assistant Vice President Fund Administration |
|
Encl.