Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Table of Contents
Report of Independent Registered Public Accounting Firm |
1 |
Schedule of Investments |
2-8 |
Statement of Assets, Liabilities and Members’ Capital |
9 |
Statement of Operations |
10 |
Statements of Changes in Members’ Capital |
11 |
Statement of Cash Flows |
12 |
Notes to Financial Statements |
13-23 |
Board of Managers (Unaudited) |
24 |
Fund Management (Unaudited) |
25 |
Other Information (Unaudited) |
26-28 |
Privacy Policy (Unaudited) |
29-30 |
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Members
Hatteras VC Co-Investment Fund II, LLC
Raleigh, North Carolina
We have audited the accompanying statement of assets, liabilities and members’ capital of Hatteras VC Co-Investment Fund II, LLC (the “Fund”), including the schedule of investments, as of June 30, 2016 and the related statements of operations and cash flows for the year then ended and the statements of changes in members’ capital for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial highlights for the period from September 1, 2012 through June 30, 2013 and each of the two years in the period ended August 31, 2012 were audited by other auditors whose report dated August 29, 2013 expressed an unqualified opinion on those financial highlights.
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 and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2016, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Hatteras VC Co-Investment Fund II, LLC as of June 30, 2016, the results of its operations and its cash flows for the year then ended, and the changes in its members’ capital and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Raleigh, North Carolina
August 29, 2016
1
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016
Description of Investment |
Initial Investment Date |
Cost |
Fair Value |
% of |
|||||||||
Private Company: |
|||||||||||||
Consumer: |
|||||||||||||
Sonim Technologies, Inc. a,b,c |
|||||||||||||
San Mateo, California |
|||||||||||||
180,208 shares of |
|||||||||||||
Series B Preferred Stock |
Nov. 2009 |
$ |
167,180 |
$ |
158,605 |
2.33 |
% |
||||||
Sonim Technologies, Inc. a,b,c |
|||||||||||||
San Mateo, California |
|||||||||||||
674,588 shares of |
|||||||||||||
Series A Preferred Stock |
Nov. 2012 |
174,794 |
593,720 |
8.69 |
% |
||||||||
Sonim Technologies, Inc. b,c |
|||||||||||||
San Mateo, California |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $20,295, |
|||||||||||||
15.00%, 05/09/2018 |
May. 2016 |
20,295 |
20,671 |
0.30 |
% |
||||||||
Total Consumer |
362,269 |
772,996 |
11.32 |
% |
|||||||||
Healthcare: |
|||||||||||||
Clinipace, Inc. a,b,c |
|||||||||||||
Raleigh, North Carolina |
|||||||||||||
3,816,881 shares of |
|||||||||||||
Series C Preferred Stock |
Sep. 2011 |
500,000 |
723,211 |
10.58 |
% |
||||||||
Medical Technology: |
|||||||||||||
Lineagen, Inc. a,b,c |
|||||||||||||
Salt Lake City, Utah |
|||||||||||||
12,000 shares of |
|||||||||||||
Common Stock |
Jul. 2011 |
— |
3,161 |
0.05 |
% |
||||||||
Lineagen, Inc. a,b,c |
|||||||||||||
Salt Lake City, Utah |
|||||||||||||
336,117 shares of |
|||||||||||||
Series B Preferred Stock |
Jul. 2011 |
300,000 |
189,518 |
2.78 |
% |
See notes to financial statements.
2
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Continued)
Description of Investment (Continued) |
Initial Investment Date |
Cost |
Fair Value |
% of |
|||||||||
Medical Technology (Continued): |
|||||||||||||
Lineagen, Inc. a,b,c |
|||||||||||||
Salt Lake City, Utah |
|||||||||||||
150,000 shares of |
|||||||||||||
Series C Preferred Stock |
Nov. 2013 |
$ |
150,000 |
$ |
424,668 |
6.22 |
% |
||||||
Total Medical Technology |
450,000 |
617,347 |
9.05 |
% |
|||||||||
Semiconductor: |
|||||||||||||
GainSpan Corporation a,b,c |
|||||||||||||
San Jose, California |
|||||||||||||
312,500 shares of |
|||||||||||||
Series C Preferred Stock |
Sep. 2011 |
250,000 |
39,484 |
0.58 |
% |
||||||||
GainSpan Corporation a,b,c |
|||||||||||||
San Jose, California |
|||||||||||||
156,292 shares of |
|||||||||||||
Series D Preferred Stock |
Jun. 2012 |
140,663 |
140,663 |
2.06 |
% |
||||||||
GainSpan Corporation a,b,c |
|||||||||||||
San Jose, California |
|||||||||||||
105,841 shares of |
|||||||||||||
Series E Preferred Stock |
Jan. 2014 |
105,475 |
105,841 |
1.55 |
% |
||||||||
GainSpan Corporation b,c |
|||||||||||||
San Jose, California |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $31,576, |
|||||||||||||
3.00%, 12/31/2016 |
Mar 2016 |
31,576 |
31,884 |
0.47 |
% |
||||||||
Luxtera, Inc. a,b,c |
|||||||||||||
Carlsbad, California |
|||||||||||||
2,203,210 shares of |
|||||||||||||
Series C Preferred Stock |
Apr. 2012 |
301,412 |
211,628 |
3.10 |
% |
||||||||
Quantenna Communications, Inc. a,b,c |
|||||||||||||
Fremont, California |
|||||||||||||
1,893,223 shares of |
|||||||||||||
Series D Preferred Stock |
Apr. 2010 |
150,000 |
513,840 |
7.52 |
% |
See notes to financial statements.
3
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Continued)
Description of Investment (Continued) |
Initial Investment Date |
Cost |
Fair Value |
% of |
|||||||||
Semiconductor (Continued): |
|||||||||||||
Quantenna Communications, Inc. a,b,c |
|||||||||||||
Fremont, California |
|||||||||||||
673,734 shares of |
|||||||||||||
Series E Preferred Stock |
Oct. 2010 |
$ |
75,000 |
$ |
182,858 |
2.67 |
% |
||||||
Quantenna Communications, Inc. a,b,c |
|||||||||||||
Fremont, California |
|||||||||||||
256,158 shares of |
|||||||||||||
Series F-1 Preferred Stock |
Nov. 2011 |
39,084 |
69,524 |
1.02 |
% |
||||||||
Quantenna Communications, Inc. a,b,c |
|||||||||||||
Fremont, California |
|||||||||||||
323,534 shares of |
|||||||||||||
Series G Preferred Stock |
Feb. 2014 |
87,581 |
87,810 |
1.29 |
% |
||||||||
Total Semiconductor |
1,180,791 |
1,383,532 |
20.26 |
% |
|||||||||
Software: |
|||||||||||||
Clustrix, Inc. a,b,c |
|||||||||||||
San Fransisco, California |
|||||||||||||
9,667 shares of |
|||||||||||||
Common Stock |
Dec. 2010 |
250,001 |
— |
0.00 |
% |
||||||||
KnowledgeTree, Inc. a,b,c |
|||||||||||||
Raleigh, North Carolina |
|||||||||||||
275,776 shares of |
|||||||||||||
Common Stock |
Jun. 2012 |
250,002 |
— |
0.00 |
% |
||||||||
KnowledgeTree, Inc. a,b,c |
|||||||||||||
Raleigh, North Carolina |
|||||||||||||
238,456 shares of |
|||||||||||||
Series 1 Preferred Stock |
Jan. 2014 |
157,013 |
216,170 |
3.17 |
% |
||||||||
Kollective Technology. a,b,c |
|||||||||||||
Sunnyvale, California |
|||||||||||||
45,670 shares of |
|||||||||||||
Common Stock |
Jan. 2012 |
— |
3,996 |
0.06 |
% |
See notes to financial statements.
4
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Continued)
Description of Investment (Continued) |
Initial Investment Date |
Cost |
Fair Value |
% of |
|||||||||
Software(Continued): |
|||||||||||||
Kollective Technology. a,b,c |
|||||||||||||
Sunnyvale, California |
|||||||||||||
333,334 shares of |
|||||||||||||
Series B Preferred Stock |
Jul. 2010 |
$ |
250,000 |
$ |
130,000 |
1.90 |
% |
||||||
Kollective Technology. a,b,c |
|||||||||||||
Sunnyvale, California |
|||||||||||||
1,361,147 shares of |
|||||||||||||
Series C Preferred Stock |
Jan. 2012 |
480,193 |
530,847 |
7.77 |
% |
||||||||
Posit Science Corporation a,b,c |
|||||||||||||
San Francisco, California |
|||||||||||||
80,515 shares of |
|||||||||||||
Common Stock |
Dec. 2009 |
200,000 |
81,711 |
1.20 |
% |
||||||||
Posit Science Corporation a,b,c |
|||||||||||||
San Francisco, California |
|||||||||||||
21,429 shares of |
|||||||||||||
Series AA Preferred Stock |
Sep. 2010 |
11,893 |
21,747 |
0.32 |
% |
||||||||
Sailthru, Inc. a,b,c |
|||||||||||||
New York, New York |
|||||||||||||
171,141 shares of |
|||||||||||||
Series A Preferred Stock |
Sep. 2011 |
299,999 |
924,143 |
13.53 |
% |
||||||||
Univa Corporation a,b,c |
|||||||||||||
Austin, Texas |
|||||||||||||
939,541 shares of |
|||||||||||||
Series I Preferred Stock |
Oct. 2010 |
432,114 |
530,726 |
7.77 |
% |
||||||||
Univa Corporation b,c |
|||||||||||||
Austin, Texas |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $22,616, |
|||||||||||||
8.00%, 05/19/2016 |
May 2014 |
22,616 |
26,615 |
0.39 |
% |
See notes to financial statements.
5
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Continued)
Description of Investment (Continued) |
Initial Investment Date |
Cost |
Fair Value |
% of |
|||||||||
Software (Continued): |
|||||||||||||
Univa Corporation b,c |
|||||||||||||
Austin, Texas |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $11,308, 8.00% |
Oct. 2015 |
$ |
11,308 |
$ |
11,941 |
0.17 |
% |
||||||
Univa Corporation b,c |
|||||||||||||
Austin, Texas |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $11,308, 8.00% |
Feb. 2016 |
11,308 |
11,652 |
0.17 |
% |
||||||||
Univa Corporation b,c |
|||||||||||||
Austin, Texas |
|||||||||||||
Convertible Promissory Note |
|||||||||||||
Principal of $11,308, 8.00% |
May 2016 |
11,308 |
11,652 |
0.17 |
% |
||||||||
Total Software |
2,387,755 |
2,501,200 |
36.62 |
% |
|||||||||
Total Private Company |
4,880,815 |
5,998,286 |
87.83 |
% |
|||||||||
Public Company: |
|||||||||||||
Semiconductor: |
|||||||||||||
GigOptix, Inc. a,b |
|||||||||||||
San Jose, California |
|||||||||||||
6,933 shares of |
|||||||||||||
Common Stock |
Apr. 2016 |
163,270 |
13,588 |
0.20 |
% |
||||||||
Total Public Company |
163,270 |
13,588 |
0.20 |
% |
See notes to financial statements.
6
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Continued)
Description of Investment (Continued) |
Cost |
Fair Value |
% of |
|||||||||
Short-Term Investments: |
||||||||||||
Federated Prime Obligations Fund #10, 0.37% d |
$ |
885,896 |
$ |
885,896 |
12.97 |
% |
||||||
Total Short-Term Investments |
885,896 |
885,896 |
12.97 |
% |
||||||||
Total Investments (United States) |
$ |
5,929,981 |
$ |
6,897,770 |
101.00 |
% |
||||||
Liabilities in Excess of Other Assets |
(68,545 |
) |
(1.00 |
%) |
||||||||
Members' Capital |
$ |
6,829,225 |
100.00 |
% |
a |
Non-income producing. |
b |
Portfolio holdings are subject to substantial restrictions as to resale. |
c |
Non-marketable securities. |
d |
The rate shown is the annualized 7-day yield as of June 30, 2016. |
The cost and fair value of restricted Portfolio Company Investments are $5,044,085 and $6,011,874, respectively.
See notes to financial statements.
7
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
June 30, 2016 (Concluded)
INVESTMENT TYPE AS A PERCENTAGE OF MEMBERS’ CAPITAL PERCENTAGES AS FOLLOWS:
See notes to financial statements.
8
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS’ CAPITAL
June 30, 2016
Assets |
||||
Investments in private companies, at fair value (cost $4,880,815) |
$ |
5,998,286 |
||
Investments in public companies, at fair value (cost $163,270) |
13,588 |
|||
Short-term investments, at fair value (cost $885,896) |
885,896 |
|||
Receivable for investment sold |
19,602 |
|||
Interest receivable |
310 |
|||
Total assets |
6,917,682 |
|||
Liabilities and members' capital |
||||
Professional fees payable |
52,558 |
|||
Management fee payable |
29,649 |
|||
Custodian fees payable |
5,000 |
|||
Other expenses payable |
1,250 |
|||
Total liabilities |
88,457 |
|||
Members’ capital |
6,829,225 |
|||
Total liabilities and members’ capital |
$ |
6,917,682 |
||
Components of members’ capital |
||||
Capital contributions |
$ |
10,514,912 |
||
Capital distributions |
(1,051,605 |
) |
||
Accumulated net investment loss |
(2,482,139 |
) |
||
Accumulated net realized loss on investments |
(1,119,732 |
) |
||
Accumulated net unrealized appreciation on investments |
967,789 |
|||
Members’ capital |
$ |
6,829,225 |
||
Net asset value per unit |
$ |
59.55 |
||
Number of authorized units |
Unlimited |
|||
Number of outstanding units |
114,678.93 |
See notes to financial statements.
9
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF OPERATIONS
For the year ended June 30, 2016
Investment income |
||||
Interest |
$ |
4,008 |
||
Total investment income |
4,008 |
|||
Operating expenses |
||||
Management fee |
172,418 |
|||
Professional fees |
67,947 |
|||
Accounting and administration fees |
40,000 |
|||
Board fees |
36,500 |
|||
Custodian fees |
11,310 |
|||
Other expenses |
15,751 |
|||
Total operating expenses, before management fee waiver |
343,926 |
|||
Management fee waived |
(37,130 |
) |
||
Net expenses |
306,796 |
|||
Net investment loss |
(302,788 |
) |
||
Net realized gain and change in unrealized appreciation on investments |
||||
Net realized gain on investments |
121,768 |
|||
Net change in unrealized appreciation on investments |
(1,369,833 |
) |
||
Total net realized gain and change in unrealized appreciation on investments |
(1,248,065 |
) |
||
Net decrease in members’ capital resulting from operations |
$ |
(1,550,853 |
) |
See notes to financial statements.
10
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
For the years ended June 30, 2015 and 2016
|
Members’ Capital |
|||
Members' capital, at June 30, 2014 |
$ |
9,158,599 |
||
Net investment loss |
(297,272 |
) |
||
Net realized loss from investments |
(521,674 |
) |
||
Net change in unrealized appreciation on investments |
1,092,030 |
|||
Members' Capital, at June 30, 2015 |
$ |
9,431,683 |
||
Distribution paid |
(1,051,605 |
) |
||
Net investment loss |
(302,788 |
) |
||
Net realized gain on investments |
121,768 |
|||
Net change in unrealized appreciation on investments |
(1,369,833 |
) |
||
Members' Capital, at June 30, 2016 |
$ |
6,829,225 |
See notes to financial statements.
11
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF CASH FLOWS
For the year ended June 30, 2016
Cash flows from operating activities: |
||||
Net decrease in members' capital resulting from operations |
$ |
(1,550,853 |
) |
|
Adjustments to reconcile net decrease in members' capital resulting from operations to net cash provided by operating activities: |
||||
Purchases of investments |
(235,667 |
) |
||
Proceeds on sales of investments |
486,742 |
|||
Net proceeds on sale of short-term investments |
1,117,549 |
|||
Net realized gain on investments |
(121,768 |
) |
||
Net change in unrealized appreciation on investments |
1,369,833 |
|||
Decrease in receivable for investment sold |
2,155 |
|||
Increase in interest receivable |
(190 |
) |
||
Decrease in management fee payable |
(6,234 |
) |
||
Decrease in professional fees payable |
(942 |
) |
||
Decrease in accounting and administration fees payable |
(10,000 |
) |
||
Increase in custodian fees payable |
980 |
|||
Net cash provided by operating activities |
1,051,605 |
|||
Cash flows from financing activities: |
||||
Cash distributions paid |
(1,051,605 |
) |
||
Net cash used in financing activities |
(1,051,605 |
) |
||
Net change in cash |
— |
|||
Cash at beginning of year |
— |
|||
Cash at end of year |
$ |
— |
See notes to financial statements.
12
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016
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 Funds, LP (the “Adviser”), an investment adviser registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended. The Fund’s 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 Fund’s 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 Fund’s limited liability company agreement (“LLC Agreement”). The term may be extended for two one-year periods at the discretion of the Board. At a meeting on August 27, 2015, the Board elected to extend the term of the Fund for two successive one-year periods, or until August 31, 2017.
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 Fund’s LLC Agreement, including authority to oversee and establish policies regarding the management, conduct and operation of the Fund’s business. The Fund’s 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.
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 Fund’s accounting and reporting policies conform to accounting principles generally accepted within the United States of America (“U.S. GAAP”). The Fund is an investment company and applies accounting and reporting guidance in accordance with Accounting Standards Codification (“ASC”) topic 946, Financial Services - Investment Companies.
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, 2016, the Fund held no cash balances in deposit accounts.
c. |
Valuation of Portfolio Investments |
All private investments are recorded at fair value in accordance with the Fund’s valuation procedures. The Fund’s valuation procedures have been approved by and are subject to continued oversight by the Fund’s Board. The valuation procedures are implemented by the Adviser and the Fund’s third-party administrator, which report to the Board.
13
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
c. |
Valuation of Portfolio Investments (Continued) |
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 company’s 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 Adviser’s 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.
Public Companies – are valued at market value as of the regularly scheduled close of trading (generally 4:00 p.m. Eastern time) when the New York Stock Exchange (“NYSE”) is open. Public Companies listed on the NYSE or other exchanges are valued on the basis of the last reported sale price on the exchange on which they are primarily traded.
Short-Term Investments – During the year ended June 30, 2016, 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 MMF’s 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 assets 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 entity’s 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 Fund’s investments.
14
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
c. |
Valuation of Portfolio Investments (Continued) |
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 Fund’s own assumptions in determining the fair value of investments) |
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent), modifying ASC 946. Under the modifications, investments in affiliated and private investment funds valued at NAV are no longer included in the fair value hierarchy. The Fund elected to early adopt and retroactively apply ASU 2015-07. As a result of adopting ASU 2015-07, there was no effect on the Funds fair value hierarchy as of June 30, 2016.
The following table presents the Fund’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2016:
|
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Private Company1 |
||||||||||||||||
Convertible Promissory Notes |
$ |
— |
$ |
— |
$ |
114,415 |
$ |
114,415 |
||||||||
Preferred Stock |
— |
— |
5,795,003 |
5,795,003 |
||||||||||||
Common Stock |
— |
— |
88,868 |
88,868 |
||||||||||||
Total Private Company |
— |
— |
5,998,286 |
5,998,286 |
||||||||||||
Public Company |
||||||||||||||||
Common Stock |
13,588 |
— |
— |
13,588 |
||||||||||||
Total Public Company |
13,588 |
— |
— |
13,588 |
||||||||||||
Short-Term Investments |
885,896 |
— |
— |
885,896 |
||||||||||||
Total |
$ |
899,484 |
$ |
— |
$ |
5,998,286 |
$ |
6,897,770 |
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. |
It is the Fund’s policy to recognize transfers into and out of all Levels at the end of the reporting period. As a result of the acquisition of one of the Fund’s private portfolio companies by a public company in a tax free reorganization during the year ended June 30, 2016, investments valued at $13,588 were transferred from Level 3 to Level 1.
15
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
c. |
Valuation of Portfolio Investments (Continued) |
The following is a reconciliation of transfers between levels from July 1, 2015 through June 30, 2016:
Transfers into Level 1 |
$ |
13,588 |
||
Transfers out of Level 1 |
— |
|||
Net Transfers in (out) of Level 1 |
$ |
13,588 |
||
Transfers into Level 3 |
$ |
— |
||
Transfers out of Level 3 |
(13,588 |
) |
||
Net Transfers in (out) of Level 3 |
$ |
(13,588 |
) |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
|
Convertible Promissory Notes |
Preferred Stock |
Common Stock |
Total |
||||||||||||
Balance as of July 1, 2015 |
$ |
67,790 |
$ |
7,330,758 |
$ |
112,466 |
$ |
7,511,014 |
||||||||
Net Realized Gain/(Loss) |
6,346 |
— |
— |
6,346 |
||||||||||||
Change in Unrealized |
3,463 |
(733,787 |
) |
(23,598 |
) |
(753,922 |
) |
|||||||||
Transfers In/(Out) of Investment Categories* |
(2,512 |
) |
(998,307 |
) |
— |
(1,000,819 |
) |
|||||||||
Conversion of Promissory Note to Preferred Stock |
(122,699 |
) |
122,699 |
— |
— |
|||||||||||
Gross Purchases |
162,027 |
73,640 |
— |
235,667 |
||||||||||||
Balance as of June 30, 2016 |
$ |
114,415 |
$ |
5,795,003 |
$ |
88,868 |
$ |
5,998,286 |
* |
Transfers in or out of investment categories reflect changes in investment categories and are represented by their balance at the beginning of the period. |
Change in unrealized depreciation included in the statement of operations attributable to Level 3 investments held as of the reporting date is $(753,919).
16
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (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, 2016:
Type of Investment |
Fair Value as of June 30, 2016 |
Valuation Technique |
Unobservable Input |
Weighted Average |
Range |
Impact to valuation from an Increase in Input |
||
Convertible Promissory Notes |
$ |
114,415 |
Most Recent Capitalization |
Private Financing |
N/A |
N/A |
N/A |
|
Preferred Stock |
3,852,326 |
Market Comparable Companies |
Forward Revenue Multiple |
3.02x |
2.02x-5.42x |
Increase |
||
Discount Rate |
15.00% |
15.00% |
Decrease |
|||||
|
1,942,677 |
Most Recent Capitalization |
Private Financing |
N/A |
N/A |
N/A |
||
Common Stock |
88,868 |
Market Comparable Companies |
Forward Revenue Multiple |
3.20x |
2.18x-3.24x |
Increase |
||
|
|
|
Discount Rate |
15.00% |
0.00%-15.00% |
Decrease |
||
Total Private Company |
$ |
5,998,286 |
|
|
|
|
|
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 Fund’s 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.
The significant unobservable inputs used in the fair value measurement of the Fund’s 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 Fund’s 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.
17
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
d. |
Investment Income |
Interest income is recorded on the accrual basis when earned. Interest income is not recognized when collection is doubtful, but instead, such amounts are tracked in a memorandum account. At June 30, 2016, all interest was deemed collectable. 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. 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 Fund’s profit and loss.
The Fund has reviewed any potential tax positions as of June 30, 2016 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 year ended June 30, 2016, 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 2012 to 2015.
g. |
Distributions |
The Fund may make distributions to Members at least annually, or more frequently, at the Fund’s 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. There was a distribution made for non-recallable cost and gains from investment exit proceeds in the amount of $1,051,605 on March 29, 2016.
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. |
Fair Value of Financial Instruments |
The fair value of the Fund’s assets and liabilities, which qualify as financial instruments, approximate the carrying amounts presented on the statement of assets, liabilities and members’ capital.
18
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
2. |
SIGNIFICANT ACCOUNTING POLICIES (Continued) |
j. |
Recently Issues Accounting Pronouncements |
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Fund does not expect this ASU will have a material impact on its consolidated financial statements.
3. |
ALLOCATION OF MEMBERS’ CAPITAL |
Net profits or net losses of the Fund for each allocation period (“Allocation Period”) will be allocated among and credited to or debited against the capital accounts of the Members. Net profits or net losses will be measured as the net change in the value of the Members’ capital of the Fund, including any net change in unrealized appreciation or depreciation of investments and realized income and gains or losses and expenses during an Allocation Period, adjusted to exclude any items to be allocated among the capital accounts of the Members in accordance with the Members’ respective investment percentages. Allocation Periods generally begin on the first calendar day of each month and end at the close of business on the last day of each month.
4. |
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 Fund’s 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 Fund’s portfolio companies plus cash and cash equivalents, including short-term investments, is less than the Fund’s 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 Fund’s portfolio companies plus cash and cash equivalents, including short-term investments. The management fee for the year ended June 30, 2016 was $172,418. For the year ended June 30, 2016, the Adviser waived $37,130 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”), received an annual retainer of $5,000 through March 31, 2016 from the Fund for services on the Board and for services as a member of the audit committee of the Fund. Effective April 1, 2016 each Independent Manager receives an annual retainer of $6,000 from the Fund. All Board members are reimbursed by the Fund for all
19
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
4. |
MANAGEMENT FEE AND RELATED PARTY TRANSACTIONS (Continued) |
reasonable out-of-pocket expenses incurred by them in performing their duties. For the year ended June 30, 2016, retainers to the Independent Managers totaled $31,500 and are included in the statement of operations under Manager Fees. Included in managers’ fees is $5,000, which represents compensation to the Fund’s Chief Compliance Officer.
On December 10, 2015, Raleigh Acquisition, LLC (the “Purchaser”), a newly formed Delaware limited liability company owned by certain principals of the Investment Manager, entered into a membership interest purchase agreement (the “Purchase Agreement”) with RCS Capital Corporation, a Delaware corporation (“RCS”), RCS Capital Holdings, LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of RCS (“RCS Holdings,” and together with RCS, the “Seller”) and Hatteras Funds, LLC, a Delaware limited liability company and wholly-owned subsidiary of Seller Pursuant to the terms of the Purchase Agreement, Purchaser purchased from Seller and Seller sold to Purchaser, 100% of the limited liability company interests of Hatteras Funds, LLC, and Purchaser assumed certain liabilities of Hatteras Funds, LLC (the “Purchase”). The Purchase closed on January 5, 2016, and resulted in a change in control of Hatteras Funds, LLC and, therefore, constituted an “assignment” within the meaning of the 1940 Act of i) the existing advisory agreement between the Investment Manager and the Fund (the “Advisory Agreement”). The existing advisory agreement between Hatteras Funds, LLC and the Fund automatically terminated upon their assignment pursuant to certain provisions of the 1940 Act and were replaced by an interim and then a new Advisory Agreement between Hatteras Funds, LLC and the Fund that were approved by Investors at a special meeting that commenced on January 21, 2016 as reconvened on February 18, 2016 and March 10, 2016.
5. |
ACCOUNTING, ADMINISTRATION AND CUSTODIAL AGREEMENT |
In consideration for accounting, administrative, and recordkeeping services, the Fund pays 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 year ended June 30, 2016, the total accounting and administration fee was $40,000, and is included in the statement of operations under accounting and administration fees. UMB Bank, n.a., an affiliate of the Administrator, serves as custodian of the Fund’s assets and provides custodial services for the Fund.
6. |
INVESTMENT TRANSACTIONS |
Total purchases of investments for the year ended June 30, 2016 amounted to $235,667. Total proceeds from sales, redemption, or other dispositions of investments for the year ended June 30, 2016 amounted to $486,742. The cost of investments for U.S. federal income tax purposes is adjusted for items of taxable income allocated to the Fund from the investments. The Fund relies upon actual and estimated tax information provided by investments to the amounts of taxable income allocated to the Fund as of June 30, 2016.
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.
7. |
INDEMNIFICATIONS |
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Fund’s 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.
8. |
COMMITMENTS |
As of June 30, 2016, the Fund did not have any outstanding investment commitments to portfolio companies.
20
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
9. |
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.
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 Fund’s 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.
10. |
FINANCIAL HIGHLIGHTS |
The financial highlights are intended to help an investor understand the Fund’s 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, total return and internal rate of return since inception amount are calculated based on the Member group taken as a whole. An individual Member’s 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.
21
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Continued)
10. |
FINANCIAL HIGHLIGHTS (Continued) |
Per Unit Operating Performance: |
|
|||
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 in unrealized depreciation on investments in private companies |
(15.21 |
) |
||
Total from investment operations |
(17.80 |
) |
||
Net Asset Value, June 30, 2013 |
$ |
68.79 |
||
Income/(loss) from investment operations: |
||||
Net investment loss |
(2.91 |
) |
||
Net change in unrealized appreciation on investments in private companies |
13.98 |
|||
Total from investment operations |
11.07 |
|||
Net Asset Value, June 30, 2014 |
$ |
79.86 |
||
Income/(loss) from investment operations: |
||||
Net investment loss |
(2.59 |
) |
||
Net realized loss and change in unrealized appreciation on investments in private companies |
4.97 |
|||
Total from investment operations |
2.38 |
|||
Net Asset Value, June 30, 2015 |
$ |
82.24 |
||
Income/(loss) from investment operations: |
||||
Net investment loss |
(2.64 |
) |
||
Net realized gain and change in unrealized appreciation on investments |
(10.88 |
) |
||
Total from investment operations |
(13.52 |
) |
||
Less distributions: |
||||
From return of capital and capital gains |
(9.17 |
) |
||
Total distributions |
(9.17 |
) |
||
Net Asset Value, June 30, 2016 |
$ |
59.55 |
22
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Notes to Financial Statements
As of and for the year ended June 30, 2016 (Concluded)
10. |
FINANCIAL HIGHLIGHTS (Continued) |
For the years
ended June 30,
|
For the
period from
September 1, 2012 to
June 30,
|
For the years
ended August 31,
|
||||||||||||||||||||||
2016
|
2015
|
2014
|
2013* | 2012 | 2011 | |||||||||||||||||||
Total return1
|
(27.59
|
%)
|
2.98 | % | 16.09 | % |
(20.56
|
%)3
|
0.05
|
%
|
(1.55
|
%)
|
||||||||||||
Members’ capital, end of period (000’s)
|
$
|
6,829
|
$
|
9,432
|
$
|
9,159
|
$
|
7,889
|
$
|
9,930
|
$
|
9,925
|
||||||||||||
Portfolio turnover
|
3.25
|
%
|
2.78
|
%
|
0.54
|
%
|
0.00
|
%3
|
8.00
|
%
|
0.00
|
%
|
||||||||||||
Net investment gain (loss):
|
||||||||||||||||||||||||
Before reimbursement of placement agent fees
|
(3.46
|
%)
|
(3.11
|
%)
|
(3.70
|
%)
|
(3.58
|
%)4
|
(3.15
|
%)
|
(3.84
|
%)
|
||||||||||||
After reimbursement of placement agent fees
|
(3.46
|
%)
|
(3.11
|
%)
|
(3.70
|
%)
|
(3.58
|
%)4
|
(3.15
|
%)
|
(3.84
|
%)
|
||||||||||||
Net operating expenses2:
|
||||||||||||||||||||||||
Before reimbursement of placement agent fees
|
3.51
|
%
|
3.25
|
%
|
3.71
|
%
|
3.62
|
%4
|
3.29
|
%
|
3.94
|
%
|
||||||||||||
After reimbursement of placement agent fees
|
3.51
|
%
|
3.25
|
%
|
3.71
|
%
|
3.62
|
%4
|
3.29
|
%
|
3.94
|
%
|
* |
At a Board meeting held on August 23, 2012, the Board approved the change in fiscal year-end for the Fund from August 31 to the June 30 effective as of the end of the fiscal year ended August 31, 2012. |
1 |
Internal rate of return since inception: As of June 30, 2016 was (7.31)%,; As of June 30, 2015 was (3.30)%; As of June 30, 2014 was (4.55)%; As of June 30, 2013 was (9.30)%; As of August 31, 2012 was (4.69)%; As of August 31, 2011 was (6.97)%. The internal rate of return is based on change in NAV since inception. |
2 |
Net operating expenses before and after waiver of the management fee for the period ended June 30, 2016 were 3.93% and 3.51% respectively, for the year ended June 30, 2015 were 3.75% and 3.25% respectively. Net operating expenses before and after waiver of the management fee for the year ended June 30, 2014 were 3.99% and 3.71%, respectively. Net operating 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. Net operating expenses before and after waiver of the management fee for the year ended August 31, 2012 were 3.46% and 3.29%, respectively. Net operating 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. |
3 |
Not annualized. |
4 |
Annualized. |
11. |
SUBSEQUENT EVENTS |
The Fund has evaluated subsequent events through the date the financial statements were issued, and determined there were no other subsequent events that required disclosure in or adjustment to the financial statements.
23
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, 2016, is set forth below. The business address of each Manager is care of Hatteras Funds, 6601 Six Forks Road, Suite 340, Raleigh, NC 27615. The Managers serve on the Board for terms of indefinite duration. A Manager’s position in that capacity will terminate if the Manager is removed or resigns or, among other events, upon the Manager’s death, incapacity, retirement or bankruptcy. The Fund’s 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) Held with the Fund |
Length of Time Served |
Principal Occupation(s) During Past 5 Years and Other Directorships Held by Manager |
Number of Portfolios in Fund Complex1 Overseen by Manager |
INTERESTED MANAGER |
||||
David B. Perkins2 |
President and Chairman of the Board of Managers of the Fund |
Since Inception |
President and Trustee, each fund in the Fund Complex (2004 to Present); Chief Executive Officer of Hatteras Funds, LLC from 2014 to present and Founder of Hatteras Investment Partners LLC and its affiliated entities (“Hatteras Funds”) in 2003. |
17 |
INDEPENDENT MANAGERS |
||||
H. Alexander Holmes |
Manager; Audit Committee Member of the Fund |
Since Inception |
Founder, Holmes Advisory Services, LLC, a financial consultation firm (1993 to Present). |
17 |
Steve E. Moss, CPA |
Manager; Audit Committee Member of the Fund |
Since Inception |
Principal, Holden, Moss, Knott, Clark & Copley, PA, accountants and business consultants (1996 to Present); Member Manager, HMKCT Properties, LLC (1996 to Present). |
17 |
Gregory S. Sellers |
Manager; Audit Committee Member of the Fund |
Since Inception |
Chief Financial Officer, Imagemark Business Services, Inc., a provider of marketing and print communications solutions (June 2009 to Present); Chief Financial Officer and Director, Kings Plush, Inc., a fabric manufacturer (2003 to June 2009). |
17 |
Thomas Mann |
Manager; Audit Committee Member of the Fund |
Since 2012 |
Private Investor (2012 to Present); Managing Director and Group Head Financial Institutions Group, Société Générale, Sales of Capital Market Solutions and Products (2003 to 2012). |
17 |
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 Alternative Mutual Funds Trust (consisting of five funds), and Underlying Funds Trust (consisting of five funds). |
2 |
Deemed to be an “interested” Manager of the Fund because of his affiliations with Hatteras Funds. |
24
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, 2016, of each of the persons currently serving as Executive Officer. The business address of each officer is care of Hatteras Funds, 6601 Six Forks Road, Suite 340, Raleigh, NC 27615.
Name and |
Position(s) Held with the Fund |
Length of Time Served |
Principal Occupation(s) During Past 5 Years and Other Directorships Held by Officer |
Number of Portfolios in Fund Complex1 Overseen by Officer |
OFFICERS |
||||
Andrew P. Chica |
Chief Compliance Officer and Secretary of the Fund |
Since Inception |
Mr. Chica joined Hatteras Funds in November 2007 and became the Chief Compliance Officer of Hatteras Funds and each of the funds in the Fund Complex in 2008. |
N/A |
Robert Lance Baker |
Treasurer of the Fund |
Since Inception |
Mr. Baker joined Hatteras Funds in March 2008 and is currently the Chief Financial Officer of Hatteras Funds. |
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 Alternative Mutual Funds Trust (consisting of five funds), and Underlying Funds Trust (consisting of five funds). |
25
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
OTHER INFORMATION
(Unaudited)
2016 PROXY RESULTS
A Special Meeting of the Member was held on January 21, 2016, as reconvened on February 18, 2016 and March 10, 2016, to consider the proposals described below. Each proposal was approved. The results of the voting at the Special Meeting are as follows:
1. |
Approval of the Investment Advisory Agreement between the Fund and Hatteras Fund, LP. |
|
No. of Votes |
Affirmative |
55,026 |
Against |
3,498 |
Abstain |
3,184 |
Total |
61,708 |
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 Fund’s record of proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling 1-800-504-9070; or on or through the Fund’s website; or both and (2) on the SEC’s website at http: //www.sec.gov.
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 Fund’s Form N-Q is available, without charge and upon request, on the SEC’s website at http://www.sec.gov or may be reviewed and copied at the SEC’s Public Reference Room in Washington.
Investment Management Agreement
At a meeting of the Fund’s Board held on December 10, 2015, 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 Investment Management Agreement (the “Investment Management Agreement”) for the Fund.
In the course of their review, the Managers considered their legal responsibilities with regard to all factors deemed to be relevant to the Fund, including, but not limited to the following: (1) the nature, extent and quality of services to be provided to the Fund; (2) the performance of the Fund; (3) the Fund’s advisory fee and overall Fund expenses; (4) the fact that the Transaction is not expected to affect the manner in which the Fund is advised; (5) the fact that the current portfolio management team will continue to manage the Fund; (6) the fact that the fee structure under the Advisory Agreement and Interim Advisory Agreement would be identical to the fee structure under the current advisory agreement; and (7) other factors deemed relevant by the Board.
The Independent Managers reviewed, and discussed with Hatteras, comparative performance, advisory fee and overall Fund expense information for the Fund versus other similar closed-end hedge fund of funds. The Independent Managers noted that Hatteras stated that there were few truly comparative funds. Hatteras discussed with the Independent Managers the construction of the comparative fund group. Hatteras also provided comparative performance information for the Fund versus two recognized private equity benchmarks, compiled by Prequin and Cambridge, which Hatteras believed to be more appropriate comparative performance benchmarks. Independent Managers’ counsel discussed with representatives of Hatteras the process used by Hatteras for determining appropriate comparative funds and indexes for the Fund.
The Managers evaluated the Advisory Agreement and Interim Advisory Agreement in light of information they had requested and received from Hatteras prior to the meeting. The Managers reviewed these materials with Hatteras’ management, legal counsel to the Fund and to Hatteras, and Independent Legal Counsel. The Managers considered
26
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
OTHER INFORMATION
(Unaudited) (Continued)
whether the Advisory Agreement and Interim Advisory Agreement would be in the best interests of the Fund and its Members and the overall fairness of the Advisory Agreement and Interim Advisory Agreement. Among other things, the Managers reviewed information concerning: (1) the nature, extent and quality of the services to be provided by Hatteras; (2) the Fund’s investment performance; (3) the cost of the services provided and the profits realized by Hatteras and its affiliates from their relationship with the Fund; (4) the extent to which economies of scale will be realized as the Fund grows and the extent to which fee levels reflect such economies of scale, if any, for the benefit of the Fund’s members; and (5) ancillary benefits and other factors. In their deliberations, the Managers did not rank the importance of any particular piece of information or factor considered, and it is presumed that each Manager attributed different weights to the various factors.
Nature, Extent and Quality of Services Provided to the Fund.
The Managers considered information it believed necessary to assess the stability of Hatteras as a result of the Transaction and to assess the nature, extent and quality of services to be provided to the Fund by Hatteras following the closing of the Transaction. The Board also considered management’s view that the Transaction will provide more stability and continuity to Hatteras and its personnel, and the potential benefits thereof to the Fund. The Managers noted that the Fund’s current portfolio managers will continue to provide services to the Fund following the Transaction. The Managers determined that the advisory services to be provided by the portfolio managers, after considering their background and experience, would continue to be a benefit to the Fund. The Managers considered that the advisory services to be provided to the Fund after the Transaction are not expected to change. The Managers further considered that the Fund’s investment objective and policies are not expected to change as a result of the Transaction. The Managers also considered the fee and expense information provided by Management, including Management’s representations that fees and expenses were reasonable in light of the services rendered and were within the range of fees and expenses charged to similar-managed accounts and funds.
Investment Performance of the Fund.
The Managers considered the investment experience of Hatteras, including the performance of the Fund. The Managers and their counsel asked several questions about the Fund’s underperformance versus two benchmark indices identified by Hatteras, noting that the Fund’s performance was in the lower quartile versus the benchmarks. The Board was satisfied with management’s stated efforts to attempt to improve performance. Management also indicated that the Transaction would allow Hatteras to make the necessary internal changes to pursue improved performance.
Costs of Services Provided and Profits Realized by Hatteras.
In connection with the Managers’ consideration of the level of the advisory fees, the Managers considered that the advisory fee rate to be paid to Hatteras under the Advisory Agreement and Interim Advisory Agreement is the same as the advisory fee rate paid by the Fund to Hatteras under the Current Agreement. Based on current Fund asset levels, management indicated that Hatteras earned a small profit margin providing services to the Fund. The Managers considered the relative profitability of Hatteras with respect to the services it provides to the Hatteras Funds.
The Manager’s analysis of the Fund’s advisory fee and overall expenses included a discussion and review of data concerning the current fee and expense ratios of the Fund compared to a limited peer group. The Managers considered the data, noting that the Fund’s advisory fee and overall expense ratio was the highest in the peer group. However, the Board noted that the fees and expense ratio were within a reasonable range. The Boards also reviewed profitability and internal expense information provided by Management and determined that, based on the information provided, Hatteras did not earn excessive profits.
27
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
OTHER INFORMATION
(Unaudited) (Concluded)
Economies of Scale and Fee Levels Reflecting Those Economies.
The Managers considered the extent to which economies of scale were expected to be realized relative to fee levels, and whether the advisory fee levels reflect these economies of scale for the benefit of the Fund. The Managers noted that the Fund is now closed to new investors, and did not consider the possibility of breakpoints in advisory fees for the Fund.
Other Benefits.
In addition to the above factors, the Managers also discussed other benefits received by Hatteras or its affiliates from its management of the Fund. The Managers noted that a broker-dealer affiliated with Hatteras, Hatteras Capital Distributors, LLC, received placement fees during the period of the Fund’s offering, noting that the Fund is now closed to new investors.
28
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
PRIVACY POLICY
(Unaudited)
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 |
Can you limit this sharing? |
|
For our everyday business purposes – respond to court orders and legal investigations, or report to credit bureaus |
Yes |
No |
|
For our marketing purposes – |
No |
We don’t share |
|
For joint marketing with other financial companies |
No |
We don’t share |
|
For our affiliates’ everyday business purposes – |
Yes |
No |
|
For our affiliates’ everyday business purposes – |
No |
We don’t share |
|
For our affiliates to market to you |
No |
We don’t share |
|
For non-affiliates to market to you |
No |
We don’t share |
|
Questions? |
Call (919) 846-2324 or go to www.hatterasfunds.com |
29
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
PRIVACY POLICY
(Unaudited) (Concluded)
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 can’t 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. |
Definitions |
|
Affiliates |
Companies related by common ownership or control. They can be financial and nonfinancial companies. ● Our affiliates include Hatteras Funds, LP, a registered investment adviser; Hatteras Capital Distributors, LLC, a registered broker- dealer; unregistered funds managed by Hatteras such as, Hatteras GPEP Fund, L.P., Hatteras GPEP Fund II, LLC, Hatteras Global Private Equity Partners International, LLC, Hatteras Late Stage VC Fund I, L.P. and Hatteras Private Equity Evergreen Fund. |
Non-affiliates |
Companies not related by common ownership or control. They can be financial and nonfinancial companies. ● Hatteras Funds doesn’t 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 doesn’t 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 Master Fund, Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund, LP, Hatteras GPEP Fund II, LLC, Hatteras Late Stage VC Fund I, LP, Hatteras VC Co-Investment Fund II, LLC, Hatteras Private Equity Evergreen Fund and Hatteras Alternative Mutual Funds Trust..
|
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
(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.
|
Name of Investment Committee Member
|
Title
|
Length of
Time of Service
to the Fund
|
Business Experience During the Past 5 Years
|
Role of Investment Committee Member
|
David B. Perkins
|
Chief Executive Officer of the Investment Manager and President of the Fund
|
Since Inception
|
Mr. Perkins has been the Chief Executive Officer of Hatteras Funds, LP from 2014 to present and founded Hatteras Funds and its affiliated entities in September 2003 Prior to that, he was co-founder and Managing Partner of CapFinancial Partners, LLC.
|
Strategic Recommendations & Portfolio Oversight
|
Name of Investment Committee Member
|
Type of Accounts
|
Total Number of Accounts Managed
|
Total Assets
|
Number of Accounts Managed for Which Advisory Fee is Based on Performance
|
Total Assets for Which Advisory Fee is Based on Performance
|
David B. Perkins
|
Registered Investment Companies
|
1
|
$684,154,373
|
1
|
$684,154,373
|
Other Pooled Investment Vehicles
|
4
|
$37,851,638
|
3
|
$28,212,121
|
|
Other Accounts
|
0
|
$0
|
0
|
$0
|
Investment
Committee Member
|
Dollar Range of Fund
Shares Beneficially Owned
|
David B. Perkins
|
$0
|
(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 8, 2016
|
||
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 8, 2016
|
||
By (Signature and Title)*
|
/s/ R. Lance Baker | ||
R. Lance Baker, Treasurer
|
|||
(principal financial officer)
|
|||
Date
|
September 8, 2016
|
I. | Covered Officers/Purpose of the Code |
· | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
· | full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange commission (“SEC”), and in other public communications made by a Fund; |
· | compliance with applicable laws and governmental rules and regulations; |
· | the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
· | accountability for adherence to the Code. |
II. | Administration of the Code |
III. | Managing Conflicts of Interest |
● | not use personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Officer or an immediate family member would benefit personally to the detriment of a Fund; |
● | not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer or an immediate family member rather than the benefit of the Fund;1 |
· | not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; and |
· | report at least annually his or her affiliations and other relationships on each Fund’s annual Directors/Managers and Officers Questionnaire. |
· | serve as director/manager on the board of any public or private company; |
· | the receipt during any 12-month period of any gifts in excess of $100 in the aggregate from a third party that does or seeks to do business with the Funds; and |
1 | For purposes of this Code, personal trading activity of the Covered Officers shall be monitored in accordance with the Funds Code of Ethics. Each Covered Officer shall be considered an “Access Person” under such Code. The term “immediate family” shall have the same meaning as provided in such Code. |
· | the receipt of any entertainment from any company with which a Fund has current or prospective business dealings, unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. |
IV. | Disclosure and Compliance |
· | be familiar with the disclosure requirements generally applicable to the Funds; |
· | not knowingly misrepresent, or cause others to misrepresent, facts about any Fund to others, whether within or outside the Fund, including to the Fund’s directors or managers and auditors, and to governmental regulators and self-regulatory organizations; |
· | to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and |
· | promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. |
V. | Reporting and Accountability |
· | upon adoption of the Code (or after becoming a Covered Officer), affirm in writing to the Board that he/she has received, read and understands the Code; |
· | annually affirm to the Board compliance with the requirements of the Code; |
· | not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; |
· | notify the Chief Compliance Officer promptly if he/she knows of any violation of this Code; and |
· | respond to questionnaires circulated periodically in connection with the preparation of disclosure documents for the Funds. |
· | The Chief Compliance Officer will take all appropriate action to investigate any potential violation reported to him/her; |
· | If, after such investigation, the Chief Compliance Officer determines that no violation has occurred, the Chief Compliance Officer will notify the person(s) reporting the potential violation, and the Chief Compliance Officer will report his/her conclusions to the Audit Committee; |
· | Any matter that the Chief Compliance Officer determines may be a violation will be reported to the Audit Committee; |
· | If the Audit Committee determines that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to the Chief Executive Officer of the Funds; or a recommendation to sanction or dismiss the Covered Officer; |
· | The Audit Committee will be responsible for granting waivers in its sole discretion; |
· | Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. |
· | report to the Audit Committee quarterly any approvals provided in accordance with Section III of this Code; and |
· | report to the Audit Committee quarterly any violations of, or material issues arising under, this Code. |
VI. | Other Policies and Procedures |
VII. | Amendments |
VIII. | Confidentiality |
IX. | Internal Use |
|
|
|
|
|
|
|
|
|
Name:
|
|
|
Date:
|
|
|
Date:
|
September 8, 2016
|
|
/s/ David B. Perkins |
|
|
|
|
David B. Perkins, President
|
|
|
|
|
(principal executive officer)
|
Date:
|
September 8, 2016
|
|
/s/ R. Lance Baker |
|
|
|
|
R. Lance Baker, Treasurer
|
|
|
|
|
(principal financial officer)
|
|
>=/\ )&DM=3%+C4[D%;&SK\4K]V:FX1:U)^CJ<0KX8UG6
M-0U_4KO5M4N#S6%["=P)86*DH:#DK4JK="I!&QR:L=Q5V*NQ5V*NQ
M5V*NQ5V*NQ5V*NQ5V*NQ5Z#^5%HU[^9?D:%49RFLVD]%ZTMY!,3\@$J?;%!?
MJWBQ=BKL5=BKL5=BKL5=BKL5=BKL5=BKL5=BKL53WRSH%YYHUW3=#LA^^OY@
MC/2HCC&\DA]E4$X$OT7TK3+31M-L=*L(_2L]/A2")>IXH*5)VJ3U)\
:KN=Q-'I$&LZU,TI6).
M+S&W@^%0#\4G$D\"_P *EX5^87_.,/FNXG\T6WY?W?E_6-+_ #$_+ _ECK+>
M=)[EVTU9+G4KRYUNV@M[.X6\GNI=29[B%Y+(J2>L./$MHI]FZ'I::'HFCZ
M+'/)=1Z/8V]DLTIK)(+>-8P[GQ/&IP)33%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
M8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7
@8J[%78J[%78J[%78J[%78J[%78J[%78J[%78J[%7_]D!
end
MW$4CJT1;7>!K>0V.D6(.G\:O\ 6/OVK3Y]:I7K!(S*Q$<@,IMX$))O8#RW
M%[-9>?\ #W75K'RZ\$53D]11D\;2U5-CWK4BJZOS?;4\SL\D_@C\TVCZC]J)
MM1_P/NYB:E2,=:UH0:'AU/:0(;%_$?['D)/_ :X!Y^ONJJ1CB>M-1:DGKA=
M7-_+Y)/[8C8J/]ILM^/2/=E$D1[AUH!)\*W759604-.U=6SK!3Q6\D[$B-/(
MZPI>Q/ZG<#_7/NH!DH!UL@ UKUCIZB*:,3TTWW--SX&C9K_J*2ZV8^O]P&W]
M+>_:&A!U#/5DTRT /6-QY*LM,WZB/>C&C0!_$(
MD^W''_-T^\LL5V\+1@PBG "O"O\ AZ8/Y=O;_?'\SC^7CB\7G]^P;*[KV?\
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M)[2^&W\UFO\ @77[NRF].F.Z/M?]%
M")88_N*VKEEJ);0HJ)=CI157Z #W0T% !T^QKD\>N'IN Q]1OJ%[:+?35SSJ
M'T]^ (IU[/'J_+_A/3\,8_D5\P:?O7?^/=>C/CMY?[]9FH1EQ
;5P;W
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MNFY<.7C!(/1'OFY_*2Z_^=6\7S_:6^MY4F.H=/\ !@]Z;FP-)3_