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	2-5
Statement of Assets, Liabilities and Members’ Capital	6
Statement of Operations	7
Statements of Changes in Members’ Capital	8
Statement of Cash Flows	9
Notes to Financial Statements	10-18
Board of Managers (Unaudited)	19
Fund Management (Unaudited)	20
Other Information (Unaudited)	21
Privacy Policy (Unaudited)	22-23

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, 2017, and the related statements of operations and cash flows for the year then ended, 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 four 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 and financial highlights based on our audits. The financial highlights for the period from September 1, 2012 through June 30, 2013 and the year 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 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 also 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, 2017, by correspondence with the custodian and private companies in which the Fund is invested. 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, 2017, and the results of its operations and its cash flows for the year then ended, the changes in its members’ capital for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Raleigh, North Carolina
August 29, 2017

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS

June 30, 2017

Description of Investment	Initial Investment Date	Cost		Fair Value		% of Members’ Capital
Private Company:
Consumer:
Sonim Technologies, Inc. ^a,b,c
San Mateo, California
180,208 shares of
Series B Preferred Stock	Nov. 2009	$	167,180	$	174,161		2.63	%

Sonim Technologies, Inc. ^a,b,c
San Mateo, California
774,944 shares of
Series A Preferred Stock	Nov. 2012		174,794		298,012		4.49	%

Sonim Technologies, Inc. ^a,b,c
San Mateo, California
164,891 shares of
Series A-1 Preferred Stock	May 2016		20,295		65,327		0.99	%
Total Consumer			362,269		537,500		8.11	%

Healthcare:
Clinipace, Inc. ^a,b,c
Raleigh, North Carolina
3,816,881 shares of
Series C Preferred Stock	Sep. 2011		500,000		646,859		9.76	%

Medical Technology:
Lineagen, Inc. ^a,b,c
Salt Lake City, Utah
12,000 shares of
Common Stock	Jul. 2011		—		3,120		0.05	%

Lineagen, Inc. ^a,b,c
Salt Lake City, Utah
336,117 shares of
Series B Preferred Stock	Jul. 2011		300,000		305,502		4.61	%

See notes to financial statements.

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS

June 30, 2017 (Continued)

Description of Investment (Continued)	Initial Investment Date	Cost		Fair Value		% of Members’ Capital
Medical Technology (Continued):
Lineagen, Inc. ^a,b,c
Salt Lake City, Utah
266,003 shares of
Series C-1 Preferred Stock	Nov. 2013	$	266,003	$	266,003		4.01	%
Total Medical Technology			566,003		574,625		8.67	%

Semiconductor:
Luxtera, Inc. ^a,b,c
Carlsbad, California
2,203,210 shares of
Series C Preferred Stock	Apr. 2012		301,412		262,194		3.95	%

Software:
Clustrix, Inc. ^a,b,c
San Fransisco, California
9,667 shares of
Common Stock	Dec. 2010		250,001		—		0.00	%

Kollective Technology. ^a,b,c
Sunnyvale, California
45,670 shares of
Common Stock	Jan. 2012		—		4,382		0.07	%

Kollective Technology. ^a,b,c
Sunnyvale, California
333,334 shares of
Series B Preferred Stock	Jul. 2010		250,000		103,914		1.57	%

Kollective Technology. ^a,b,c
Sunnyvale, California
1,361,147 shares of
Series C Preferred Stock	Jan. 2012		480,193		594,860		8.97	%

Posit Science Corporation ^a,b,c
San Francisco, California
80,515 shares of
Common Stock	Dec. 2009		200,000		12,077		0.18	%

See notes to financial statements.

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS

June 30, 2017 (Continued)

Description of Investment (Continued)	Initial Investment Date	Cost		Fair Value		% of Members’ Capital
Software (Continued):
Posit Science Corporation ^a,b,c
San Francisco, California
21,429 shares of
Series AA Preferred Stock	Sep. 2010	$	11,893	$	12,833		0.19	%

Sailthru, Inc. ^a,b,c
New York, New York
171,141 shares of
Series A Preferred Stock	Sep. 2011		299,999		544,057		8.21	%

SAVO Group Ltd. ^a,b,c
Raleigh, North Carolina
112,313 shares of
Common Stock	Jun. 2012		161,685		52,506		0.79	%

Univa Corporation ^a,b,c
Austin, Texas
939,541 shares of
Series I Preferred Stock	Oct. 2010		432,114		1,413,843		21.32	%

Univa Corporation ^a,^b,c
Austin, Texas
47,853 shares of
Series II Preferred Stock	May 2014		65,894		131,787		1.99	%
Total Software			2,151,779		2,870,259		43.29	%

Total Investments in Private Companies (United States)		$	3,881,463	$	4,891,437		73.78	%

Other Assets in excess of Liabilities					1,738,561		26.22	%

Members' Capital				$	6,629,998		100.00	%

^a	Non-income producing.

^b	Portfolio holdings are subject to substantial restrictions as to resale.

^c	Non-marketable securities.

The cost and fair value of restricted Private Company Investments are $3,881,463 and $4,891,437, respectively.

See notes to financial statements.

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

SCHEDULE OF INVESTMENTS

June 30, 2017 (Concluded)

INVESTMENT TYPE AS A PERCENTAGE OF MEMBERS’ CAPITAL AS FOLLOWS:

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, 2017

Assets
Investments in private companies, at fair value (cost $3,881,463)	$	4,891,437
Cash & cash equivalents		1,821,395
Receivable for investment sold		1,175
Interest receivable		1,168
Total assets		6,715,175

Liabilities and members' capital
Professional fees payable		51,195
Management fees payable		28,514
Custodian fees payable		4,218
Other expenses payable		1,250
Total liabilities		85,177

Members' capital		6,629,998
Total liabilities and members' capital	$	6,715,175

Components of members' capital
Capital contributions	$	10,514,912
Capital distributions		(1,051,605	)
Accumulated net investment loss		(2,743,078	)
Accumulated net realized loss from investments		(1,100,205	)
Accumulated net unrealized appreciation on investments		1,009,974
Members' capital		6,629,998

Net asset value per uint	$	57.81
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 year ended June 30, 2017

Investment income
Interest	$	13,648
Total investment income		13,648

Operating expenses
Management fee		136,534
Professional fees		74,930
Accounting and administration fees		40,000
Board fees		24,000
Custodian fees		11,580
Chief Compliance Officer fee		5,000
Other expenses		9,491
Total operating expenses, before management fee waiver		301,535

Management fee waived		(26,948	)
Net expenses		274,587

Net investment loss		(260,939	)

Net realized gain and change in unrealized appreciation on investments
Net realized gain from investments		19,527
Net change in unrealized appreciation on investments		42,185
Total net realized gain and change in unrealized appreciation on investments		61,712
Net decrease in members' capital resulting from operations	$	(199,227	)

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 years ended June 30, 2016 and 2017

	Members’ Capital
Members' capital, at June 30, 2015	$	9,431,683
Distribution paid		(1,051,605	)
Net investment loss		(302,788	)
Net realized gain from investments		121,768
Net change in unrealized depreciation on investments		(1,369,833	)
Members' Capital, at June 30, 2016	$	6,829,225
Net investment loss		(260,939	)
Net realized gain from investments		19,527
Net change in unrealized appreciation on investments		42,185
Members' Capital, at June 30, 2017	$	6,629,998

See notes to financial statements.

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

STATEMENT OF CASH FLOWS

For the year ended June 30, 2017

Cash flows from operating activities:
Net decrease in members' capital resulting from operations	$	(199,227	)
Adjustments to reconcile net decrease in members' capital resulting from operations to net cash provided by operating activities:
Purchases of investments		(181,246	)
Net proceeds on sales of investments		1,363,395
Net realized gain on investments		(19,527	)
Net change in unrealized appreciation on investments		(42,185	)
Decrease in receivable for investment sold		18,427
Increase in interest receivable		(858	)
Decrease in professional fees payable		(1,363	)
Decrease in management fee payable		(1,135	)
Decrease in custodian fees payable		(782	)
Net cash provided by operating activities		935,499

Net change in cash		935,499

Cash at beginning of year		885,896
Cash at end of year	$	1,821,395

See notes to financial statements.

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, 2017

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 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”) was three years following the Initial Closing of the Fund. The Fund was to 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 was extended for two successive one-year periods at the discretion of the Board at a meeting on August 27, 2015. At a meeting on August 21, 2017, the Board elected to extend the term of the Fund for two additional years, or until August 31, 2019. During this two-year extension, beginning September 1, 2017, the Adviser will waive the Fund’s management fee (See Note 4).

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.

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 Equivalents

Cash & cash equivalents include a money market fund which has a maturity of three months or less. At times, such deposits may be in excess of federally insured limits. As of June 30, 2017, cash & cash equivalents balance which have maturity of 3 months or less is $1,821,395. The Fund has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such accounts.

c.	Reclassification of Prior Year Presentation

The prior year’s short term investment balance of $885,896, has been reclassified as cash equivalents for consistency with the current period presentation. This reclassification had no effect on the reported results of operations or members’ capital for the years ended June 30, 2016 and 2017.

d.	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.

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, 2017 (Continued)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

d.	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.

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.

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)

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, 2017 (Continued)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

d.	Valuation of Portfolio Investments (Continued)

The following table presents the Fund’s fair value hierarchy for those assets measured at fair value on a recurring basis as of June 30, 2017:

	Level 1		Level 2		Level 3		Total
Private Company¹
Preferred Stock	$	—	$	—	$	4,819,352	$	4,819,352
Common Stock		—		—		72,085		72,085
Total Private Company		—		—		4,891,437		4,891,437
Total Private Company	$	—	$	—	$	4,891,437	$	4,891,437

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. There were no transfers among Levels 1, 2 and 3 as of June 30, 2017.

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, 2016	$	114,415		$	5,795,003		$	88,868		$	5,998,286
Net Realized Gain/(Loss)		(37,951	)		452,798			(250,002	)		164,845
Change in Unrealized Appreciation/(Depreciation)		(308	)		(110,781	)		3,592			(107,497	)
Transfers In/(Out) of Investment Categories*		(82,531	)		(133,639	)		216,170			—
Gross Purchases		42,432			125,357			13,457			181,246
Gross Sales		(36,057	)		(1,309,386	)		—			(1,345,443	)
Balance as of June 30, 2017	$	—		$	4,819,352		$	72,085		$	4,891,437

*	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 $(5,817).

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, 2017 (Continued)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

d.	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, 2017:

Type of Investment	Fair Value as of June 30, 2017	Valuation Technique	Unobservable Input	Weighted Average	Range	Impact on valuation from an Increase in Input
Preferred Stock	$ 1,902,523	Market Comparable Companies	Forward Revenue Multiple	4.14x	2.64x – 5.46x	Increase
			Discount Rate	15.00%	15.00%	Decrease
	2,916,829	Most Recent Capitalization	Private Financing	N/A	N/A	N/A
Common Stock	16,459	Market Comparable Companies	Forward Revenue Multiple	4.11x	0x – 4.50x	Increase
			Discount Rate	15.00%	15.00%	Decrease
	55,626	Most Recent Capitalization	Private Financing	N/A	N/A	N/A
Total Private Company	$ 4,891,437

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 are 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 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.

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, 2017 (Continued)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

e.	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, 2017, 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. Investments in private companies are recorded on a subscription effective date basis. Realized gains and losses are determined on a specific identified cost basis.

f.	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.

g.	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, 2017 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, 2017, 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 2013 to 2016 and there are no tax examinations in progress.

h.	Distributions

The Fund may make distributions to Members 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.

i.	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.

j.	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.

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, 2017 (Continued)

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 & cash equivalents is less than the Fund’s 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 & cash equivalents. The management fee for the year ended June 30, 2017 was $136,534. For the year ended June 30, 2017, the Adviser waived $26,948 of the management fee, which is not subject to recoupment. During the two-year extension that will begin on September 1, 2017 through August 31, 2019, the Adviser will waive permanently the entire management fee, which will not be subject to recoupment.

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 $6,000 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 year ended June 30, 2017, retainers to the Independent Managers totaled $24,000 and are included in the statement of operations under Board fees. The Fund’s Chief Compliance Officer received an annual retainer of $5,000 which is included in the statement of operations under Chief Compliance Officer fee.

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, 2017, 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. The total Custodian fee of $11,580 is included in the statement of operations for the year ended June 30, 2017.

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, 2017 (Continued)

6.	INVESTMENT TRANSACTIONS

Total purchases of investments for the year ended June 30, 2017 amounted to $181,246. Total proceeds from sales, redemption, or other dispositions of investments for the year ended June 30, 2017 amounted to $1,363,395 including amounts held in escrow which the Fund believes will ultimately be collected. 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, 2017.

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, 2017, the Fund did not have any outstanding investment commitments to portfolio companies.

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 conditions 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.

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, 2017 (Continued)

10.	FINANCIAL HIGHLIGHTS (Continued)

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.

Per Unit Operating Performance:
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
Income/(loss) from investment operations:
Net investment loss		(2.28	)
Net realized gain and change in unrealized appreciation on investments		0.54
Total from investment operations		(1.74	)
Net Asset Value, June, 2017	$	57.81

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, 2017 (Concluded)

10.	FINANCIAL HIGHLIGHTS (Continued)

	For the years ended June 30,												For the period from September 1, 2012 to June 30, 2013*
	2017			2016			2015			2014			For the period from September 1, 2012 to June 30, 2013*			For the year ended August 31, 2012
Total return¹		(2.92	)%		(27.59	%)		2.98	%		16.09	%		(20.56	%)³		0.05	%
Members’ capital, end of period (000’s)	$	6,630		$	6,829		$	9,432		$	9,159		$	7,889		$	9,930
Portfolio turnover		3.04	%		3.25	%		2.78	%		0.54	%		0.00	%³		8.00	%
Net investment loss:
Before reimbursement of placement agent fees		(3.85	%)		(3.46	%)		(3.11	%)		(3.70	%)		(3.58	%)⁴		(3.15	%)
After reimbursement of placement agent fees		(3.85	%)		(3.46	%)		(3.11	%)		(3.70	%)		(3.58	%)⁴		(3.15	%)
Net operating expenses²:
Before reimbursement of placement agent fees		4.05	%		3.51	%		3.25	%		3.71	%		3.62	%⁴		3.29	%
After reimbursement of placement agent fees		4.05	%		3.51	%		3.25	%		3.71	%		3.62	%⁴		3.29	%

*	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.

Internal rate of return since inception: As of June 30, 2017 was (6.76)%; 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)%. The internal rate of return is based on change in NAV since inception.

Net operating expenses before and after waiver of the management fee for the year ended June 30, 2017 were 4.44% and 4.05% respectively, for the year 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.

³	Not annualized.

⁴	Annualized.

11.	SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the date the financial statements were issued, and determined the following required disclosure:

At a meeting of the Board held on August 21, 2017, the Board declared a distribution in the amount of $12.50 per unit, payable on September 15, 2017 to Members of record at August 31, 2017. Also, at this meeting the Board approved a two year fund extension which is described in Note 1.

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, 2017, 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 Date of Birth	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 July 18, 1962	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, LP from 2014 to present and Founder of Hatteras Investment Partners LLC and its affiliated entities (“Hatteras Funds”) in 2003.	8
INDEPENDENT MANAGERS
H. Alexander Holmes May 4, 1942	Manager; Audit Committee Member of the Fund	Since Inception	Founder, Holmes Advisory Services, LLC, a financial consultation firm (1993 to Present).	8
Steve E. Moss, CPA February 18, 1953	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).	8
Gregory S. Sellers May 5, 1959	Manager; Audit Committee Member of the Fund	Since Inception	Chief Financial Officer and Chief Operating Officer, Spectrum Consultants, Inc., a sales and marketing firm in the senior housing industry (2015 to Present); Chief Financial Officer, Imagemark Business Services, Inc., a provider of marketing and print communications solutions (June 2009 to 2015).	8
Thomas Mann February 1, 1950	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).	8

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., and Trust for Advisor Solutions (consisting of two funds).

²	Deemed to be an “interested” Manager of the Fund because of his affiliations with Hatteras Funds.

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, 2017, 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 Date of Birth	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 September 7, 1975	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 September 17, 1971	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

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 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.

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

(Unaudited)

In recognition of Hatteras’ fiduciary obligations to its Clients and Hatteras’ desire to maintain its high ethical standards, Hatteras has adopted this Privacy Policy for Hatteras Funds, LP (“Hatteras”), Trust for Advisor Solutions (f/k/a Hatteras Alternative Mutual Funds Trust) and Hatteras Closed-End Funds (collectively with the Trusts referred to as the “Fund(s)”) to safeguard the personal information of its consumers and customers in accordance with SEC Regulation S-P, 17 CFR 284.30:

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 share?	Can you limit this sharing?
For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus		Yes	No
For our marketing purposes – to offer our products and services to you		No	We don’t share
For joint marketing with other financial companies		No	We don’t 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 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

Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)

(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 Trust for Advisor Solutions.

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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
Michael P. Hennen	Head of Investment Management	Since January, 28 2016	Mr. Hennen oversees and provides strategic direction for Hatteras' investment team and his responsibilities include asset allocation, portfolio construction, and risk management. Prior to joining our team, Mr. Hennen was a Vice President at Morgan Stanley in the Graystone Research Group -- an alternative investments advisory group within Morgan Stanley-- where he led the sourcing, evaluation, execution, and monitoring of alternative investments across a variety of strategies. Before joining Morgan Stanley, Mr. Hennen was an analyst at Morningstar in Chicago. He received his Bachelor of Business Administration degree in Finance from Western Michigan University and has also earned his designation as a Chartered Financial Analyst (CFA).	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	$582,685,813	1	$582,685,813
	Other Pooled Investment Vehicles	4	$36,223,803	3	$27,200,916
	Other Accounts	0	$0	0	$0

Michael P. Hennen	Registered Investment Companies	1	$582,685,813	1	$582,685,813
	Other Pooled Investment Vehicles	4	$36,223,803	3	$27,200,916
	Other Accounts	0	$0	0	$0

Investment Committee Member	Dollar Range of Fund Shares Beneficially Owned
David B. Perkins	$0
Michael P. Hennen	$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, 2017

By (Signature and Title)*		/s/ David B. Perkins
		David B. Perkins, President
		(principal executive officer)

Date	September 8, 2017

By (Signature and Title)*		/s/ R. Lance Baker
		R. Lance Baker, Treasurer
		(principal financial officer)

Date	September 8, 2017