Washington, D.C. 20549
DAVID B. PERKINS
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
ITEM 1. REPORTS TO STOCKHOLDERS.
HATTERAS VC CO-INVESTMENT FUND II, LLC
Financial Statements
For the Period from September 1, 2009 to September 30, 2009
(Unaudited)
HATTERAS VC CO-INVESTMENT FUND II, LLC
For the Period from September 1, 2009 to September 30, 2009
(Unaudited)
Table of Contents
| Statement of Assets, Liabilities and Members' Capital | 1 |
| Statement of Operations | 2 |
| Statement of Changes in Members' Capital | 3 |
| Notes to Financial Statements | 4 |
| Board of Managers | 9 |
| Fund Management | 10 |
| Other Information | 11 |
| HATTERAS VC CO-INVESTMENT FUND II, LLC |
| | | | | | | | | | |
| STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL |
| | | | | | | | | | |
| September 30, 2009 |
| (Unaudited) |
| | | | |
| Assets | | | |
| Investments in short-term investments, at fair value (cost $2,088,258) | | $ | 2,088,258 | |
| Interest receivable | | | 401 | |
| Prepaid assets | | | 149,593 | |
| Total assets | | $ | 2,238,252 | |
| Liabilities and members' capital | | | | |
| Management fee payable | | | 3,682 | |
| Professional fees payable | | | 13,244 | |
| Managers fees payable | | | 7,143 | |
| Accounting and administration fees payable | | | 6,425 | |
| Custodian fees payable | | | 1,000 | |
| Other expenses payable | | | 1,000 | |
| Total liabilities | | | 32,494 | |
| Members' capital | | | 2,205,758 | |
| Total liabilities and members' capital | | $ | 2,238,252 | |
| Members' Capital | | | | |
| Capital contributions (net) | | | 2,261,704 | |
| Accumulated net investment loss | | | (55,946 | ) |
| Members' capital | | $ | 2,205,758 | |
| Net asset value per share | | $ | 97.53 | |
| Number of authorized units | | Unlimited | |
| Number of outstanding units | | | 22,617.05 | |
| | | | | |
| | | | | |
| See notes to financial statements. | | | |
| HATTERAS VC CO-INVESTMENT FUND II, LLC | |
| | | | |
| STATEMENT OF OPERATIONS | |
| | | | |
| For the period ended September 30, 2009 | |
| (Unaudited) | |
| | | | |
| Investment income | | | |
| Interest | | $ | 401 | |
| Total investment income | | | 401 | |
| Operating expenses | | | | |
| Management fee | | | 3,682 | |
| Insurance expense | | | 14,000 | |
| Professional fees | | | 13,244 | |
| Organizational fees | | | 9,695 | |
| Managers fees | | | 7,143 | |
| Accounting and administration fees | | | 6,425 | |
| Custodian fees | | | 1,000 | |
| Other expenses | | | 1,158 | |
| Total operating expenses | | | 56,347 | |
| Net investment loss | | | (55,946 | ) |
| Net decrease in members' capital resulting from operations | | $ | (55,946 | ) |
| | | | | |
| | | | | |
| See notes to financial statements. | | | | |
| HATTERAS VC CO-INVESTMENT FUND II, LLC |
| | | | | | | | | | |
| STATEMENT OF CHANGES IN MEMBERS' CAPITAL |
| | | | | | | | | | |
| For the period ended September 30, 2009 |
| (Unaudited) |
| | | | |
| | | | |
| | | Members' | |
| | | Capital | |
| Members' Capital, at September 1, 2009 | | $ | - | |
| Capital contributions | | | 2,261,704 | |
| Net investment loss | | | (55,946 | ) |
| Members' Capital, at September 30, 2009 | | $ | 2,205,758 | |
| | | | | |
| | | | | |
| See notes to financial statements. | | | | | | |
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (unaudited)
1. Organization
Hatteras VC Co-Investment Fund II, LLC (the “Fund”) was organized as a limited liability company under the laws of the State of Delaware on November 7, 2008 and commenced operations on September 1, 2009. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, non-diversified management investment company. The Fund is managed by Hatteras Capital Investment Management, LLC (the “Adviser”), an investment adviser registered 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 is scheduled to have a final closing August 1, 2010 (“Final Closing”), or such other or later date 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 the 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.
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. During normal market conditions, the Adviser will follow a rules-based portfolio construction process to guide the Fund’s investment strategy.
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 with generally accepted accounting principles within the United States (“U.S. GAAP”).
b. Cash
Cash 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 any significant credit risk on such accounts.
| | c. Valuation of Portfolio Investments |
The Valuation Committee of the Adviser oversees the valuation of the Fund’s investments in accordance with written policies and procedures that the Board has approved for purposes of determining the fair value of securities held by the Fund. In general, fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values of private companies are estimated by the Valuation Committee considering recent financings, significant changes in a company’s prospects and overall market conditions. These factors involve judgment and, therefore, the fair value may differ significantly from the fair value that would have been reported had a readily determinable market value for such investments existed, and the difference could be material.
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (unaudited)(continued)
2. Significant Accounting Policies (continued)
The Fund classifies its assets and liabilities into three levels based on the lowest level of input that is significant to the fair value measurement. Estimated values may differ from the values that would have been used if a ready market existed or of the investments were liquidated at the valuation date. The three-tier hierarchy distinguishs 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 investments
· 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)
| | | | | | | | | | | | | |
| Investments | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| Short-Term Investment | | $ | 2,088,258 | | | $ | - | | | $ | - | | | $ | 2,088,258 | |
| Total | | $ | 2,088,258 | | | $ | - | | | $ | - | | | $ | 2,088,258 | |
Authoritative accounting guidance requires disclosures about the reporting entity’s derivative instruments and hedging activities, by providing for qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. As of September 30, 2009, the Fund had not entered into any derivative instruments.
d. Investment Income
Interest income is recorded when earned. Dividend income is recorded on the ex-dividend date, except that certain dividends from private equity investments are recorded as soon as the information is available to the Fund.
The investments in private companies generally do not make regular cash distributions of income and gains and are therefore considered non-income producing securities. Disbursements received from Investments in private companies are accounted for as a reduction to cost.
The Fund will bear all expenses incurred, on an accrual basis, in the business of the Fund, including, but not limited to, the following: all costs and expenses related to portfolio transactions and positions for the Fund’s account; legal fees; accounting, auditing, and tax preparation fees; custodial fees; fees for data and software providers; costs of insurance; registration expenses; Managers’ fees; interest expenses and commitment fees on credit facilities; and expenses of meetings of the Board.
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (unaudited)(continued)
2. Significant Accounting Policies (continued)
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 September 30, 2009 and has determined that it does not have a liability for any unrecognized tax benefits. . The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period, the Fund did not incur any material interest or penalties.
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.
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 Member’s capital from operations during the reporting period. Actual results could differ from those estimates.
3. Management Fees 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 will pay 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. However, during the period from the Initial Closing to the Final Closing, the Fund will pay the investment management fee to the Adviser monthly at a rate equal to 2.00% on an annualized basis of the net assets of the Fund.
Each member of the Board who is not an “interested person” of the Fund, as defined by Section 2(a)(19) of the 1940 Act (each an “Independent Manager”), receives an annual retainer of up to $10,000 from the Fund for his services on the Board and for his 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.
4. Accounting, Administration, and Custodial Agreement
In consideration for accounting, administrative, and recordkeeping services, the Fund pays UMB Fund Services, Inc. (the “Administrator”) a quarterly administration fee based on the quarter-end net asset value of the Fund or a minimum fee, whichever is greater. The Fund will also reimburse the Administrator for certain out-of-pocket expenses and pay the Administrator a fee for transfer agency services. For the period ended September 30, 2009, the total administration fee was $6,425.
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (unaudited)(continued)
4. Accounting, Administration, and Custodial Agreement (continued)
UMB Bank, n.a., an affiliate of the Administrator, serves as custodian of the Fund’s assets and provides custodial services for the Fund.
5. Investment Transactions
The cost of investments in private companies for U.S. federal income tax purposes is adjusted for items of taxable income allocated to the Fund from the Investments in private companies. The Fund relies upon actual and estimated tax information provided by the private companies in which it invests as to the amounts of taxable income allocated to the Fund as of September 30, 2009.
The Fund invests substantially all of its available capital in securities of private companies. These investments will generally be restricted securities that are subject to substantial holding periods or are not traded in public markets at all, so that the Fund may not be able to resell some of its securities holdings for extended periods.
6. Indemnification
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.
7. Risk Factors
An investment in the Fund involves significant risks, including leverage risk, liquidity risk, non-diversification risk, interest rate 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. The Fund intends to invest substantially all of its available capital in securities of venture-backed private companies. Investment in these companies may involve a high degree of risk in that such companies may be in a relatively early-stage of development with little operating history and with a need for substantial additional capital to support expansion or to achieve or maintain a competitive position. Such companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel. In addition, it is likely that the Fund’s investments will have limited liquidity since it is unlikely that a public market will exist for such investments. The Fund generally will not be able to sell the underlying securities publicly unless the sale is registered under applicable federal and state securities laws, or unless an exemption from such registration requirements is otherwise available.
Investment in the Fund is suitable only for investors who can bear the risks associated with the limited liquidity of units of limited liability interests and should be viewed as a long-term investment. No guarantee or representation is made that the investment objective will be met.
8. Financial Highlights
The financial highlights are intended to help an investor understand the Fund’s financial performance for the past period. The total returns in the table represent the rate that a typical Member would be expected to have earned or lost on an investment in the Fund.
The ratios and total return amounts 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 or expenses, as applicable, by the average of total monthly Members’ capital. The ratios do not reflect the Fund’s proportionate share of income and expenses from
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 (unaudited)(continued)
8. Financial Highlights (continued)
investments in private companies. The ratios are annualized for periods of less than a year.
Total return amounts are calculated by geometrically linking returns based on the change in value during each accounting period. The total return amounts have not been annualized for periods of less than a year.
| | For the period from September 1, 2009 (commencement |
| | of operations) through September 30, 2009 |
| Total return | -2.47% |
| Members' capital, end of period (000) | $2,206 |
| Portfolio Turnover | 0.00% |
| Annualized Ratios: | |
| Net investment loss | -2.54% |
| Total operating expenses | 2.55% |
9. Subsequent Events
Management has reviewed the events and transactions from October 1 2009 through November 30, 2009, the date the financial statements were available to be issued, for subsequent events. Effective October 1, 2009 and November 1, 2009, there were additional capital contributions to the Fund of $100,000 and $338,125, respectively.
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 is set forth below. Unless otherwise noted, the business address of each Manager is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615.
| Name, Address & Date of Birth | Position(s) Held with the Fund | Length of Time Served | Principal Occupation(s) During Past 5 years and Other Managerships Held by Manager | Number of Portfolios in Fund Complex Overseen by Manager or Officer |
| INTERESTED MANAGERS |
David B. Perkins* July 18, 1962 | President and Chairman of the Board of Managers of the Fund | Since Inception | Mr. Perkins has been Chairman of the Board of Managers and President of the Fund since inception. Mr. Perkins is the Chief Executive Officer of Hatteras and its affiliated entities. He founded the firm in September 2003. Prior to that, he was the co-founder and Managing Partner of CapFinancial Partners, LLC. | 23 |
| INDEPENDENT MANAGERS |
Steve E. Moss February 18, 1953 | Manager; Audit Committee Member | Since inception | Mr. Moss is a principal of Holden, Moss, Knott, Clark, Copley & Hoyle, P.A. and has been a member manager of HMKCT Properties, LLC since January 1996. | 23 |
H. Alexander Holmes May 4, 1942 | Manager; Audit Committee Member | Since inception | Mr. Holmes founded Holmes Advisory Services, LLC, a financial consultation firm, in 1993. | 23 |
Gregory S. Sellers May 5, 1959 | Manager; Audit Committee Member | Since inception | Mr. Sellers has been the Chief Financial Officer of Imagemark Business Services, Inc., a strategic communications provider of marketing and print communications solutions, since June 2009. From 2003 to June 2009, Mr. Sellers was the Chief Financial Officer and a director of Kings Plush, Inc., a fabric manufacturer. | 23 |
Daniel K. Wilson June 22, 1948 ** | Manager; Audit Committee Member | Since June 2009 | Mr. Wilson was Executive Vice President and Chief Financial Officer of Parkdale Mills, Inc. from 2004 - 2008. Mr. Wilson currently is in private practice as a Certified Public Accountant. | 9 |
*Mr. Perkins is deemed to be an “interested” Manager of the Fund because of his affiliations with the Investment Manager.
** At its June 28, 2009 Board of Managers meeting, the Managers appointed Daniel K. Wilson as an Independent Manager of the Fund.
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 of each of the persons currently serving as Executive Officers of the Fund. Unless otherwise noted, the business address of each officer is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615.
| Name, Address & Date of Birth | Position(s) Held with the Fund | Length of Time Served | Principal Occupation(s) During Past 5 years and Other Managerships Held by Manager | Number of Portfolios in Fund Complex’ Overseen by Manager or Officer |
| OFFICERS | | | | |
J. Michael Fields July 14, 1973 | Secretary | Since inception | Mr. Fields is Chief Operating Officer of Hatteras and its affiliated entities and been employed by Hatteras since its inception in September 2003. | N/A |
Andrew P. Chica September 7, 1975 | Chief Compliance Officer | Since inception | Mr. Chica joined Hatteras in November 2007 and became Chief Compliance Officer of the Adviser and its affiliates in 2008. Prior to joining Hatteras, Mr. Chica was the Compliance Manager for UMB Fund Services, Inc. from December 2004 to November 2007. From April 2000 to December 2004, Mr. Chica served as an Assistant Vice President and Compliance Officer with U.S. Bancorp Fund Services, LLC. | N/A |
Robert L. Baker September 17, 1971 | Treasurer | Since inception | Mr. Baker joined Hatteras in March 2008. Mr. Baker serves as the Chief Financial Officer of the Adviser and its affiliates. Prior to joining Hatteras, Mr. Baker worked for Smith Breeden Associates, an investment advisor located in Durham, NC. At Smith Breeden, Mr. Baker served as Vice President of Portfolio Accounting, Performance Reporting, and Fund Administration. | 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 shareholders record of actual proxy votes cast is available at www.sec.gov and by calling 1-800-504-9070 and may be obtained at no additional charge.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The 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, DC. Information on the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Approval of Investment Management Agreement
At a meeting of the Board held on December 5, 2008, by a unanimous vote, the Board, including a majority of the Independent Managers approved the investment management agreement between the Fund and the Adviser (the “Investment Management Agreement”).
In advance of the meeting, the Independent Managers requested and received extensive materials from the Adviser to assist them in considering the approval of the Agreement. The materials provided by the Adviser contained information including detailed comparative information relating to the performance, advisory fees and other expenses of the Fund.
The Board engaged in a detailed discussion of the materials with management of the Adviser. The Independent Managers then met separately with independent counsel to the Independent Managers for a full review of the materials. Following this session, the full Board reconvened and after further discussion determined that the information presented provided a sufficient basis upon which to approve the Agreement.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board reviewed and considered the nature and extent of the investment advisory services proposed to be provided by the Adviser to the Fund under the Investment Management Agreement, including the selection of Fund investments, access to select top-tier venture capital firms for co-investment opportunities, evaluation of risk exposure and risk controls, experience and training of the Adviser's investment professionals, and day-to-day portfolio management and general investment selection. The Board also reviewed and considered the nature and extent of the non-advisory, administrative services to be provided by the Adviser under the Investment Management Agreement, including, among other things, providing office facilities, equipment, and personnel. The Board also reviewed and considered the qualifications of the portfolio managers, and other key personnel of the Adviser who provide the investment advisory and administrative services to the Fund. The Board determined that the Adviser's portfolio managers and key personnel are well qualified by education and/or training and experience to perform the services in an efficient and professional manner. The Board also took into account the Adviser's compliance policies and procedures, including the procedures used to determine the value of each Fund's investment. The Board concluded that the overall quality of the advisory and administrative services was satisfactory.
FEES AND EXPENSES RELATIVE TO COMPARABLE FUNDS MANAGED BY OTHER ADVISERS
The Board reviewed the advisory fee rate and expected total expense ratio of the Fund. The Board also reviewed the proposed annual Fund Servicing Fees to be paid to the Adviser or an affiliate, the proposed placement fee to be paid to Hatteras Capital Investment Management, LLC by the Fund. The Board compared the advisory fee and pro-forma total expense ratio for the Fund with various comparative data, including a
Hatteras VC Co-Investment Fund II, LLC (a Delaware Limited Liability Company)
OTHER INFORMATION
(unaudited)(continued)
Approval of Investment Management Agreement (continued)
report prepared by Lipper of other comparable registered funds-of-hedge-funds and the fees of a similar unregistered venture co-investment fund. The Board noted that the fees payable to the Adviser were lower than or comparable to the fees payable to the advisers of most comparable funds-of-hedge-funds and the unregistered co-investment fund. The Board concluded that the advisory fee paid by the Fund and pro-forma total expense ratio of the Fund were reasonable and satisfactory in light of the services proposed to be provided.
BREAKPOINTS AND ECONOMIES OF SCALE
The Board reviewed the structure and amount of the Fund's investment management fee under the Investment Management Agreement. The Board concluded that the fees were reasonable and satisfactory in light of the services to be provided. The Board also determined that, since the Fund has no assets and with the limited size of its offering, economies of scale were not present at this time.
PROFITABILITY OF ADVISER AND AFFILIATES
The Board considered and reviewed pro-forma information concerning the costs incurred and profits expected to be realized by the Adviser from the Adviser's relationship with the Fund. Although the Board considered and reviewed pro-forma information concerning the Adviser’s expected profits, due to the fact that operations for the Fund had not yet commenced, the Board made no determination with respect to profitability.
GENERAL CONCLUSION
Based on its consideration of all factors that it deemed material, and assisted by the advice of its counsel, the Board concluded it would be in the best interest of the Fund and its members to approve the Investment Management Agreements for an initial two year term.
ITEM 2. CODE OF ETHICS.
Not applicable to semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to semi-annual reports.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant's board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K, or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
David B. Perkins, President & Chief Executive Officer
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.
David B. Perkins, President & Chief Executive Officer
R. Lance Baker, Chief Financial Officer
* Print the name and title of each signing officer under his or her signature.
