UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22594
Hatteras GPEP Fund II, LLC
(Exact name of registrant as specified in charter)
8540 Colonnade Center Drive, Suite 401
Raleigh, North Carolina 27615
(Address of principal executive offices) (Zip code)
David B. Perkins
8540 Colonnade Center Drive, Suite 401
Raleigh, North Carolina 27615
(Name and address of agent for service)
Registrant's telephone number, including area code: (919) 846-2324
Date of fiscal year end: March 31
Date of reporting period: September 30, 2012
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
Financial Statements
As of September 30, 2012 and for the period from June 1, 2012 (commencement of operations) to September 30, 2012
(Unaudited)
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
As of September 30, 2012 and for the period from June 1, 2012
(commencement of operations) to September 30, 2012
(Unaudited)
Table of Contents
| Schedule of Investments | 1 - 2 |
| Statement of Assets, Liabilities and Members’ Capital | 3 |
| Statement of Operations | 4 |
| Statements of Changes in Members’ Capital | 5 |
| Statement of Cash Flows | 6 |
| Notes to Financial Statements | 7 - 19 |
| Board of Managers | 20 - 21 |
| Fund Management | 22 |
| Other Information | 23 |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
September 30, 2012
(Unaudited)
| Investments in Investment Funds (29.50%) | Cost | Fair Value | ||||||
| Investments in Non-Listed Private Equity Funds (16.07%) | ||||||||
| United States (16.07%) | ||||||||
| Radius Venture Partners III QP, L.P. a,b | $ | 445,227 | $ | 792,639 | ||||
| Total Investments in Non-Listed Private Equity Funds | 792,639 | |||||||
| Investments in Listed Private Equity Funds (13.43%) | ||||||||
| Germany (3.14%) | ||||||||
| Deutsche Beteiligung AG b (6,191 common shares) | 149,930 | 154,655 | ||||||
| Spain (3.73%) | ||||||||
| Dinamia Capital Privado (20,286 common shares) | 148,502 | 183,919 | ||||||
| United Kingdom (6.56%) | ||||||||
| Better Capital, Ltd. b (65,000 common shares) | 151,630 | 155,526 | ||||||
| HgCapital Trust PLC (10,400 common shares) | 151,372 | 168,137 | ||||||
| Total United Kingdom Investments | 323,663 | |||||||
| Total Investments in Listed Private Equity Funds | 662,237 | |||||||
| Total Investments in Investment Funds (Cost $1,046,661) | 1,454,876 | |||||||
| Short-Term Investments (89.93%) | ||||||||
| Federated Prime Obligations Fund #10, 0.14% c | 4,435,068 | 4,435,068 | ||||||
| Total Short-Term Investments (Cost $4,435,068) | 4,435,068 | |||||||
| Total Investments (Cost $5,481,729) (119.43%) | 5,889,944 | |||||||
| Liabilities in excess of other assets (-19.43%) | (958,158 | ) | ||||||
| Members' Capital (100.00%) | $ | 4,931,786 | ||||||
a Investment Funds are issued in private placement transactions and, as such, are restricted as to resale.
b Non-income-producing.
c The rate shown is the annualized 7-day yield as of September 30, 2012.
Total cost and fair value of restricted Investment Funds as of September 30, 2012 was $445,227 and $792,639, respectively.
Percentages shown represent fair value as a percentage of Members' capital. |
| See notes to financial statements. | One |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
September 30, 2012 (Unaudited) (Concluded)
INVESTMENT OBJECTIVE AS A PERCENTAGE OF MEMBERS’ CAPITAL PERCENTAGES AS FOLLOWS:
| See notes to financial statements. | Two |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS’ CAPITAL
September 30, 2012
(Unaudited)
| Assets | ||||
| Investments in Investment Funds, at fair value (cost $1,046,661) | $ | 1,454,876 | ||
| Short-term investments, at fair value (cost $4,435,068) | 4,435,068 | |||
| Interest receivable | 465 | |||
| Prepaid assets | 75,917 | |||
| Total assets | 5,966,326 | |||
| Liabilities and members’ capital | ||||
| Contributions received in advance | 998,875 | |||
| Investment management fee payable | 15,460 | |||
| Accounting and administration fees payable | 10,000 | |||
| Professional fees payable | 9,457 | |||
| Custodian fees payable | 748 | |||
| Total liabilities | 1,034,540 | |||
| Members’ capital | 4,931,786 | |||
| Total liabilities and members’ capital | $ | 5,966,326 | ||
| Components of members’ capital: | ||||
| Capital contributions | $ | 4,606,700 | ||
| Accumulated net investment loss | (83,129 | ) | ||
| Net unrealized appreciation of investments and foreign currency | 408,215 | |||
| Members’ capital | $ | 4,931,786 | ||
| Net asset value per unit | $ | 107.06 | ||
| Number of authorized units | Unlimited | |||
| Units issued to Members | 46,067.00 | |||
| Number of outstanding units | 46,067.00 |
| See notes to financial statements. | Three |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF OPERATIONS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012
(Unaudited)
| Investment income | ||||
| Interest | $ | 1,991 | ||
| Total investment income | 1,991 | |||
| Operating expenses | ||||
| Investment management fee | 19,847 | |||
| Organizational fees | 39,787 | |||
| Managers’ fees | 23,333 | |||
| Accounting and administration fees | 13,333 | |||
| Professional fees | 10,221 | |||
| Servicing fees | 7,918 | |||
| Custodian fees | 2,997 | |||
| Insurance expense | 743 | |||
| Other expenses | 6,913 | |||
| Total operating expenses, before reimbursement from Adviser and reimbursement of placement agent fees | 125,092 | |||
| Reimbursement from Adviser | 32,472 | |||
| Reimbursement of placement agent fees | 7,500 | |||
| Net investment loss | (83,129 | ) | ||
| Net unrealized appreciation of investments and currency translation | ||||
| Net unrealized appreciation of investments and currency translation | 408,215 | |||
| Net unrealized appreciation of investments and currency translation | 408,215 | |||
| Net increase in members’ capital resulting from operations | $ | 325,086 |
| See notes to financial statements. | Four |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF CHANGES IN MEMBERS’ CAPITAL
For the period from June 1, 2012 (commencement of operations) to September 30, 2012
(Unaudited)
| Members’ Capital | ||||
| Members’ capital, at June 1, 2012 | $ | - | ||
| Capital contributions | 4,606,700 | |||
| Net investment loss | (83,129 | ) | ||
| Net unrealized appreciation of investments and currency translation | 408,215 | |||
| Members’ capital, at September 30, 2012 | $ | 4,931,786 | ||
| See notes to financial statements. | Five |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF CASH FLOWS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012
(Unaudited)
| Cash flows from operating activities: | ||||
| Net increase in members’ capital resulting from operations | $ | 325,086 | ||
| Adjustments to reconcile net increase in members’ capital resulting from operations to net cash used in operating activities: | ||||
| Purchases of Investment Funds | (1,046,661 | ) | ||
| Net purchases of short-term investments | (4,435,068 | ) | ||
| Net unrealized appreciation of investments and currency translation | (408,215 | ) | ||
| Increase in contributions received in advance | 998,875 | |||
| Increase in prepaid assets | (75,917 | ) | ||
| Increase in interest receivable | (465 | ) | ||
| Increase in professional fees payable | 9,457 | |||
| Increase in investment management fee payable | 15,460 | |||
| Increase in accounting and administration fees payable | 10,000 | |||
| Increase in custodian fees payable | 748 | |||
| Net cash used in operating activities | (4,606,700 | ) | ||
| Cash flows from financing activities: | ||||
| Capital contributions received | 4,606,700 | |||
| Net cash provided by financing activities | 4,606,700 | |||
| Net change in cash | - | |||
| Cash at beginning of period | - | |||
| Cash at end of period | $ | - |
| See notes to financial statements. | Six |
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012
(Unaudited)
| 1. | ORGANIZATION |
Hatteras GPEP Fund II, LLC (the “Fund”) was organized as a limited liability company under the laws of the State of Delaware on July 26, 2011 and commenced operations on June 1, 2012. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a closed-end, non-diversified management investment company. The Fund is managed by Hatteras Capital Investment Management, LLC (the “Adviser”), an investment adviser registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Capvent US Advisors, LLC (“Capvent”), an investment adviser registered with the SEC under the Advisers Act, serves as sub-adviser to the Fund (in such capacity, the “Sub-Adviser”). The Fund’s placement agent, an affiliate of the Adviser, is Hatteras Capital Distributors, LLC (the “Placement Agent”).
The Fund had an initial closing on June 1, 2012 (the “Initial Closing”). The Board of Managers (the “Board”) of the Fund has delegated to the officers of the Fund the responsibility to determine the dates of all subsequent closings of the Fund, including the final closing date (the “Final Closing”), provided that the final closing shall be no later than July 1, 2013. The Fund’s investment period (the “Investment Period”) is three years following the Final Closing of the Fund. The Fund will continue until the date that is ten years from the date of the Final Closing, unless terminated earlier pursuant to applicable terms of the Fund’s limited liability company agreement, as amended and restated (the “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 (the “Members”), subject to the laws of the State of Delaware and the 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 attractive long-term capital appreciation by investing in a broad portfolio of private equity investments. In particular, the Fund’s objective is to earn superior risk-adjusted returns by systematically overweighting the vehicles, segments and opportunities that the Adviser and Sub-Adviser believe offer the most attractive relative value at a given point in time.
| 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”).
Seven
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| b. | Cash |
Cash, if any, includes short-term interest-bearing deposit accounts. At times, such deposits may be in excess of federally insured limits. The Fund has not experienced any losses in such accounts and does not believe it is exposed to any significant credit risk on such accounts. At September 30, 2012, there was no cash held by the Fund.
| c. | Valuation of Portfolio Investments |
The Fund's valuation procedures have been adopted by the Fund's Board, which oversees the implementation of these procedures. The valuation procedures are implemented by the Adviser and the Fund's third party administrator, which report to the Board. For third-party information, the Fund's administrator monitors and reviews the methodologies of the various pricing services employed by the Fund.
Investments held by the Fund include:
• Investments in Non-Listed Private Equity Funds - The Fund will value interests in non-listed private equity funds (“Non-Listed Funds”) at fair value, which ordinarily will be the value determined by their respective investment managers, in accordance with the Fund’s valuation procedures. Investments in Non-Listed Funds are subject to the terms of the Non-Listed Funds’ offering documents. Valuations of the Non-Listed Funds may be subject to estimates and are net of management and performance incentive fees or allocations payable to the Non-Listed Funds’ investment manager as required by the Non-Listed Funds’ offering documents. If the Adviser determines that the most recent value reported by any Non-Listed Fund does not represent fair value or if any Non-Listed Fund fails to report a value to the Fund, a fair value determination is made under the Fund’s valuation procedures. These fair value procedures employed by the Adviser generally adjust items reported by the Non-Listed Fund using accounting principles other than U.S. GAAP to U.S. GAAP, as required by the Fund. Because of the inherent uncertainty in valuation, the estimated values may differ from the values that would have been used had a ready market for the securities existed, and the differences could be material. The interests of some Non-Listed Funds may be valued less frequently than the calculation of the Fund’s net asset value. Therefore, the reported performance of the Non-Listed Fund may lag the reporting period of the Fund. The Adviser has established procedures for reviewing the effect on the Fund’s net asset value due to this lag in reported performance of the Non-Listed Funds.
• Investments in Listed Private Equity Funds - Listed private equity funds include listed private equity vehicles, such as business development companies (including derivatives tied to the return of such vehicles) (“Listed Funds”, and together with Non-Listed Funds, “Investment Funds”). Securities of Listed Funds traded on one or more of the U.S. national securities exchanges or the Over-The-Counter (“OTC”) Bulletin Board or on foreign securities exchanges will be valued at their last sales price. Securities of Listed Funds traded on Nasdaq will be valued at the Nasdaq Official Closing Price (“NOCP”) at the close of trading on the exchanges or markets where such securities are traded for the business day as of which such value is being determined.
Eight
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| c. | Valuation of Portfolio Investments (Continued) |
• Short-Term Investments – During the period ended September 30, 2012, the Fund held the short-term investment 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 and liabilities 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 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) |
Nine
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| c. | Valuation of Portfolio Investments (Continued) |
The following table sets forth information about the levels within the fair value hierarchy at which the Fund's investments are measured as of September 30, 2012:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Non-Listed Private Equity Funds | $ | - | $ | - | $ | 792,639 | $ | 792,639 | ||||||||
| Listed Private Equity Funds | 662,237 | - | - | 662,237 | ||||||||||||
| Short-Term Investments | 4,435,068 | - | - | 4,435,068 | ||||||||||||
| Total | $ | 5,097,305 | $ | - | $ | 792,639 | $ | 5,889,944 | ||||||||
The Fund adopted the Financial Accounting Standards Board (“FASB”) amendments to authoritative guidance which require the Fund to disclose details of transfers in and out of Level 1 and Level 2 measurements and Level 2 and Level 3 measurements and the reasons for the transfers. For the period ended September 30, 2012, there were no transfers in and out of Level 1, Level 2 or Level 3. It is the Fund’s policy to recognize transfers into and out of all Levels at the end of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
| Investments | Balance as of June 1, 2012 | Net Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Gross Purchases | Gross Sales | Balance as of September 30, 2012 | ||||||||||||||||||
| Non-Listed Private Equity Funds | $ | - | $ | - | $ | 347,412 | $ | 445,227 | $ | - | $ | 792,639 | ||||||||||||
| Total Investments | $ | - | $ | - | $ | 347,412 | $ | 445,227 | $ | - | $ | 792,639 | ||||||||||||
| * | Change in unrealized appreciation (depreciation) included in the statement of operations attributable to Level 3 investments held at the reporting date is $347,412. |
Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”)” (“ASU 2011-04”) includes common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 requires reporting entities to disclose quantitative information about the unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy. In addition, ASU 2011-04 requires reporting entities to make disclosures about amounts and reasons for all transfers in and out of Levels 1 and 2 of the fair value hierarchy.
Ten
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| c. | Valuation of Portfolio Investments (Continued) |
The following is a summary of quantitative information about significant unobservable valuation inputs for Level 3 Fair Value Measurements for investments held as of September 30, 2012:
| Type of Investment | Fair Value as of September 30, 2012 | Valuation Technique | |||||
| Non-Listed Private Equity Funds | |||||||
| United States | 792,639 | Net asset Value (“NAV”) as practical expedient * | |||||
| Total Investments | $ | 792,639 | |||||
* Unobservable input
No adjustments were made to the NAV provided by the investment manager or administrator of the Non-Listed Private Equity Funds. Adjustments to the NAV provided by the investment manager or administrator of the Non-Listed Private Equity Funds would be considered if the practical expedient NAV was not as of the Fund's measurement date; it was probable that the Non-Listed Private Equity Fund would be sold at a value materially different than the reported expedient NAV; or it was determined by the Fund's valuation procedures that the Non-Listed Private Equity Fund is not being reported at fair value.
ASU 2009-12 to Accounting Standards Codification (“ASC”) 820-10-35, Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent) (“ASU 2009-12”) permits a reporting entity to measure the fair value of an investment that does not have a readily determinable fair value, based on the NAV of the investment as a practical expedient, without further adjustment, unless it is probable that the investment will be sold at a value significantly different than the NAV. If the practical expedient NAV is not as of the reporting entity’s measurement date, then the NAV should be adjusted to reflect any significant events that may change the valuation. In using the NAV as a practical expedient, certain attributes of the investment, which may impact the fair value of the investment, are not considered in measuring fair value. Attributes of those investments include the investment strategies of the investees and may also include, but are not limited to, restrictions on the investor’s ability to redeem its investments at the measurement date and any unfunded commitments. The Fund is permitted to invest in alternative investments that do not have a readily determinable fair value and, as such, has elected to use the NAV as calculated on the reporting entity’s measurement date as the fair value of the investment.
Eleven
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| c. | Valuation of Portfolio Investments (Continued) |
A listing of the investments held by the Fund and their attributes, as of September 30, 2012, that may qualify for these valuations are shown in the table below.
| Investment Category | Investment Strategy | Fair Value | Unfunded Commitments | Remaining Life* | Redemption Frequency* | Notice Period (In Days) | Redemption Restrictions Terms* | |||||||||||
Non-Listed Private Equity – Venture Capital(a) | Investments in early-stage, high-potential, high-risk, growth startup companies | $ | 792,639 | $ | 540,910 | Up to 10 years | None | N/A | N/A | |||||||||
| * | The information summarized in the table above represents the general terms for the specified asset class. Individual Investment Funds may have terms that are more or less restrictive than those terms indicated for the asset class as a whole. In addition, most Investment Funds have the flexibility, as provided for in their constituent documents, to modify and waive such terms. |
The Fund’s investments reflect their estimated fair value, which would generally be the net asset value as provided by the Investment Fund or its administrator.
| (a) | The category includes Investment Funds that invest primarily in early-stage, high-potential, high-risk, growth startup companies. Distributions from each fund will be received as the underlying investments of the funds are liquidated. The Fund estimates that the majority of the underlying investments in the asset class will be distributed in 2-8 years. |
| d. | Investment Income |
Interest income is recorded when earned. Dividend income is recognized on the ex-dividend date. Disbursements received from non-listed private equity investments are accounted for as a reduction of cost, or allocated between cost and realized gains and losses dependent upon information received from the Non-Listed Fund. Investments in listed private equity investments are recorded on a trade-date basis. Investments in Non-Listed Funds are recorded on a subscription-effective-date basis, which is generally the first day of the calendar month in which the investment is effective. 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, investment management fee, board of managers’ fees, and expenses of meetings of the Board.
Twelve
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| f. | Investments Denominated in Foreign Currency |
Investments denominated in foreign currency are translated at closing spot rates of exchange on September 30, 2012. Transactions during the period ended September 30, 2012 are translated at the spot rate of exchange prevailing on the date of the transaction.
The Fund does not isolate the portion of gains and losses on investments that are due to changes in foreign currency exchange rates from that which is due to changes in the fair value of investments.
| 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 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 interest or penalties.
The Fund will file income tax returns in U.S. federal jurisdictions and various states, which will remain open for examination by the tax authorities for a period of three years from when they are filed. There are no years that are subject to evaluation by tax authorities as of September 30, 2012.
| h. | Distributions |
Beginning in the 37th month after the Final Closing, or earlier at the Board’s discretion, the Fund may make distributions to Members at least annually, or more frequently, at the Board’s discretion, as permitted by applicable laws, rules and regulations. Amounts distributed will be intended to represent the net amounts of distributions (after Fund fees and expenses) received by the Fund from Investment Funds 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 based upon Members' Units held.
Thirteen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
| 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. | Recent Accounting Pronouncements |
In December 2011, the FASB issued ASU No. 2011-11 related to disclosures about offsetting assets and liabilities (“ASU 2011-11”). The amendments in ASU 2011-11 require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all comparative periods presented. Management is currently evaluating the impact ASU 2011-11 will have on the financial statement disclosures.
| 3. | Management Fees AND Related Party Transactions |
The Adviser is responsible for the management and operation of the Fund and the investment of the Fund’s assets, 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 terms of the Investment Management Agreement, the Adviser is responsible for developing, implementing and supervising the Fund's investment program. The Sub-Adviser serves as sub-adviser to the Fund pursuant to the terms of a sub-advisory agreement among the Adviser, the Sub-Adviser and the Fund.
In consideration for such services, the Adviser charges the Fund a quarterly investment management fee (the “Investment Management Fee”) equal to 1.25% on an annualized basis of the net assets of the Fund as of each quarter-end. The Adviser pays the Sub-Adviser 50% of the Investment Management Fee it receives from the Fund. For the period ended September 30, 2012, the total Investment Management Fee was $19,847.
The Adviser and Sub-Adviser are also entitled to a carried interest once a Member has received a return of 125% of that Member’s Capital Contributions. After a Member has received distributions and/or repurchase proceeds equal to 125% of its Capital Contributions, the Fund will make distributions and repurchase proceeds on a 90%/ 5%/ 5% split among the Member, the Adviser and the Sub-Adviser, respectively. For the period ended September 30, 2012, there was no carried interest allocated to the Adviser or the Sub-Adviser.
Fourteen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 3. | Management Fees AND Related Party Transactions (Continued) |
The Fund pays the Adviser or one of its affiliates, in its capacity as the servicing agent (the “Servicing Agent”), a quarterly servicing fee (the “Fund Servicing Fee”) equal to 0.50% on an annualized basis of the net assets of the Fund. The Fund Servicing Fee is paid to the Servicing Agent out of the Fund’s assets and decreases the net profits or increases the net losses of the Fund. For the period ended September 30, 2012, the Fund incurred Fund Servicing Fees totaling $7,918, which is included in the statement of operations under servicing fees.
For the period ended September 30, 2012, total fees paid by the Fund’s investors at the time of their initial investment to the Placement Agent were $7,500, of which $7,500 was rebated to the Fund by the Placement Agent. At September 30, 2012, no amounts were receivable from the Placement Agent.
For the period ended September 30, 2012, the Adviser voluntarily reimbursed the Fund $32,472, for management fees and other Fund expenses.
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 their services on the Board and for their services as a member of the audit committee of the Fund. All Board members are reimbursed by the Fund for all reasonable out-of-pocket expenses incurred by them in performing their duties. For the period ended September 30, 2012, retainers to the Independent Managers totaled $23,333 and are included in the statement of operations under managers’ fees.
| 4. | Accounting, Administration, and Custodial Agreement |
In consideration for accounting, administrative, and recordkeeping services, the Fund pays J.D. Clark & Company, a division of UMB Fund Services, Inc. (the “Administrator”), a quarterly administration fee based on the month-end net asset value of the Fund. The Administrator also provides regulatory administrative services, transfer agency functions, and Member services at an additional cost. For the period ended September 30, 2012, the total accounting and administration fee was $13,333, 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.
| 5. | Investment Transactions |
Total purchases of investments for the period ended September 30, 2012 amounted to $1,046,661. 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 the private equity funds in which it invests as to the amounts of taxable income allocated to the Fund.
Fifteen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 5. | Investment Transactions (Continued) |
The Fund intends to invest substantially all of its available capital in private equity investments. The non-listed private equity investments will 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.
Due to the timing of tax information received from the private equity investments, tax basis reporting is not available as of the reporting date.
| 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 liquidity risk, non-diversification risk, currency risk and economic, political and legal 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. For a more complete list of risk factors, Members should refer to their Confidential Placement Memorandum, as supplemented, and the corresponding Statement of Additional Information, as supplemented. No guarantee or representations is made that the investment objective of the Fund will be met.
Liquidity risk: Transfer of the Units 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.
Sixteen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 7. | Risk Factors (Continued) |
Currency risk: The Fund’s investments (both direct and indirect) may be made in a number of different currencies. Any returns on, and the value of such investments, may therefore be materially affected by exchange rate fluctuations, local exchange control, limited liquidity of the relevant foreign exchange markets, the convertibility of the currencies in question and/or other factors. A decline in the value of the currencies in which the Fund’s investments are denominated against the U.S. dollar may result in a decrease in value of the Fund’s net assets.
The Adviser and the Sub-Adviser do not plan to hedge the value of investments made by the Fund against currency fluctuations, and even if the Adviser and the Sub-Adviser deem hedging appropriate, it may not be possible or practicable to hedge currency risk exposure. Accordingly, the performance of the Fund could be adversely affected by such a decline.
Economic, political and legal risks: The Fund’s investments (both direct and indirect) will be made in a number of countries, including less developed countries, exposing investors to a range of potential economic, political and legal risks that could have an adverse effect on the Fund. These may include, but are not limited to, declines in economic growth, inflation, deflation, currency revaluation, nationalization, expropriation, confiscatory taxation, governmental restrictions, adverse regulation, social or political instability, negative diplomatic developments, military conflicts, and terrorist attacks.
Investors should note that the private equity markets in countries where the Fund’s investments are made may be significantly less developed than those in the United States. Certain investments may be subject to extensive regulation by national governments and/or political subdivisions thereof, which prevent the Fund or the Portfolio Funds from making investments they otherwise would make, or to incur substantial additional costs or delays that they otherwise would not suffer. Such countries may have different regulatory standards with respect to insider trading rules, restrictions on market manipulation, shareholder proxy requirements and/or disclosure of information. In addition, the laws of various countries governing business organizations, bankruptcy and insolvency may make legal action difficult and provide little, if any, legal protection for investors, including the Fund and the Portfolio Funds. Any such laws or regulations may change unpredictably based on political, economic, social, and/or market developments.
Seventeen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
| 8. | Financial Highlights |
The financial highlights are intended to help an investor understand the Fund’s financial performance for the past period. The total return in the table represents the rate that a typical Member would be expected to have earned or lost on an investment in the Fund.
The ratios and total return amount are calculated based on the Member group taken as a whole and excludes the Adviser and Sub-Adviser. 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 loss 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 the Fund’s private equity investments. The total return amount is calculated based on the change in the net asset value during each accounting period.
Per Unit Operating Performance:
| Net Asset Value, June 1, 2012 | $ | 100.00 | ||
| Income from investment operations: | ||||
| Net investment loss | (1.80 | ) | ||
| Net unrealized appreciation of investments and foreign currency | 8.86 | |||
| Total from investment operations | 7.06 | |||
| Net Asset Value, September 30, 2012 | $ | 107.06 |
Eighteen
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
For the period from June 1, 2012 (commencement of operations) to September 30, 2012 (CONTINUED)
(Unaudited)
8. Financial Highlights (Continued)
| For the period from June 1, 2012 (commencement of operations) to September 30, 2012 | ||||
| Total return | 7.06 | %1 | ||
| Members’ capital, end of year/period (000’s) | $ | 4,932 | ||
| Portfolio Turnover | 0.00 | %1 | ||
| Ratios as a percentage of average Members’ capital Net investment loss | (5.50 | )% 2 | ||
| Total operating expenses, gross | 8.28 | %2 | ||
| Reimbursement from Adviser | (2.15 | )% 2 | ||
| Reimbursement of placement agent fees | (0.50 | )% 2 | ||
| Total operating expenses, net | 5.63 | %2 | ||
1 Not annualized.
2 Annualized.
| 9. | Subsequent Events |
Management 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.
Nineteen
Hatteras GPEP 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 September 30, 2012, is set forth below. The business address of each Manager is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615. The Fund’s Statement of Additional Information, as supplemented, 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 Complex Overseen by Manager | ||||
| INTERESTED MANAGER | ||||||||
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 Founder and Chairman 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. | 19 | ||||
| INDEPENDENT MANAGERS | ||||||||
H. Alexander Holmes May 4, 1942 | Manager; Audit Committee Member of the Fund | Since Inception | Mr. Holmes founded Holmes Advisory Services, LLC, a financial consultation firm, in 1993. | 19 | ||||
Steve E. Moss, CPA February 18, 1953 | Manager; Audit Committee Member of the Fund | Since Inception | Mr. Moss is a principal of Holden, Moss, Knott, Clark & Copley, P.A. and has been a member manager of HMKCT Properties, LLC since January 1996. | 19 | ||||
Gregory S. Sellers May 5, 1959 | Manager; Audit Committee Member of the Fund | 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. | 19 | ||||
Daniel K. Wilson June 22, 1948 | Manager; Audit Committee Member of the Fund | Since Inception | Mr. Wilson was Executive Vice President and Chief Financial Officer of Parksdale Mills, Inc. from 2004 to 2008. Mr. Wilson currently is in private practice as a Certified Public Accountant. | 19 | ||||
*Mr. Perkins is deemed to be an “interested” Manager of the Fund because of his affiliations with the Adviser.
Twenty
Hatteras GPEP Fund II, LLC
(a Delaware Limited Liability Company)
BOARD OF MANAGERS
(Unaudited)
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 Complex Overseen by Manager | ||||
| INDEPENDENT MANAGERS (Continued) | ||||||||
Joseph E. Breslin November 18, 1953
| Manager | Since Inception | Mr. Breslin is currently a private investor. He has been a Director of Kinetics Mutual Funds, Inc. (mutual fund) from 2000 to Present (9 portfolios); Trustee, Kinetics Portfolios Trust (mutual fund) from 2000 to Present (9 portfolios). From 2007 to 2009, Mr. Breslin was the Chief Operating Officer of Central Park Credit Holdings, Inc. and prior to that, was the Chief Operating Officer of Aladdin Capital Management LLC, beginning in 2005. | 16 | ||||
Thomas Mann February 1, 1950
| Manager | Since Inception | Mr. Mann has been the Managing Director and Group Head Financial Institutions Group, Société Générale, Sales of Capital Market Solutions and Products since 2003. He is also a Director of Virtus Global Multi-Sector Income Fund since 2011. | 16 | ||||
Twenty-One
Hatteras GPEP 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 September 30, 2012, of each of the persons currently serving as Executive Officer. The business address of each officer is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615.
Name and 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 Complex Overseen by Officer | ||||
| OFFICERS | ||||||||
J. Michael Fields July 14, 1973 | Secretary of the Fund | Since Inception | Prior to becoming Secretary of each fund in the Hatteras Complex in 2008, Mr. Fields had been the Treasurer of each fund since inception. Mr. Fields is Chief Operating Officer of Hatteras and its affiliates and has been employed by the Hatteras firm since its inception in September 2003. | N/A | ||||
| Andrew P. Chica September 7, 1975 | Chief Compliance Officer of the Fund | Since Inception | Mr. Chica joined Hatteras in November 2007 and became Chief Compliance Officer of each of the funds in the Fund Complex and the Adviser as of January 2008. 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 Lance Baker September 17, 1971 | Treasurer of the Fund | Since Inception | Mr. Baker joined Hatteras in March 2008 and became Treasurer of the funds in the Hatteras Complex in December 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 |
Twenty-Two
Hatteras GPEP 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 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.
Twenty-Three
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.
| (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. |
| (b) | The registrant did not need to divest itself of securities in accordance with Section 13(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), following the filing of its last report on Form N-CSR and before filing of the current report. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to semi-annual reports.
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 managers, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K, (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The 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.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (b) | Not applicable. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | HATTERAS GPEP FUND II, LLC |
By (Signature and Title)*
| /s/ David B. Perkins | ||
| David B. Perkins, President | ||
| (principal executive officer) |
| Date | December 7, 2012 |
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 | December 7, 2012 |
By (Signature and Title)*
| /s/ R. Lance Baker | ||
| R. Lance Baker, Treasurer | ||
| (principal financial officer) |
| Date | December 7, 2012 |
* Print the name and title of each signing officer under his or her signature.