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 811-21117
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UBS Credit & Recovery Fund L.L.C.
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(Exact name of registrant as specified in charter)
1285 Avenue of the Americas, 37th Floor
New York, NY 10019
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(Address of principal executive offices) (Zip code)
Mark D. Goldstein, Esq.
c/o UBS Financial Services, Inc.
1285 Avenue of the Americas
New York, NY 10019
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(Name and address of agent for service)
registrant's telephone number, including area code: 212-713-9036
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Date of fiscal year end: December 31, 2003
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Date of reporting period: December 31, 2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
UBS CREDIT & RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
YEAR ENDED
DECEMBER 31, 2003
UBS CREDIT & RECOVERY FUND, L.L.C
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS
YEAR ENDED
DECEMBER 31, 2003
CONTENTS
Report of Independent Auditors...............................................1
Statement of Assets, Liabilities and Members' Capital........................2
Statement of Operations......................................................3
Statements of Changes in Members' Capital....................................4
Statement of Cash Flows......................................................5
Notes to Financial Statements................................................6
[LOGO OMITTED] [] ERNST & YOUNG LLP [] Phone: (212) 773-3000
ERNST & YOUNG 5 Times Square www.ey.com
New York, New York 10036-6530
Report of Independent Auditors
To the Members and Board of Directors of
UBS Credit & Recovery Fund, L.L.C.
We have audited the accompanying statement of assets, liabilities and members'
capital of UBS Credit & Recovery Fund, L.L.C. (the "Fund") as of December 31,
2003, and the related statements of operations and cash flows for the year then
ended and the statements of changes in members' capital for the year then ended
and for the period from August 1, 2002 (commencement of operations) to December
31, 2002. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 2003,
by correspondence with management of the investment funds. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UBS Credit & Recovery Fund,
L.L.C. at December 31, 2003, the results of its operations and its cash flows
for the year then ended and the changes in its members' capital for each of the
periods indicated above, in conformity with accounting principles generally
accepted in the United States.
/s/Ernst & Young LLP
New York, New York
February 16, 2004
A Member Practice of Ernst & Young Global
1
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
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ASSETS
Investments in Investment Funds, at value (cost $92,450,000) $108,330,387
Cash and cash equivalents 7,630,387
Advanced subscription in Investment Fund 1,000,000
Interest receivable 853
Other assets 219
- -------------------------------------------------------------------------------
TOTAL ASSETS 116,961,846
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LIABILITIES
Payables:
Withdrawals payable 10,721,875
Investment management fee 137,563
Professional fees 66,704
Administrator fee 28,461
Administration fee 18,800
Other 12,085
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TOTAL LIABILITIES 10,985,488
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NET ASSETS $105,976,358
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MEMBERS' CAPITAL
Represented by:
Net capital contributions $90,095,971
Accumulated net unrealized appreciation on investments 15,880,387
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MEMBERS' CAPITAL $105,976,358
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The accompanying notes are an integral part of these financial statements.
2
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENT OF OPERATIONS
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YEAR ENDED DECEMBER 31, 2003
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INVESTMENT INCOME
Interest $ 47,639
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TOTAL INVESTMENT INCOME 47,639
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EXPENSES
Investment management fee 1,112,359
Administrator fee 230,143
Professional fees 124,465
Administration fee 73,019
Miscellaneous 34,689
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TOTAL EXPENSES 1,574,675
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NET INVESTMENT LOSS (1,527,036)
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UNREALIZED GAIN FROM INVESTMENTS
Change in net unrealized appreciation/depreciation from investments 14,859,100
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NET UNREALIZED GAIN FROM INVESTMENTS 14,859,100
- --------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS $13,332,064
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The accompanying notes are an integral part of these financial statements.
3
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
UBS FUND
ADVISOR, L.L.C. MEMBERS TOTAL
- -----------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT AUGUST 1, 2002 $ -- $ -- $ --
(COMMENCEMENT OF OPERATIONS)
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (5,042) (270,575) (275,617)
Change in net unrealized
appreciation/depreciation from investments 37,749 983,538 1,021,287
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 32,707 712,963 745,670
- -----------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions 1,000,000 30,466,286 31,466,286
Offering costs (45) (1,289) (1,334)
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS 999,955 30,464,997 31,464,952
- -----------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT DECEMBER 31, 2002 $ 1,032,662 $ 31,177,960 $ 32,210,622
- -----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (3,241) (1,523,795) (1,527,036)
Change in net unrealized
appreciation/depreciation from investments 222,042 14,637,058 14,859,100
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 218,801 13,113,263 13,332,064
- -----------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions -- 71,431,899 71,431,899
Members' withdrawals (1,233,355) (9,622,587) (10,855,942)
Offering costs (781) (141,504) (142,285)
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NET INCEASE (DECREASE) IN MEMBERS' CAPITAL DERIVED
FROM CAPITAL TRANSACTIONS (1,234,136) 61,667,808 60,433,672
- -----------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT DECEMBER 31, 2003 $ 17,327 $105,959,031 $105,976,358
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENT OF CASH FLOWS
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YEAR ENDED DECEMBER 31, 2003
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' capital derived from operations $ 13,332,064
Adjustments to reconcile net increase in Members' capital derived from operations
to net cash used in operating activities:
Purchases of investments (63,250,000)
Change in net unrealized appreciation/depreciation from investments (14,859,100)
(Increase) decrease in assets:
Advanced subscription in Investment Fund (1,000,000)
Interest receivable 56
Other assets (219)
Increase (decrease) in payables:
Investment management fee 100,323
Organization costs (56,676)
Professional fees 38,650
Administrator fee 20,756
Insurance (10,500)
Administration fee 7,292
Other 5,642
- ----------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (65,671,712)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 71,431,899
Members' withdrawals (134,067)
Offering costs (142,285)
- ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 71,155,547
Net increase in cash and cash equivalents 5,483,835
Cash and cash equivalents--beginning of year 2,146,552
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CASH AND CASH EQUIVALENTS--END OF YEAR $ 7,630,387
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The accompanying notes are an integral part of these financial statements.
5
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS
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DECEMBER 31, 2003
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1. ORGANIZATION
UBS Credit & Recovery Fund, L.L.C. (the "Fund") (formerly, UBS PW
Credit & Recovery Fund, L.L.C.) was organized as a limited liability
company under the laws of Delaware on April 30, 2002. 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's investment objective is to maximize total return
over the long-term. The Fund is a multi-manager fund that seeks to
achieve its objective by deploying its assets primarily among a select
group of portfolio managers who invest in debt and, to a lesser extent,
equity securities ("Obligations"), to take advantage of market
opportunities and pricing inefficiencies between the perceived value of
an Obligation and its market value. Generally, such portfolio managers
conduct their investment programs through unregistered investment funds
(collectively, the "Investment Funds"), in which the Fund invests as a
limited partner or member along with other investors. The Fund
commenced operations on August 1, 2002.
The Fund's Board of Directors (the "Directors") has overall
responsibility to manage and control the business affairs of the Fund,
including the exclusive authority to oversee and to establish policies
regarding the management, conduct and operation of the Fund's business.
The Directors have engaged UBS Fund Advisor, L.L.C. ("UBSFA", the
"Adviser" and, when providing services under the Administration
Agreement, the "Administrator") (formerly, PW Fund Advisor, L.L.C.), a
Delaware limited liability company, to provide investment advice
regarding the selection of Investment Funds and the responsibility of
the day-to-day management of the Fund.
The Adviser is an indirect wholly-owned subsidiary of UBS Americas,
Inc., which is a wholly-owned subsidiary of UBS AG, and is registered
as an investment adviser under the Investment Advisers Act of 1940, as
amended.
Initial and additional applications for interests by eligible investors
may be accepted at such times as the Adviser may determine and are
generally accepted monthly. The Fund reserves the right to reject any
application for interests in the Fund.
The Fund from time to time may offer to repurchase interests pursuant
to written tenders to Members. These repurchases will be made at such
times and on such terms as may be determined by the Directors, in their
complete and exclusive discretion. The Adviser expects that it will
recommend to the Directors that the Fund offer to repurchase interests
from Members once each year, at year end. Members can only transfer or
assign their membership interests (i) by operation of law pursuant to
the death, bankruptcy, insolvency or dissolution of a Member, or (ii)
with the written approval of the Directors, which may be withheld in
their sole and absolute discretion.
2. SIGNIFICANT ACCOUNTING POLICIES
A. PORTFOLIO VALUATION
Net asset value of the Fund is determined by or at the direction of the
Adviser as of the close of business at the end of any fiscal period in
accordance with the valuation principles set forth below or as may be
6
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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DECEMBER 31, 2003
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
determined from time to time pursuant to policies established by the
Directors. The Fund's investments in Investment Funds are subject to
the terms and conditions of the respective operating agreements and
offering memoranda, as appropriate. The Fund's investments in the
Investment Funds are carried at fair value as determined by the Fund's
pro-rata interest in the net assets of each Investment Fund. All
valuations utilize financial information supplied by each Investment
Fund and are net of management and performance incentive fees or
allocations payable to the Investment Funds' managers or pursuant to
the Investment Funds' agreements. The underlying investments of each
Investment Fund are accounted for at fair value as described in each
Investment Fund's financial statements.
Distributions received or withdrawals from Investment Funds, whether in
the form of cash or securities, are first applied as a reduction of the
investment's cost.
B. INCOME RECOGNITION
Interest income is recorded on the accrual basis. Realized gains and
losses from the Investment Fund transactions are calculated on the
identified cost basis.
C. FUND COSTS
The Fund bears all expenses incurred in its business, 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 and auditing fees; custodial fees; costs of computing
the Fund's net asset value; costs of insurance; registration expenses;
certain organization costs; due diligence, including travel and related
expenses; expenses of meetings of Directors and Members; all costs with
respect to communications to Members; and other types of expenses
approved by the Directors. Offering costs are charged to capital as
incurred.
D. INCOME TAXES
No provision for the payment of Federal, state or local income taxes
has been provided, since the Fund is not subject to income tax. Each
Member is individually required to report on its own tax return its
distributive share of the Fund's taxable income or loss.
The Fund has reclassified $1,527,036 from accumulated net investment
loss to net capital contributions during the year ended December 31,
2003. The reclassification was to reflect, as an adjustment to net
capital contributions, the amount of taxable income or loss that have
been allocated to the Fund's Members and had no effect on net assets.
7
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of monies invested in a PNC Bank, NA
account which pays money market rates and are accounted for at cost
plus accrued interest, which is included in interest receivable on the
Statement of Assets, Liabilities and Members' Capital.
F. REPURCHASE AGREEMENTS
From time to time the Fund may enter into repurchase agreements. In
connection with such transactions it is the Fund's policy that its
custodian take possession of the underlying collateral securities, the
fair value of which exceeds the principal amount of the repurchase
transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of
the collateral by the Fund may be delayed or limited. As of December
31, 2003 there were no open repurchase agreements.
G. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Adviser
to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The Adviser believes
that the estimates utilized in preparing the Fund's financial
statements are reasonable and prudent; however, actual results could
differ from these estimates.
3. INVESTMENT MANAGEMENT FEE, ADMINISTRATOR FEE AND RELATED PARTY
TRANSACTIONS
The Adviser provides investment advisory services to the Fund pursuant
to an Investment Management Agreement. Pursuant to that agreement, the
Fund pays the Adviser a monthly fee (the "Investment Management Fee")
at the annual rate of 1.45% of the Fund's net assets, excluding assets
attributable to the Adviser and the Administrator.
The Administrator provides certain administrative services to the Fund,
including, among other things, providing office space and other support
services. In consideration for such services, the Fund pays the
Administrator a monthly fee (the "Administrator Fee") at an annual rate
of 0.30% of the Fund's net assets, excluding assets attributable to the
Administrator's and the Adviser's capital account. The Administrator
Fee is paid to the Administrator out of the Fund's assets and debited
against the Members' capital accounts, excluding net assets
attributable to the Administrator and the Adviser capital account. A
portion of the Investment Management Fee and the Administrator Fee is
paid by UBSFA to its affiliates.
UBS Financial Services Inc. ("UBS FSI") (formerly, UBS PaineWebber
Inc.), a wholly-owned subsidiary of UBS Americas, Inc., acts as a
placement agent for the Fund, without special compensation from the
Fund, and will bear its own costs associated with its activities as
placement agent. Placement fees, if any, charged on contributions are
debited against the contribution amounts, to arrive at a net
subscription amount. The placement fee does not constitute assets of
the Fund.
8
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEE, ADMINISTRATOR FEE AND RELATED PARTY
TRANSACTIONS (CONTINUED)
The net increase (or decrease) in Members' capital derived from
operations (net income or loss) is allocated to the capital accounts of
all Members on a pro-rata basis, other than the Investment Management
Fee and the Administrator Fee which are similarly allocated to all
Members other than the Adviser and the Administrator as described
above.
The Adviser had voluntarily undertaken to bear certain initial
organization and offering cost otherwise borne by the Fund and its
Members, during the Fund's first twelve months of operations. The
Adviser's undertaking provided that Members will not bear initial
organization and offering cost in excess of 0.20% to total Members'
capital as a result of the Fund's start-up. As such the Advisor has
incurred $91,133 of cost in excess of that which was borne by the Fund.
Organization costs were expensed and offering costs were charged to
Members' capital as incurred based on the undertaking provided above.
In order to achieve a more equitable distribution of the impact of
these costs, the Fund has either credited to or debited against the
Members' capital accounts the sum of such initial costs based on each
individual Member's percentage of capital in the Fund. The reallocation
of these costs occurred for the first twelve months after the initial
closing date of the Fund.
Each Director who is not an "interested person" of the Fund, as defined
by the 1940 Act, receives an annual retainer of $5,000 plus a fee for
each meeting attended. Any Director who is an "interested person" does
not receive any annual or other fee from the Fund. All Directors are
reimbursed by the Fund for all reasonable out of pocket expenses. Total
amounts expensed related to Directors by the Fund for the year ended
December 31, 2003 were $22,634.
PFPC Trust Company (an affiliate of PNC Bank, NA) serves as the
custodian (the "Custodian") of the Fund's assets and provides custodial
services for the Fund.
PFPC Inc. (also an affiliate of PNC Bank, NA) serves as Accounting and
Investor Servicing Agent to the Fund and in that capacity provides
certain administrative, accounting, record keeping, tax and Member
related services. PFPC Inc. receives a monthly fee primarily based upon
(i) the average net assets of the Fund subject to a minimum monthly
fee, and (ii) the aggregate net assets of the Fund and certain other
investment funds sponsored or advised by UBS Americas, Inc. or its
affiliates. Additionally, the Fund reimburses certain out of pocket
expenses incurred by PFPC Inc.
4. SECURITIES TRANSACTIONS
Aggregate purchases of Investment Funds for the year ended December 31,
2003, amounted to $63,250,000.
The cost of investment for Federal income tax purposes is adjusted for
items of taxable income allocated to the Fund from the Investment
Funds. The allocated taxable income is reported to the Fund by the
9
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
4. SECURITIES TRANSACTIONS (CONTINUED)
Investment Funds on Schedules K-1. The Fund has not yet received all
such Schedules K-1 for the year ended December 31, 2003.
5. INVESTMENTS
As of December 31, 2003, the Fund had investments in Investment Funds,
none of which were related parties. The Fund's investments are
summarized below based on the investment objectives of the specific
Investment Funds at December 31, 2003.
INVESTMENT OBJECTIVE COST FAIR VALUE
-------------------- ---- ----------
Distressed Obligations -
(Public and Private) $68,934,546 $ 80,775,620
High Yield 14,897,378 17,456,341
Direct Debt/Bank Loans 8,618,076 10,098,426
----------- ------------
Total $92,450,000 $108,330,387
=========== ============
The following table lists the Fund's investments in Investment Funds as
of December 31, 2003. The agreements related to investments in
Investment Funds provide for compensation to the general
partners/managers in the form of management fees of between 1% and 2%
(per annum) of net assets and performance incentive fees or allocations
of 20% of net profits earned. The Investment Funds provide for periodic
redemptions, with lock up provisions of up to one year from initial
investment. Detailed information about the Investment Funds' portfolios
is not available.
UNREALIZED
GAIN/(LOSS) % OF
FROM MEMBERS'
INVESTMENT FUND: COST INVESTMENTS FAIR VALUE CAPITAL LIQUIDITY
--------------------------------------------- -------------- --------------- -------------- ------------ -------------
Ahab Partners, L.P. $ 5,750,000 $ 1,506,827 $ 7,483,836 7.06% Quarterly
Aspen Partners, L.P. Series A 9,500,000 968,907 10,417,258 9.83 Annually
Canyon Value Realization Fund, L.P. 6,400,000 1,004,974 7,510,068 7.09 Annually
Chatham Assets Partners High Yield Fund, L.P. 5,000,000 158,800 5,158,800 4.87 Quarterly
Harbert Distressed Investment Fund, L.P. 8,400,000 1,976,591 10,500,059 9.91 Quarterly
HBV Rediscovered Opportunities Fund, L.P. 6,000,000 449,808 6,512,458 6.14 Quarterly
MacKay Shields Long/Short Fund, L.P. 10,750,000 1,438,343 12,297,541 11.60 Monthly
Marathon Special Opportunity Fund, L.P. 3,500,000 1,246,668 4,921,783 4.64 Quarterly
OZF Credit Opportunities Fund II, L.P. 5,400,000 738,518 6,144,573 5.80 Annually
Quadrangle Debt Recovery Fund, L.P. 6,750,000 2,566,952 9,426,406 8.89 Quarterly
Scottwood Partners, L.P. 6,500,000 1,010,227 7,510,227 7.09 Quarterly
Styx Partners, L.P. 9,000,000 943,533 10,098,426 9.53 Annually
Trilogy Financial Partners, L.P. 9,500,000 848,952 10,348,952 9.77 Quarterly
-------------- --------------- ------------- ---------
TOTAL $92,450,000 $14,859,100 108,330,387 102.22
============== ===============
LIABILITIES, LESS OTHER ASSETS (2,354,029) (2.22)
MEMBERS' CAPITAL $105,976,358 100.00%
============= =========
10
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Investment Funds in which the
Fund invests trade various financial instruments and enter into various
investment activities with off-balance sheet risk. These include, but
are not limited to, short selling activities, writing option contracts,
contracts for differences, equity swaps, distressed investing, merger
arbitrage and convertible arbitrage. The Fund's risk of loss in these
Investment Funds is limited to the value of these investments as
reported by the Fund.
7. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for the periods indicated:
PERIOD FROM
AUGUST 1, 2002
YEAR (COMMENCEMENT OF
ENDED OPERATIONS) THROUGH
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
Ratio of net investment loss to average net assets*** (2.03)% (3.06)%*
Ratio of total expenses to average net assets*** 2.09% 3.20%*
Portfolio turnover rate 0.00% 0.00%
Total return** 18.81% 2.52%
Net asset value at end of period $105,976,358 $32,210,622
<FN>
* Annualized.
** Total return assumes a purchase of an interest in the Fund at
the beginning of the period and a sale of the Fund interest on
the last day of the period noted and does not reflect the
deduction of placement fees, if any, incurred when subscribing
to the Fund. Total returns for a period of less than a full
year are not annualized.
*** The average net assets used in the above ratios are calculated
by adding any withdrawals payable effective at the end of a
period to the net assets for such period.
</FN>
8. SUBSEQUENT EVENT
Effective January 1, 2004, the Fund has received $10,038,998 from
proceeds from members' subscriptions.
11
THIS PAGE INTENTIONALLY LEFT BLANK
DIRECTORS AND OFFICERS (Unaudited)
Information pertaining to the Directors and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Directors and is available without charge, upon request,
by calling UBS Financial Services Inc.'s, Alternative Investment Group at
800-580-2359.
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX OTHER TRUSTEESHIPS/
TERM OF OFFICE OVERSEEN DIRECTORSHIPS
NAME, AGE, ADDRESS AND AND LENGTH OF PRINCIPAL OCCUPATION(S) BY HELD BY DIRECTOR
POSITION(S) WITH FUND TIME SERVED 1 DURING PAST 5 YEARS DIRECTOR 2 OUTSIDE FUND COMPANY
- ------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
Meyer Feldberg, (61) Term - Dean and Professor of Mgmt of 36 Director of:
UBS Financial Services Inc. Indefinite Graduate School of Business, Primedia, Inc.,
1285 Avenue of the Americas Length-since Columbia University Federated Department
New York, NY 10019 Inception Stores, Inc.,
Director Revlon, Inc., Select
Medical, Inc. and
SAPPI Ltd.
- ------------------------------------------------------------------------------------------------------------------------
George W. Gowen, (74) Term - Law partner for Dunnington, 14 None
UBS Financial Services Inc. Indefinite Bartholow & Miller
1285 Avenue of the Americas Length-since
New York, NY 10019 Inception
Director
- ------------------------------------------------------------------------------------------------------------------------
M. Cabell Woodward, Jr., (74) Term - Retired 14 None
UBS Financial Services Inc. Indefinite
1285 Avenue of the Americas Length-since
New York, NY 10019 Inception
Director
- ------------------------------------------------------------------------------------------------------------------------
OFFICER(S) WHO ARE NOT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------
Michael Mascis, (36) Term-Indefinite First Vice President / CFO of N/A N/A
UBS Financial Services Inc. Length- since UBS Financial Services Inc.'s,
1285 Avenue of the Americas Inception Alternative Investment Group,
New York, NY 10019 since July 2002. Prior to July
Principal Accounting Officer 2002, Partner Arthur Andersen LLP
- ------------------------------------------------------------------------------------------------------------------------
Mark D. Goldstein, (39) Term-Indefinite Senior Associate General N/A N/A
UBS Financial Services Inc. Length- since Counsel and First Vice
1285 Avenue of the Americas Inception President of UBS Financial
New York, NY 10019 Services Inc., since May 1998.
Secretary
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Lisa Bloomberg, (36) Term-Indefinite Associate General Counsel and N/A N/A
UBS Financial Services Inc. Length- since First Vice President of UBS
1285 Avenue of the Americas Inception Financial Services, Inc., since
New York, NY 10019 April 1999. Prior to April
Assistant Secretary 1999, Associate of Skadden,
Arps, Slate, Meagher & Flom,
LLP.
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<FN>
1 For Directors, their terms are for the duration of the term of the Fund, unless
his status as a Director shall be sooner terminated by death, adjudicated
incompetent, voluntarily withdraw, physically unable to perform duties, removed
either by vote or written consent of at least two-thirds of the Directors or
vote or written consent of Members holding not less than two-thirds of the total
number of votes eligible to be cast by all Members.
2 Of the 36 funds/portfolios in the complex, 22 are advised by an affiliate of
UBS Financial Services, Inc., and 14 comprise UBS Financial Services Inc.'s,
Alternative Investment Group of Funds.
</FN>
ITEM 2. CODE OF ETHICS.
(a) The registrant, as of the end of the period covered by this report, has
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(b) There have been no amendments, during the period covered by this
report, to a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, and that relates to any element of
the code of ethics description.
(c) The registrant has not granted any waivers, including an implicit
waiver, from a provision of the code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions, regardless of whether these individuals are employed
by the registrant or a third party, that relates to one or more of the
items set forth in paragraph (b) of this item's instructions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by the report, the registrant's board of
directors has determined that M. Cabell Woodward, Jr. is qualified to serve as
an audit committee financial expert serving on its audit committee and that he
is "independent," as defined by this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the
audit of the registrant's annual financial statements or services that
are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for those fiscal years are
$15,000 for 2002 and $33,000 for 2003. Such audit fees include fees
associated with the annual audits and filing of the registrant's Form
N-2 and Form N-SAR.
(b) The aggregate fees billed in each of the last two fiscal years for
assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item are $10,000 for 2002 and $4,500 for 2003. Audit-related fees
principally include fees associated with reading and providing comments
on semi-annual reports.
(c) The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning are $9,000 for 2002 and
$26,000 for 2003. Tax fees include fees for tax compliance services.
The 2003 fees also include assisting management in the preparation of
tax estimates.
(d) The aggregate fees billed in each of the last two fiscal years for
products and services provided by the principal accountant, other than
the services reported in paragraphs (a) through (c) of this Item are $0
for 2002 and $1,000 for 2003. Fees for all other services include fees
for administrative services associated with preparing the 2003 K-1's
for mailing.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of
Regulation S-X.
The registrant does not have pre-approval policies and procedures.
(e)(2) The percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X
are as follows:
(b) 100%
(c) 100%
(d) 100%
(f) The percentage of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most
recent fiscal year that were attributed to work performed by persons
other than the principal accountant's full-time, permanent employees
was less than fifty percent.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by,
or under common control with the adviser that provides ongoing services
to the registrant for each of the last two fiscal years of the
registrant was approximately $1.7 million for 2002 and approximately
$1.2 million for 2003.
(h) The registrant's audit committee of the board of directors HAS
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
UBS FUND ADVISOR, L.L.C.
PROXY VOTING POLICIES AND PROCEDURES
I. GENERAL GUIDELINES AND POLICY
UBS Fund Advisor, L.L.C. (the "Adviser") votes proxies for each fund (the
"Fund") for which it acts as the Adviser. Certain of the Funds are funds of
funds that invest primarily in unregistered investment vehicles ("Investment
Funds") which have investors other than the Fund. Each of these Funds may invest
a majority of its assets in non-voting securities of Investment Funds. In
addition, Investment Funds typically do not submit matters to investors for
vote. If an Investment Fund submits a matter to a Fund for vote (and the Fund
holds voting interests in the Investment Fund), The Adviser will vote on the
matter in a way that it believes is in the best interest of the Fund and in
accordance with these policies and procedures.
In voting proxies, the Adviser is guided by general fiduciary
principles. The Adviser's goal is to act prudently, solely in the best interest
of each client. The Adviser attempts to consider all factors of its vote that
could affect the value of the investment and will vote proxies in the manner
that it believes will be consistent with efforts to maximize shareholder values.
It is the Adviser's general policy, absent a particular reason to the
contrary, to vote with management's recommendations on routine matters. Other
matters will be voted on a case-by-case basis.
II. CONFLICTS OF INTEREST
In furtherance of the Adviser's goal to vote proxies in the best
interests of clients, the Adviser follows procedures designed to identify and
address material conflicts that may arise between the Adviser's interests and
those of its clients before voting proxies on behalf of such clients.
(1) Procedures for Identifying Conflicts of Interest.
The Adviser relies on the following to seek to identify conflicts of
interest with respect to proxy voting:
The Adviser's employees are under an obligation (i) to be aware of the
potential for conflicts of interest on the part of the Adviser with
respect to voting proxies on behalf of client accounts both as a result of
an employee's personal relationships and due to special circumstances that
may arise during the conduct of the Adviser's business, and (ii) to bring
conflicts of interest of which they become aware to the attention of Ruth
Goodstein and Mark Goldstein.
(2) Procedures for Assessing Materiality of Conflicts of Interest and for
Addressing Material Conflicts of Interest
A. All conflicts of interest identified must be brought to the
attention of Ms. Goodstein and Mr. Goldstein for resolution.
B. Ms. Goodstein and Mr. Goldstein will work with appropriate personnel
of the Adviser to determine whether a conflict of interest is
material. A conflict of interest will be considered material to the
extent that it is determined that such conflict has the potential to
influence the Adviser's decision-making in voting the proxy. All
materiality determinations will be based on an assessment of the
particular facts and circumstances. The Adviser shall maintain a
written record of all materiality determinations.
C. If it is determined that a conflict of interest is not material, the
Adviser may vote proxies notwithstanding the existence of the
conflict.
D. If it is determined that a conflict of interest is material, the
Adviser's Legal Department will work with appropriate personnel of
the Adviser to agree upon a method to resolve such conflict of
interest before voting proxies affected by the conflict of interest.
Such methods may include:
o disclosing the conflict to clients and obtaining their consent
before voting (which consent in the case of a Fund with a board
of directors may be obtained from the Fund's board of
directors);
o engaging another party on behalf of the client to vote the
proxy on its behalf;
o engage a third party to recommend a vote with respect to the
proxy based on application of the policies set forth herein; or
o such other method as is deemed appropriate under the
circumstances given the nature of the conflict.
The Adviser shall maintain a written record of the method used to
resolve a material conflict of interest.
III. RECORD KEEPING AND OVERSIGHT
The Adviser shall maintain the following records relating to proxy
voting:
o a copy of these policies and procedures;
o a copy of each proxy form (as voted);
o a copy of each proxy solicitation (including proxy statements)
and related materials with regard to each vote;
o documentation relating to the identification and resolution of
conflicts of interest;
o any documents created by the Adviser that were material to a
proxy voting decision or that memorialized the basis for that
decision; and
o a copy of each written client request for information on how
the Adviser voted proxies on behalf of the client, and a copy
of any written response by the Adviser to any (written or oral)
client request for information on how the Adviser voted proxies
on behalf of the requesting client.
Such records shall be maintained and preserved in an easily accessible
place for a period of not less than five years from the end of the fiscal year
during which the last entry was made on such record, the first two years in the
Adviser's office.
In addition, with respect to proxy voting records for any fund
registered under the Investment Company Act of 1940, the Adviser shall maintain
such records as are necessary to allow such fund to comply with its
recordkeeping, reporting and disclosure obligations under applicable laws, rules
and regulations.
In lieu of keeping copies of proxy statements, the Adviser may rely on
proxy statements filed on the EDGAR system as well as on third party records of
proxy statements and votes cast if the third party provides an undertaking to
provide the documents promptly upon request.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. 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 Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-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 last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of ethics, or any amendment thereto, that is the subject of
disclosure required by Item 2 is attached hereto.
(a)(2) Certifications pursuant to 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) UBS Credit & Recovery Fund L.L.C.
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By (Signature and Title)* /S/ Mitchell Tanzman
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Mitchell Tanzman, Co-Chief Executive Officer
(principal executive officer)
Date February 24, 2004
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By (Signature and Title)* /S/ Gregory Brousseau
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Gregory Brousseau, Co-Chief Executive Officer
(principal executive officer)
Date February 24, 2004
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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/ Mitchell Tanzman
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Mitchell Tanzman, Co-Chief Executive Officer
(principal executive officer)
Date February 24, 2004
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By (Signature and Title)* /S/ Gregory Brousseau
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Gregory Brousseau, Co-Chief Executive Officer
(principal executive officer)
Date February 24, 2004
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By (Signature and Title)* /S/ Michael Mascis
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Michael Mascis, Chief Financial Officer
(principal financial officer)
Date February 24, 2004
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* Print the name and title of each signing officer under his or her signature.