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)
Michael Mascis
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: 212-713-2217
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Date of fiscal year end: December 31, 2004
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Date of reporting period: December 31, 2004
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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.
The Report to Shareholders is attached herewith.
UBS CREDIT & RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2004
UBS CREDIT & RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2004
CONTENTS
Report of Independent Registered Public Accounting Firm ................... 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
Schedule of Portfolio Investments ......................................... 12
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Registered Public Accounting Firm
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"), including the
schedule of portfolio investments, as of December 31, 2004, and the related
statements of operations and cash flows for the year then ended and the
statements of changes in members' capital for each of the two years in the
period then ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
investments owned as of December 31, 2004, by correspondence with management of
the investment funds. 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, 2004, 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
two years in the period then ended, in conformity with U.S. generally accepted
accounting principles.
/s/ Ernst & Young LLP
February 25, 2005
1
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
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DECEMBER 31, 2004
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ASSETS
Investments in Investment Funds, at value (cost $134,950,000) $167,902,646
Cash and cash equivalents 12,160,562
Interest receivable 4,622
Other assets 595
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TOTAL ASSETS 180,068,425
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LIABILITIES
Payables:
Withdrawals payable 33,504,676
Investment management fee 212,240
Professional fees 56,807
Administrator fee 43,912
Administration fee 31,480
Other 29,019
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TOTAL LIABILITIES 33,878,134
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NET ASSETS $146,190,291
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MEMBERS' CAPITAL
Represented by:
Net capital contributions $113,237,645
Accumulated net unrealized appreciation on investments 32,952,646
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MEMBERS' CAPITAL $146,190,291
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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, 2004
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INVESTMENT INCOME
Interest $ 39,659
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TOTAL INVESTMENT INCOME 39,659
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EXPENSES
Investment management fee 2,148,277
Administrator fee 444,471
Administration fee 151,642
Professional fees 89,368
Miscellaneous 84,553
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TOTAL EXPENSES 2,918,311
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NET INVESTMENT LOSS (2,878,652)
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REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments 579,202
Change in net unrealized appreciation/depreciation from investments 17,072,259
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NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 17,651,461
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS $ 14,772,809
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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
YEARS ENDED DECEMBER 31, 2004 AND 2003
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UBS FUND
ADVISOR, L.L.C. MEMBERS TOTAL
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MEMBERS' CAPITAL AT JANUARY 1, 2003 $ 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
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 218,801 13,113,263 13,332,064
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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 INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS (1,234,136) 61,667,808 60,433,672
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MEMBERS' CAPITAL AT DECEMBER 31, 2003 $ 17,327 $ 105,959,031 $ 105,976,358
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INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (116) (2,878,536) (2,878,652)
Net realized gain from investments 64 579,138 579,202
Change in net unrealized
appreciation/depreciation from investments 2,037 17,070,222 17,072,259
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 1,985 14,770,824 14,772,809
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MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions -- 59,331,497 59,331,497
Members' withdrawals -- (33,820,146) (33,820,146)
Offering costs (8) (70,219) (70,227)
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
FROM CAPITAL TRANSACTIONS (8) 25,441,132 25,441,124
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MEMBERS' CAPITAL AT DECEMBER 31, 2004 $ 19,304 $ 146,170,987 $ 146,190,291
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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, 2004
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' capital derived from operations $ 14,772,809
Adjustments to reconcile net increase in Members' capital derived from operations
to net cash used in operating activities:
Purchases of investments (51,500,000)
Sale of investments 9,579,202
Net realized gain from investments (579,202)
Change in net unrealized appreciation/depreciation from investments (17,072,259)
Changes in assets and liabilities:
(Increase) decrease in assets:
Advanced subscription in Investment Fund 1,000,000
Interest receivable (3,769)
Other assets (376)
Increase (decrease) in payables:
Investment management fee 74,677
Professional fees (9,897)
Administrator fee 15,451
Administration fee 12,680
Other 16,934
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NET CASH USED IN OPERATING ACTIVITIES (43,693,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 59,331,497
Members' withdrawals (11,037,345)
Offering costs (70,227)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 48,223,925
Net decrease in cash and cash equivalents 4,530,175
Cash and cash equivalents--beginning of year 7,630,387
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CASH AND CASH EQUIVALENTS--END OF YEAR $ 12,160,562
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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, 2004
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1. ORGANIZATION
UBS Credit & Recovery Fund, L.L.C. (the "Fund") 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"), a Delaware limited liability company, to provide
investment advice regarding the selection of Investment Funds and to be
responsible for 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, 2004
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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 Fund's
valuation procedures require the Adviser to consider all relevant
information available at the time the Fund values its portfolio. The
Adviser and/or the Board will consider such information and consider
whether it is appropriate, in light of all relevant circumstances, to
value such a position at its net asset value as reported or whether to
adjust such value. The underlying investments of each Investment Fund are
accounted for at fair value as described in each Investment Fund's
financial statements. (See Schedule of Portfolio Investments)
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 $2,878,652 and $579,202 from accumulated net
investment loss and accumulated net realized gain, respectively, to net
capital contributions during the year ended December 31, 2004. 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)
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DECEMBER 31, 2004
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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,
2004 there were no open repurchase agreements.
G. USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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. 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's 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"), 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
8
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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DECEMBER 31, 2004
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3. RELATED PARTY TRANSACTIONS (CONTINUED)
not constitute assets of the Fund. 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.
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 by the Fund related to Directors for the year ended
December 31, 2004 were $23,374.
4. ADMINISTRATION AND CUSTODIAN FEES
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.
5. CREDIT FACILITY
Effective July 2, 2004 the Fund, along with other UBS sponsored funds,
entered into a $75,000,000 committed, unsecured revolving line of credit
with Harris Trust and Savings Bank. Under the most restrictive
arrangement, the Fund may borrow an amount that combined with the other
borrowings of the Fund would not exceed 20% of its net assets. The Fund's
borrowing capacity is also limited to the portion of the unused line of
credit at any point in time. The Fund is only liable under the line of
credit to the extent of its own borrowing there under. The interest rate
on the borrowing is based on the Federal Funds rate plus 150 basis points
per annum. The expiration date of such credit agreements is July 1, 2005.
The committed facility also requires a fee to be paid by the Fund, on a
pro rata basis, based on the amount of the aggregate commitment which has
not been utilized of 25 basis points per annum. The Fund had no borrowings
outstanding at December 31, 2004.
6. SECURITIES TRANSACTIONS
Aggregate purchases and proceeds from sales of Investment Funds for the
year ended December 31, 2004, amounted to $51,500,000 and $9,579,202,
respectively.
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 Investment
Funds on Schedules K-1. The Fund has not yet received all such Schedules
K-1 for the year ended December 31, 2004.
9
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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DECEMBER 31, 2004
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7. INVESTMENTS
As of December 31, 2004, 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, 2004.
INVESTMENT OBJECTIVE COST FAIR VALUE
-------------------- ---- ----------
Distressed Obligations - (Public and Private) $ 93,290,935 $116,071,099
High Yield 28,541,925 35,511,410
Direct Debt/Bank Loans 13,117,140 16,320,137
------------ ------------
Total $134,950,000 $167,902,646
============ ============
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
18 months from initial investment. Detailed information about the
Investment Funds' portfolios is not available.
8. INDEMNIFICATION
In the ordinary course of business, the Fund may enter into contracts or
agreements that contain indemnifications or warranties. Future events
could occur that lead to the execution of these provisions against the
Fund. Based on its history and experience, management feels the likelihood
of such an event is remote.
9. 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.
10
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2004
- --------------------------------------------------------------------------------
10. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for the periods indicated:
PERIOD FROM
AUGUST 1, 2002
(COMMENCEMENT OF
OPERATIONS) THROUGH
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- ----------------- -----------------
Ratio of net investment loss to average net assets*** (1.97)% (2.03)% (3.06)%*
Ratio of total expenses to average net assets(a), *** 2.00% 2.09% 3.20%*
Portfolio turnover rate 6.71% 0.00% 0.00%
Total return** 9.96% 18.81% 2.52%
Net asset value at end of period $146,190,291 $105,976,358 $32,210,622
(A). Ratio of total expenses to average net assets does not include the
impact of expenses for incentive allocations or incentive fees
related to the underlying Investment Funds.
* 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. An
individual member's ratios and return may vary from the above based
on the timing of capital transactions.
*** 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.
11. SUBSEQUENT EVENTS
Effective January 1, 2005, the Fund has redeemed $7,000,000 in interests
from Investment Funds. Additionally, the Fund has borrowings outstanding
as of January 31, 2005 of $13,300,000. Effective January 12, 2005, the
unsecured revolving line of credit with Harris Trust and Savings Bank was
increased to a commitment of $150,000,000.
11
UBS CREDIT & RECOVERY FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS
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DECEMBER 31, 2004
- --------------------------------------------------------------------------------
REALIZED AND
UNREALIZED
% OF GAIN/(LOSS)
MEMBERS' FROM
INVESTMENT FUND: COST FAIR VALUE CAPITAL INVESTMENTS LIQUIDITY
- ---------------- ---- ---------- ------- ----------- ---------
Ahab Partners, L.P. $ 8,250,000 $ 11,426,938 7.82% $ 1,443,102 Quarterly
Aspen Partners, L.P. Series A 19,500,000 23,256,728 15.91 2,839,470 Annually
Canyon Value Realization Fund, L.P. 8,400,000 10,721,158 7.33 1,211,090 Annually
Chatham Assets Partners High Yield Fund, L.P. 11,000,000 12,105,884 8.28 947,084 Quarterly
Harbert Distressed Investment Fund, L.P. 12,400,000 15,914,985 10.89 1,414,926 Quarterly
MacKay Shields Long/Short Fund, L.P. 12,750,000 15,349,536 10.50 1,051,995 Monthly
Marathon Special Opportunity Fund, L.P. 4,500,000 7,640,912 5.23 1,719,129 Quarterly
Marathon Structured Finance Fund, L.P.* 2,000,000 2,025,662 1.39 25,662 Quarterly
OZF Credit Opportunities Fund II, L.P. 5,400,000 6,784,105 4.64 639,532 Annually
Quadrangle Debt Recovery Fund, L.P. 6,750,000 11,408,400 7.80 1,981,994 Quarterly
Scottwood Partners, L.P. 6,500,000 8,353,672 5.71 843,445 Quarterly
Styx Partners, L.P. 14,000,000 16,615,207 11.37 1,516,781 Annually
Trilogy Financial Partners, L.P. 15,500,000 17,597,248 12.04 1,248,296 Quarterly
Whitebox Hedged High Yield Fund, L.P. 8,000,000 8,702,211 5.95 702,211 Monthly
Redeemed Investment Funds -- -- 0.00 66,744
------------ ------------ ------ -----------
TOTAL $134,950,000 $167,902,646 114.86% $17,651,461
============ ============ ====== ===========
* Marathon Stuctured Finance Fund, L.P. has an 18 month lockup from date of
each investment. As of December 31, 2004, 16 months remain.
The preceding notes are an integral part of these financial statements.
12
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 Service 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
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DISINTERESTED DIRECTORS
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Meyer Feldberg, (62) Term - Dean and Professor of Mgmt of 48 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.
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George W. Gowen, (75) 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
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Stephen H. Penman, (58) Term - Professor of Financial 14 None
UBS Financial Services Inc. Indefinite Accounting of Graduate School
1285 Avenue of the Americas Length-since of Business, Columbia University
New York, NY 10019 July 2004
Director
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OFFICER(S) WHO ARE NOT DIRECTORS
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Michael Mascis, (37) Term-Indefinite Senior Vice President / CFO of N/A N/A
UBS Financial Services Inc. Length- since UBS Financial Services Inc.
1285 Avenue of the Americas Inception Alternative Investment Group,
New York, NY 10019 since July 2002.
Principal Accounting Officer Prior to July 2002, Partner
and Secretary Arthur Andersen LLP
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(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 48 funds/portfolios in the complex, 34 are advised by an affiliate
of UBS Financial Services, Inc., and 14 comprise UBS Financial Services
Inc.'s, Alternative Investment Group of Funds.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
HTTP://WWW.SEC.GOV and may be reviewed or copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
Proxy Voting
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available with out charge
upon request by calling the Alternative Investment Group at 800-580-2329.
2
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. The code of ethics may be obtained without charge by
calling 800-486-2608.
(c) 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.
(d) 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 had
determined that Professor Stephen Penman, a member of the audit committee of the
Board, is the audit committee financial expert and that he is "independent," as
defined by Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
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(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 $33,000 for 2003 and $37,000 for 2004. Such audit fees include fees
associated with the annual audits and fees for providing a report in
connection with the registrant's report on Form N-SAR.
Audit-Related Fees
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(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 $4,500 for 2003 and $4,500 for 2004. Audit-related fees
principally include fees associated with reviewing and providing
comments on semi-annual reports.
Tax Fees
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(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 $26,000 for 2003 and
$30,000 for 2004. Tax fees include fees for tax compliance services and
assisting management in the preparation of tax estimates.
All Other Fees
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(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
$1,000 for 2003 and $1,000 for 2004. Fees for all other services
include fees for administrative services associated with preparing the
K-1's for mailing. There were no fees billed in the last two fiscal
years for services rendered by the principal accountant 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 ("Service Affiliates")
which were required to be pre-approved by the audit committee.
(e)(1) The registrant's audit committee pre-approves the principal
accountant's engagements for audit and non-audit services to the
registrant, and certain non-audit services to service Affiliates
that are required to be pre-approved, on a case-by-case basis.
Pre-approval considerations include whether the proposed services
are compatible with maintaining the principal accountant's
independence.
(e)(2) There were no 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, because
such services were pre-approved.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to Service Affiliates
for each of the last two fiscal years of the registrant was $1.2
million for 2003 and $1.5 million for 2004.
(h) The registrant's audit committee of the board of directors HAS
considered whether the provision of non-audit services that were
rendered to Service Affiliates 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. SCHEDULE OF INVESTMENTS.
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.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The registrant is a fund of funds that invests primarily in unregistered
investment vehicles that have investors other than the registrant, and in other
registered investment companies ("Investment Funds"). The Fund may invest a
majority of its assets in non-voting securities of Investment Funds.
The registrant has delegated voting of proxies in respect of portfolio holdings
to UBS Fund Advisor, L.L.C. (the "Adviser"), to vote the Fund's proxies in
accordance with the Adviser's proxy voting guidelines and procedures. However,
Investment Funds typically do not submit matters to investors for vote. If an
Investment Fund submits a matter to the registrant for vote (and the registrant
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 registrant and
in accordance with the following proxy voting guidelines (the "Voting
Guidelines"):
o 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 the registrant.
o 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.
o The Adviser, absent a particular reason to the contrary, generally will
vote with management's recommendations on routine matters. Other
matters will be voted on a case-by-case basis.
The Adviser applies its Voting Guidelines in a manner 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. The
Adviser relies on the following to seek to identify conflicts of interest with
respect to proxy voting and assess their materiality:
o 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 certain designated persons.
o Such designated persons work with appropriate personnel of the Adviser
to determine whether an identified 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.
o If it is determined that a conflict of interest is not material, the
Adviser may vote proxies notwithstanding the existence of the conflict.
o If it is determined that a conflict of interest is material, the
Adviser's legal department works 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 the registrant's Board and obtaining the
consent from registrant's Board before voting;
o engaging another party on behalf of the client to vote the proxy on
its behalf;
o engaging 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.
o The Adviser shall maintain a written record of the method used to
resolve a material conflict of interest.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet applicable.
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, where those changes were
implemented after the registrant last provided disclosure in response to the
requirements of Item 7(d)(2)(ii)(G) 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 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 second fiscal
quarter of the period covered by this report that have 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) UBS Credit & Recovery Fund L.L.C.
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By (Signature and Title)* /s/ Richard Sipes
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Richard Sipes, Principal Executive Officer
Date February 28, 2005
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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/ Richard Sipes
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Richard Sipes, Principal Executive Officer
By (Signature and Title)* /s/ Michael Mascis
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Michael Mascis, Chief Financial Officer
(principal financial officer)
Date February 28, 2005
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* Print the name and title of each signing officer under his or her signature.