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)
James Dwyer
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: 212-882-5819
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Date of fiscal year end: December 31, 2005
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Date of reporting period: December 31, 2005
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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, 100 F Street, NE,
Washington, DC 20549. 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 Investors is attached herewith.
UBS CREDIT & RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2005
UBS CREDIT & RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2005
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
[GRAPHIC OMITTED] ERNST & YOUNG [GRAPHIC OMITTED] Ernst & Young LLP [GRAPHIC OMITTED] Phone: (212) 773-3000
5 Times Square www.ey.com
New York, New York 10036-6530
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, 2005,
and the related statement 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 and financial highlights for each of the
years indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits. 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 and financial
highlights are free of material misstatement. We were not engaged to perform
an audit of the Fund's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2005 by correspondence
with management of the investment funds or by other appropriate auditing
procedures where replies were not received. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of UBS Credit & Recovery Fund,
L.L.C. at December 31, 2005, 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, and the financial highlights
for each of the indicated years, in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, NY
February 20, 2006
A Member Practice of Ernst & Young Global
UBS CREDIT & RECOVERY FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
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DECEMBER 31, 2005
- --------------------------------------------------------------------------------
ASSETS
Investments in Investment Funds, at value (cost $135,928,000) $ 177,546,201
Cash and cash equivalents 37,590,645
Receivable from Investments 9,698,233
Advanced subscription in Investment Fund 1,000,000
Interest receivable 11,075
Other assets 420
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TOTAL ASSETS 225,846,574
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LIABILITIES
Payables:
Withdrawals payable 28,458,367
Investment management fee 269,894
Professional fees 60,439
Administrator fee 55,840
Administration fee 39,876
Other 27,411
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TOTAL LIABILITIES 28,911,827
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NET ASSETS $ 196,934,747
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MEMBERS' CAPITAL
Represented by:
Net capital contributions $ 155,316,546
Accumulated net unrealized appreciation on investments 41,618,201
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MEMBERS' CAPITAL $ 196,934,747
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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, 2005
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INVESTMENT INCOME
Interest $ 289,571
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TOTAL INVESTMENT INCOME 289,571
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EXPENSES
Investment management fee 2,688,036
Administrator fee 556,145
Administration fee 188,554
Professional fees 150,269
Interest expense 80,680
Miscellaneous 157,072
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TOTAL EXPENSES 3,820,756
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NET INVESTMENT LOSS (3,531,185)
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REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments 3,704,233
Change in net unrealized appreciation/depreciation from investments 8,665,555
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NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 12,369,788
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS $ 8,838,603
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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, 2005 AND 2004
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UBS FUND
ADVISOR, L.L.C. MEMBERS TOTAL
- ------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT JANUARY 1, 2004 $ 17,327 $ 105,959,031 $ 105,976,358
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
- ------------------------------------------------------------------------------------------------------------------
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
DERIVED FROM CAPITAL TRANSACTIONS (8) 25,441,132 25,441,124
- ------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT DECEMBER 31, 2004 $ 19,304 $ 146,170,987 $ 146,190,291
- ------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (376) (3,530,809) (3,531,185)
Net realized gain from investments 129 3,704,104 3,704,233
Change in net unrealized
appreciation/depreciation from investments 1,094 8,664,461 8,665,555
- ------------------------------------------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 847 8,837,756 8,838,603
- ------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions -- 71,838,790 71,838,790
Members' withdrawals -- (29,871,459) (29,871,459)
Offering costs (6) (61,472) (61,478)
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
FROM CAPITAL TRANSACTIONS (6) 41,905,859 41,905,853
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MEMBERS' CAPITAL AT DECEMBER 31, 2005 $ 20,145 $ 196,914,602 $ 196,934,747
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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, 2005
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' capital derived from operations $ 8,838,603
Adjustments to reconcile net increase in Members' capital derived from operations
to net cash used in operating activities:
Purchases of investments (43,000,000)
Proceeds from disposition of investments 45,726,233
Net realized gain (loss) on investments (3,704,233)
Change in net unrealized appreciation/depreciation from investments (8,665,555)
Changes in assets and liabilities:
(Increase) decrease in assets:
Advanced subscription in Investment Fund (1,000,000)
Receivable from Investments (9,698,233)
Interest receivable (6,453)
Other assets 175
Increase (decrease) in payables:
Investment management fee 57,654
Professional fees 3,632
Administrator fee 11,928
Administration fee 8,396
Other (1,608)
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NET CASH USED IN OPERATING ACTIVITIES (11,429,461)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 71,838,790
Members' withdrawals (34,917,768)
Offering costs (61,478)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 36,859,544
Net increase in cash and cash equivalents 25,430,083
Cash and cash equivalents--beginning of year 12,160,562
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CASH AND CASH EQUIVALENTS--END OF YEAR $ 37,590,645
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Supplemental cash flows disclosure:
Interest paid $ 80,680
- -----------------------------------------------------------------------------------------------------------
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, 2005
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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)
- --------------------------------------------------------------------------------
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
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 $3,531,185 and $3,704,233 from accumulated
net investment loss and accumulated net realized gain, respectively, to
net capital contributions during the year ended December 31, 2005. 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, 2005
- --------------------------------------------------------------------------------
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, 2005 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)
- --------------------------------------------------------------------------------
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
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 of the Fund receives an annual retainer of $5,000 plus a
fee for each meeting attended. 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, 2005 were
$22,625.
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 1, 2005, the Fund, along with other UBS sponsored funds,
entered into a $150,000,000 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 June 30, 2006. 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. For the year ended December 31, 2005, the Fund's average
interest rate paid on borrowings was 4.03% per annum and the average
borrowings outstanding are $1,999,726. Interest expense for the year
ended December 31, 2005 was $80,680, all of which was paid during the
year.
6. SECURITIES TRANSACTIONS
Aggregate purchases and proceeds from sales of Investment Funds for the
period ended December 31, 2005, amounted to $43,000,000 and $45,726,233
respectively.
The cost of investments 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 schedule K-1 for the year ended December 31, 2005.
9
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
7. INVESTMENTS
As of December 31, 2005, 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, 2005.
Investment Objective Cost Fair Value
-------------------- ---- ----------
Diversified Credit $ 51,947,198 $ 67,852,303
Distressed 30,797,483 40,227,004
Capital Structure Arbitrage 26,727,331 34,910,659
Direct Loans 26,455,988 34,556,235
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Total $135,928,000 $177,546,201
============ ============
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. 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.
9. 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.
10
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
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
YEARS ENDED DECEMBER 31, YEAR ENDED
2005 2004 2003 DECEMBER 31, 2002
---- ---- ---- -----------------
Ratio of net investment loss to average
net assets*** (1.93)% (1.97)% (2.03)% (3.06)%*
Ratio of total expenses to average net
assets (a)(,)*** 2.09% 2.00% 2.09% 3.20%*
Portfolio Turnover Rate 24.36% 6.71% -- --
Total Return** 4.36% 9.96% 18.81% 2.52%
Average Debt Ratio*** 1.09% -- N/A N/A
Net asset value at end of period $196,934,747 $146,190,291 $105,976,358 $32,210,622
<FN>
a. Ratio of total expenses to average net assets does not include the impact of expenses for 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.
</FN>
11
UBS CREDIT & RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2005
- --------------------------------------------------------------------------------
REALIZED &
% OF UNREALIZED GAIN
MEMBERS (LOSS) FROM
INVESTMENT FUND COST FAIR VALUE CAPITAL INVESTMENTS LIQUIDITY
- ------------------------------------------------------------------------------------------------------------------------------
Ahab Partners, L.P. $ 8,250,000 $ 12,637,694 6.42% $1,210,755 Quarterly
Aspen Partners, L.P. Series A 1,978,000 3,327,927 1.69 (2,406,801) Annually
Canyon Value Realization Fund, L.P. 7,400,000 10,642,748 5.40 921,590 Annually
Cyrus Credit Opportunities Fund II, L.P.* 10,400,000 12,044,970 6.12 260,865 Annually
Harbert Distressed Investment Fund, L.P. 8,400,000 13,437,895 6.82 1,522,910 Quarterly
Highland Crusader Fund, L.P. 8,000,000 8,243,597 4.19 243,597 Quarterly
Mackay Shields Long/Short Fund, L.P. 12,750,000 15,771,152 8.01 421,616 Monthly
Marathon Special Opportunity Fund, L.P. 13,500,000 17,843,504 9.06 1,202,592 Annually
Marathon Structured Finance Fund, L.P.** 15,000,000 16,205,716 8.23 1,180,054 Quarterly
Quadrangle Debt Recovery Fund, L.P. 6,750,000 14,130,413 7.18 2,722,013 Quarterly
Styx Partners, L.P. 14,000,000 18,346,412 9.32 1,731,205 Annually
Trilogy Financial Partners, L.P. 15,500,000 19,057,379 9.68 1,460,132 Quarterly
Whitebox Hedged High Yield Fund, L.P. 9,500,000 11,148,350 5.66 946,139 Monthly
Whitebox Hedged High Yield Fund, Ltd. 4,500,000 4,708,444 2.39 208,444 Monthly
Redeemed Investment Funds -- -- 744,677
-------------------------------------------------------------------
TOTAL $135,928,000 $177,546,201 90.17% $12,369,788
===================================================================
<FN>
* Name officially changed as of January 1, 2005, previously known as OZF Credit Opportunities Fund II, L.P.
** Marathon Structured Finance Fund, L.P. has an 18 month lockup from the date of each investment. As of December
31, 2005, the initial investment has 4 months remaining.
</FN>
The preceding notes are an integral part of these financial statements.
12
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UBS CREDIT & RECOVERY FUND, L.L.C.:
ADVISORY CONTRACT RENEWAL RIDER
The Directors (including the Independent Directors) last evaluated the
Investment Advisory Agreement at a meeting on July 19, 2005. The Directors met
in an executive session during which they were advised by and had the
opportunity to discuss with independent legal counsel the approval of the
Investment Advisory Agreement. The Directors reviewed materials furnished by the
Adviser, including information regarding the Adviser, its affiliates and its
personnel, operations and financial condition. The Directors also reviewed,
among other things, the nature of the services to be provided by the Adviser,
including its investment process, and the experience of the investment advisory
and other personnel proposing to provide services to the Fund. The Directors
felt that the quality of service offered by the Adviser to the Fund was
appropriate and that the Adviser's personnel had sufficient expertise to manage
the Fund. The Directors also reviewed the performance of the Fund and compared
that performance to the performance of other investment companies presented by
the Adviser which have objectives and strategies similar to those of the Fund
and which are managed by third-party investment advisers ("Comparable Funds").
The Directors observed that the Fund's 2004 performance and its performance
since inception was below the median performance of the Comparable Funds, and
that its performance for the first six months of 2005 lagged that of each
Comparable Fund. The Directors acknowledged, however, the limitations in these
comparisons insofar as the Fund has a broader mandate than its Comparable Funds,
which focus almost exclusively on distressed investing. The Directors also
compared the volatility of the Fund to that of the Comparable Funds presented.
They noted that the Fund's volatility was lower than that of the median
volatility of the Comparable Funds. The Directors also considered the advisory
fees being
charged by the Adviser for its services as compared to those charged to the
Comparable Funds, and as compared to the advisory fees charged by the Adviser
and its affiliates for other UBS alternative products. The information presented
to the Directors showed that the management fees being charged to the Fund were
higher than the median management fees being charged to the Comparable Funds,
although lower than the highest management fee being charged to any such
Comparable Fund. The Directors noted that the Fund was not subject to an
incentive fee. In comparing the management fee being charged to the Fund to the
fees being charged by the Adviser and its affiliates for other UBS alternative
investment products, the Directors noted that although the management fee was
the highest being charged to an Alternative Investment Group funds-of-funds, the
Fund was not subject to any incentive fee. In light of the foregoing, the
Directors felt that the management fee being charged to the Fund was
appropriate. The Directors also considered the profitability of the Adviser both
before payment to brokers and after payment to brokers and concluded that the
profits to be realized by the Adviser and its affiliates under the Investment
Advisory Agreement and from other relationships between the Fund and the Adviser
were within a range the Directors considered reasonable and appropriate. The
Directors also discussed the fact that the Fund was not large enough at that
time to support a request for breakpoints due to economies of scale. The
Directors determined that the fees under the Investment Advisory Agreement do
not constitute fees that are so disproportionately large as to bear no
reasonable relationship to the services rendered and that could not have been
the product of arm's-length bargaining, and concluded that the fees were
reasonable. The Directors concluded that approval of the Investment Advisory
Agreement was in the best interests of the Fund and its investors.
2
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 OTHER TRUSTEESHIPS/
TERM OF OFFICE COMPLEX DIRECTORSHIPS HELD BY
AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY DIRECTOR OUTSIDE FUND
NAME, AGE AND ADDRESS TIME SERVED 1 DURING PAST 5 YEARS DIRECTOR 2 COMPLEX
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Gowen (76) Term--Indefinite Law partner of Dunnington, Bartholow 14 None
UBS Financial Services Inc. Length--since & Miller
1285 Avenue of the Americas Commencement of
New York, NY 10019 Operations
Director
- ------------------------------------------------------------------------------------------------------------------------------------
Stephen H. Penman (59) Term--Indefinite Professor of Financial Accounting of 14 None
UBS Financial Services Inc. Length--since the Graduate School of Business,
1285 Avenue of the Americas July 1, 2004 Columbia University
New York, NY 10019
Director
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
Meyer Feldberg (63) 3 Term--Indefinite Dean (Emeritus since March 2005) and 36 Director of:
UBS Financial Services Inc. Length--since Sanford C. Bernstein Professor of Primedia, Inc.,
1285 Avenue of the Americas Commencement of Leadership and Ethics of the Graduate Federated Department
New York, NY 10019 Operations School of Business, Columbia Stores, Inc.,
Director University; Senior Advisor for Morgan Revlon, Inc. and SAPPI,
Stanley & Co. Incorporated since Ltd.
March 2005
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS WHO ARE NOT DIRECTORS
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas Lindgren (44) Term--Indefinite Managing Director of UBS Financial N/A N/A
UBS Financial Services Inc. Length--since Services Inc. since June 2005
1285 Avenue of the Americas July 19, 2005 Prior to June 2005, Managing Director
New York, NY 10019 and Head of Alternative Investments at
Principal Executive Officer United States Trust Company, N.A.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Mascis (38) Term--Indefinite First Vice President of UBS Financial N/A N/A
UBS Financial Services Inc. Length--since Services Inc. since July 2002
1285 Avenue of the Americas Commencement of Prior to July 2002, Partner of Arthur
New York, NY 10019 Operations Andersen LLP
Principal Accounting Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Frank S. Pluchino (46) Term--Indefinite Assistant Director of Compliance of N/A N/A
UBS Financial Services Inc. Length--since UBS Financial Services Inc. since 2003
1285 Avenue of the Americas July 19, 2005 Prior to 2003, Chief Compliance
New York, NY 10019 Officer of Liberty View Capital
Chief Compliance Officer Management, Inc., an investment
adviser, and LibertyView Alternative
Asset Management, Inc., an NASD
broker-dealer
- ------------------------------------------------------------------------------------------------------------------------------------
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 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 the cast by all Members.
2 Of the 36 funds/portfolios in the complex as of December 31, 2004, 22 are
advised by an affiliate of UBS Financial Services Inc. and 14 comprise UBS
Financial Services' Alternative Investment Group of Funds.
3 Mr. Feldberg is an "interested person" of the Fund because he is an affiliated
person of a broker-dealer with which the UBS Financial Services Alternative
Investment Group of Funds does business. Mr. Feldberg is not an affiliated
person of UBS Financial Services or its affiliates.
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.
UBS FINANCIAL SERVICES INC. IS A SUBSIDIARY OF UBS AG
DIRECTORS AND OFFICERS (UNAUDITED) (Continued)
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 without charge
upon request by calling the UBS Financial Services Inc.'s Alternative Investment
Group at 800-580-2329.
UBS FINANCIAL SERVICES INC. IS A SUBSIDIARY OF UBS AG
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
- ----------
(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
$37,000 for 2004 and $39,960 for 2005. Such audit fees include fees
associated with annual audits for providing a report in connection with
the registrant's report on form N-SAR.
Audit-Related Fees
- ------------------
(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 2004 and $4,500 for 2005. Audit related fees
principally include fees associated with reviewing and providing
comments on semi-annual reports.
Tax Fees
- --------
(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 $30,000 for 2004 and
$31,500 for 2005. Tax fees include fees for tax compliance services and
assisting management in preparation of tax estimates.
All Other Fees
- --------------
(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 2004 and $0 for 2005.
(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 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 $1.5 million for 2004 and $3.1 million for 2005.
(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. 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 Proxy Voting Policies are as follows:
UBS FUND ADVISOR, L.L.C.
PROXY-VOTING POLICIES AND PROCEDURES
A. INTRODUCTION
UBS Fund Advisor, L.L.C. (the "Adviser") votes proxies for each fund
(each a "Fund," collectively, the "Funds") for which it acts as the Adviser and
as such, has adopted these Proxy-Voting Policies and Procedures (these "Policies
and Procedures"). The Funds are funds of funds that invest primarily in
unregistered investment vehicles ("Investment Funds") which have investors other
than the Fund. Generally, each of the Funds may invest a majority of its assets
in non-voting securities of Investment Funds.
The Investment Funds typically do not submit matters to investors for vote;
however, should a matter be submitted for vote and provided the Fund holds
voting interests in the Investment Fund, the Adviser will vote proxies in what
it views to be in the best interest of the Fund and in accordance with these
Policies and Procedures.
B. FIDUCIARY DUTY
Proxy-voting is an integral part of the Adviser's investment management
process. The Adviser is under a fiduciary duty to act in the best interest of
the Fund(s) and to vote in a manner it believes to be consistent with efforts to
maximize shareholder value. This authority carries with it a responsibility on
the Adviser's part to analyze the issues connected with the votes and to
evaluate the probable impact of its vote on the value of the investment.
C. VOTING PROCEDURES
Generally speaking, where the Adviser holds voting rights, it will vote
consistent with management's recommendations on routine matters, absent a
particular reason to the contrary. Non-routine matters will be voted on a
case-by-case basis taking into consideration the best interests of the Fund(s)
and the maximization of shareholder value.
D. CONFLICTS OF INTEREST
Any circumstance or relationship which would compromise a portfolio
manager's objectivity in voting proxies in the best interest of the Fund(s)
would constitute a conflict of interest. In such situations, the Adviser will
address any material conflicts before voting proxies on behalf of the Fund(s).
As a matter of policy, the Adviser will presume the existence of a conflict of
interest for proxy-voting purposes in situations where:
o A current investor of the Adviser is affiliated with an Investment Fund
soliciting proxies or has communicated its view to the Adviser on an
impending proxy vote;
o The portfolio manager responsible for proxy-voting has identified a
personal interest in the Investment Fund soliciting proxies or in the
outcome of a shareholder vote;
o Members of the portfolio management team, including the portfolio
manager responsible for proxy-voting, and/or members of senior
management, have a personal interest through investment in the
Investment Fund soliciting proxies;
o Members of the Investment Fund or a third party with an interest in the
outcome of a shareholder vote have attempted to influence either the
Adviser or the portfolio manager responsible for voting a proxy.
Employees of the Adviser should be aware of the potential for conflicts
of interest that may result, on the part of the Adviser, from employees'
personal relationships or special circumstances that may result as part of the
Adviser's normal course of business. Employees who become aware of any such
conflicts of interest are under obligation to bring them to the attention of the
Chief Compliance Officer, Legal or the Risk Control Manager (or designees
thereof) who will work with appropriate personnel of the Adviser to determine
the materiality of the conflict.
ADDRESSING MATERIAL CONFLICTS OF INTEREST. A conflict of interest will
be considered material to the extent it is determined that such conflict has the
potential to influence the Adviser's decision-making in the proxy-voting process
and the determination will be based on an assessment of the particular facts and
circumstances.
If it is determined that a conflict of interest is not material, the
Adviser may vote proxies notwithstanding the existence of the conflict. The
Adviser shall maintain a written record of all conflicts of interest identified,
the materiality determination, and the method used to resolve the material
conflict of interest.
If it is determined that a conflict of interest is material, the Adviser's Chief
Compliance Officer or Legal will work with appropriate personnel of the Adviser
to determine a resolution before voting proxies affected by such conflict of
interest. Resolutions may include:
o Disclosing the conflict and obtaining consent before voting (which
consent in the case of the Fund(s) may be obtained from the Fund's
board of directors);
o Engaging another party on behalf of the Fund(s) 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.
E. ANNUAL FILING OF PROXY VOTING RECORD
The Adviser will file an annual report of each proxy voted with respect
to the Fund(s) during the preceding twelve-month period ended June 30 on Form
N-PX, no later than August 31st of the then year.
F. PROXY-VOTING DISCLOSURES
Where the Funds hold voting rights, the Funds shall include in their
Form N-CSR (Certified Shareholder Report) : (i) a description of these Policies
and Procedures; (ii) a statement that a description of these Policies and
Procedures is available without charge, upon request by taking the specified
action; and (iii) a statement that information regarding how the Adviser voted
proxies relating to the Funds during the most recent 12-month period, is
available upon request, without charge by taking the specified action.
G. CONTROL PROCESS
To ensure compliance with these Policies and Procedures, at the time of a fund's
investment in an Investment Fund, the subscription document will be reviewed to
ensure that voting rights have been waived, as is current practice. In the event
a fund does not waive voting rights, the Adviser will adhere to these Policies
and Procedures.
H. RECORD-KEEPING
The Adviser shall maintain the following records relating to
proxy-voting in an easily accessible place for a period of not less than six
years from the end of the fiscal year during which the last entry was made on
such record, the first two years on-site:
o A copy of the Adviser's current Proxy-Voting Policies and Procedures;
o A record of each vote cast by the Adviser on behalf of the Fund(s);
o A copy of each proxy solicitation (including proxy statements) and
related materials with regard to each vote;
o A copy of any document relating to the identification and resolution of
conflicts of interest;
o A copy of any document created by the Adviser that was material to a
proxy-voting decision or that memorialized the basis for that decision;
and
o A copy of each written investor request for information on how the
Adviser voted proxies on behalf of the Fund(s), and a copy of any
written response from the Adviser to any (written or oral) investor
request for information on how the Adviser voted proxies on behalf of
the Fund(s).
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
UBS CREDIT & RECOVERY FUND, L.L.C.
PORTFOLIO MANAGER DISCLOSURE
The registrant (also referred to as the "Fund") is managed by a
portfolio management team, each member of which (each, a "Portfolio Manager" and
together, the "Portfolio Managers") is responsible for the day-to-day management
of the Fund's portfolio. Norman E. Sienko, Jr., the lead member of the portfolio
management team, is primarily responsible for the selection of the Fund's
investments, and is jointly responsible for the allocation of the Fund's assets
among Investment Funds. Russell Sinder and George Rudman, the other members of
the portfolio management team, are jointly and primarily responsible for the
allocation of the Fund's investments.
Mr. Sienko has been associated with UBS Fund Advisor, L.L.C., the
Fund's Adviser since prior to 2000, and he is also a Senior Vice President of
UBS Financial Services Inc. ("UBS Financial Services"). Mr. Sinder has been
associated with the Adviser since 1998, and he is also a First Vice President of
UBS Financial Services. Mr. Rudman has been associated with the Adviser since
2001, and he is also a First Vice President of UBS Financial Services.
The Fund's Portfolio Managers manage multiple accounts for the Adviser,
including registered closed-end funds and private domestic and offshore pooled
investment vehicles.
Potential conflicts of interest may arise because of the Portfolio
Managers' management of the Fund and other accounts. For example, conflicts of
interest may arise with the allocation of investment transactions and allocation
of limited investment opportunities. Allocations of investment opportunities
generally could raise a potential conflict of interest to the extent that the
Portfolio Managers may have an incentive to allocate investments that are
expected to increase in value to preferred accounts. Conversely, a Portfolio
Manager could favor one account over another in the amount or the sequence in
which orders to redeem investments are placed. The Portfolio Managers may be
perceived to have a conflict of interest if there are a large number of other
accounts, in addition to the Fund, that they are managing on behalf of the
Adviser. In addition, each Portfolio Manager could be viewed as having a
conflict of interest to the extent that one or more Portfolio Managers have an
investment in accounts other than the Fund. The Adviser periodically reviews the
Portfolio Managers' overall responsibilities to ensure that they are able to
allocate the necessary time and resources to effectively manage the Fund.
Other accounts may have investment objectives, strategies and risks
that differ from those of the Fund. For these or other reasons, the Portfolio
Managers may purchase different investments for the Fund and the other accounts,
and the performance of investments purchased for the Fund may vary from the
performance of the investments purchased for other accounts. The Portfolio
Managers may place transactions on behalf of other accounts that are directly or
indirectly contrary to investment decisions made for the Fund, which could have
the potential to adversely impact the Fund, depending on market conditions.
A potential conflict of interest may be perceived if the Adviser
receives a performance-based advisory fee as to one account but not another,
because a Portfolio Manager may favor the account subject to the performance
fee, whether or not the performance of that account directly determines the
Portfolio Manager's compensation.
The Adviser's goal is to provide high quality investment services to
all of its clients, while meeting its fiduciary obligation to treat all clients
fairly. The Adviser has adopted and implemented
policies and procedures, including brokerage and trade allocation policies and
procedures, that it believes address the conflicts associated with managing
multiple accounts for multiple clients. In addition, the Adviser monitors a
variety of areas, including compliance with Fund guidelines. Furthermore, senior
investment and business personnel at UBS Financial Services periodically review
the performance of the Portfolio Managers.
The Portfolio Managers' compensation is comprised primarily of a fixed
salary and a discretionary bonus paid by UBS Financial Services or its
affiliates and not by the Fund. A portion of the discretionary bonus may be paid
in shares of stock or stock options of UBS AG, the ultimate parent company of
the Adviser, subject to certain vesting periods. The amount of a Portfolio
Manager's discretionary bonus, and the portion to be paid in shares or stock
options of UBS AG, is determined by senior officers of UBS Financial Services.
In general, the amount of the bonus will be based on a combination of factors,
none of which is necessarily weighted more than any other factor. These factors
may include: the overall performance of UBS Financial Services and its
Alternative Investment Group; the overall performance of UBS AG; the
profitability to UBS Financial Services derived from the management of the Fund
and the other accounts managed by the Alternative Investment Group; the absolute
performance of the Fund and such other accounts for the preceding year;
contributions by the Portfolio Manager to assisting in managing the Alternative
Investment Group; participation by the Portfolio Manager in training of
personnel; and support by the Portfolio Manager generally to colleagues. The
bonus is not based on a precise formula, benchmark or other metric.
The following table lists the number and types of other accounts
advised by the Fund's Portfolio Managers and approximate assets under management
in those accounts as of the end of the Fund's most recent fiscal year.
NORMAN E. SIENKO, JR.
REGISTERED INVESTMENT COMPANIES POOLED ACCOUNTS OTHER ACCOUNTS
Number of Number of Number of
Accounts(1) Assets Managed Accounts(2) Assets Managed Accounts Assets Managed
----------- -------------- ----------- -------------- -------- --------------
7 $1.82 billion 3 $145 million 0 N/A
RUSSELL SINDER
REGISTERED INVESTMENT COMPANIES POOLED ACCOUNTS OTHER ACCOUNTS
Number of Number of Number of
Accounts(3) Assets Managed Accounts(2) Assets Managed Accounts Assets Managed
----------- -------------- ----------- -------------- -------- --------------
3 $713 million 1 $24.2 million 0 N/A
GEORGE RUDMAN
REGISTERED INVESTMENT COMPANIES POOLED ACCOUNTS OTHER ACCOUNTS
Number of Number of Number of
Accounts(4) Assets Managed Accounts Assets Managed Accounts Assets Managed
----------- -------------- ----------- -------------- -------- --------------
3 $512.7 million 0 N/A 0 N/A
(1) Of these accounts, 5 accounts with total assets of approximately $1.2
billion charge performance-based advisory fees.
(2) All of these accounts charge performance-based advisory fees.
(3) Of these accounts, 2 accounts with total assets of approximately $594.9
million charge performance-based advisory fees.
(4) Of these accounts, 2 accounts with total assets of approximately $394.6
million charge performance-based advisory fees.
None of the Fund's Portfolio Managers beneficially owns any interests in the
Fund.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the shareholders
may recommend nominees to the registrant's board of directors, where those
changes were implemented after the registrant last provided disclosure in
response to the requirements of Item 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 has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(b) Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) UBS Credit & Recovery Fund L.L.C.
-------------------------------------------------------------------
By (Signature and Title)* /s/Douglas Lindgren
-------------------------------------------------------
Douglas Lindgren, Principal Executive Officer
(principal executive officer)
Date February 27, 2006
----------------------------------------------------------------------------
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/Douglas Lindgren
-------------------------------------------------------
Douglas Lindgren, Principal Executive Officer
(principal executive officer)
Date February 27, 2006
----------------------------------------------------------------------------
By (Signature and Title)* /s/Michael Mascis
-------------------------------------------------------
Michael Mascis, Principal Accounting Officer
(principal financial officer)
Date February 27, 2006
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.