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)
51W 52nd Street, 23rd Floor
New York, NY 10019
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(Address of principal executive offices) (Zip code)
Reba Beeson
c/o UBS Financial Services Inc.
51W 52nd Street, 23rd Floor
New York, NY 10019
(Name and address of agent for service)
registrant's telephone number, including area code: 212-882-5638
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2007
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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 Shareholders is attached herewith.
UBS CREDIT RECOVERY FUND, L.L.C.
(FORMERLY UBS CREDIT & RECOVERY FUND, L.L.C.)
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2007
UBS CREDIT RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
YEAR ENDED
DECEMBER 31, 2007
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 ........................................ 13
[LOGO OMITTED]
ERNST & YOUNG [ ] Ernst & Young LLP [ ] Phone: (212) 773-3000
5 Times Square www.ey.com
New York, NY 10036-6530
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. (formerly, UBS Credit & Recovery
Fund, L.L.C.) (the "Fund"), including the schedule of portfolio investments, as
of December 31, 2007, and the related statements of operations and cash flows
for the year then ended, the statements of changes in members' capital for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended. 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 audits 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 the 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
investments in investment funds as of December 31, 2007, by correspondence with
management of the underlying investment funds and others. 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, 2007, the results of its operations
and its cash flows for the year then ended, the changes in its members' capital
for each of the two years in the period the ended, and the financial highlights
for each of the five years in the period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
February 22, 2008
A member firm of Ernst & Young Global Limited
1
UBS CREDIT RECOVERY FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
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DECEMBER 31, 2007
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ASSETS
Investments in Investment Funds, at fair value
(cost $365,183,850) $503,549,585
Cash and cash equivalents 83,316,077
Interest receivable 134,992
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TOTAL ASSETS 587,000,654
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LIABILITIES
Payables:
Withdrawals payable 22,990,186
Investment Management fee 706,859
Administrator fee 146,246
Professional fees 129,527
Administration fee 105,166
Subscriptions received in advance 100,000
Other 31,332
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TOTAL LIABILITIES 24,209,316
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NET ASSETS $562,791,338
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MEMBERS' CAPITAL
Represented by:
Net capital contributions $424,425,603
Accumulated net unrealized appreciation on investments 138,365,735
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MEMBERS' CAPITAL $562,791,338
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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, 2007
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INVESTMENT INCOME
Interest $ 722,759
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TOTAL INVESTMENT INCOME 722,759
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EXPENSES
Investment Management fee 5,710,893
Administrator fee 1,181,564
Professional fees 528,469
Administration fee 412,601
Interest expense 61,433
Other 327,271
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TOTAL EXPENSES 8,222,231
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NET INVESTMENT LOSS (7,499,472)
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REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investments 11,402,184
Change in net unrealized appreciation/depreciation
from investments 60,548,243
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NET REALIZED AND UNREALIZED GAIN FROM INVESTMENTS 71,950,427
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS $64,450,955
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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, 2007 AND 2006
- --------------------------------------------------------------------------------
UBS FUND
ADVISOR, L.L.C. MEMBERS TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT JANUARY 1, 2006 $20,145 $196,914,602 $196,934,747
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (241) (4,258,721) (4,258,962)
Net realized gain from investments 341 3,000,352 3,000,693
Change in net unrealized
appreciation/depreciation from investments 3,236 36,196,055 36,199,291
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 3,336 34,937,686 34,941,022
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MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions -- 58,960,902 58,960,902
Members' withdrawals -- (15,262,933) (15,262,933)
Offering costs (1) (11,003) (11,004)
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
FROM CAPITAL TRANSACTIONS (1) 43,686,966 43,686,965
- -------------------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT DECEMBER 31, 2006 $23,480 $275,539,254 $275,562,734
- -------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment loss (170) (7,499,302) (7,499,472)
Net realized gain from investments 616 11,401,568 11,402,184
Change in net unrealized
appreciation/depreciation from investments 4,308 60,543,935 60,548,243
- -------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 4,754 64,446,201 64,450,955
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MEMBERS' CAPITAL TRANSACTIONS
Proceeds from Members' subscriptions -- 246,197,843 246,197,843
Members' withdrawals -- (23,417,671) (23,417,671)
Offering costs -- (2,523) (2,523)
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NET INCREASE IN MEMBERS' CAPITAL
FROM CAPITAL TRANSACTIONS -- 222,777,649 222,777,649
- -------------------------------------------------------------------------------------------------------------------------------
MEMBERS' CAPITAL AT DECEMBER 31, 2007 $28,234 $562,763,104 $562,791,338
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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, 2007
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' capital derived from operations $ 64,450,955
Adjustments to reconcile net increase in Members' capital
derived from operations to net cash used in operating
activities:
Purchases of investments (171,122,167)
Proceeds from disposition of investments 16,577,233
Net realized gain from investments (11,402,184)
Change in net unrealized (appreciation)/depreciation from
investments (60,548,243)
Changes in assets and liabilities:
(Increase) decrease in assets:
Interest receivable (120,882)
Other assets 445
Increase (decrease) in payables:
Investment Management fee 362,410
Administrator fee 74,981
Professional fees (40,127)
Administration fee 53,180
Other (8,067)
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NET CASH USED IN OPERATING ACTIVITIES (161,722,466)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 246,297,843
Members' withdrawals (15,690,418)
Offering costs (2,523)
Proceeds from loan 18,250,000
Principal payment of loan (18,250,000)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 230,604,902
Net increase in cash and cash equivalents 68,882,436
Cash and cash equivalents--beginning of year 14,433,641
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CASH AND CASH EQUIVALENTS--END OF YEAR $ 83,316,077
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Supplemental cash flows disclosure:
Interest paid $ 61,433
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
5
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
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1. ORGANIZATION
UBS Credit Recovery Fund, L.L.C. (the "Fund"), formerly known as UBS Credit
& Recovery Fund, L.L.C., was organized as a limited liability company under
the laws of Delaware on April 30, 2002. The Fund is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a
closed-end, non-diversified, management investment company. The Fund's
investment objective is to maximize total return over the long-term. The
Fund is a multi-manager fund that seeks to achieve its objective by
deploying its assets primarily among a select group of portfolio managers
who invest in debt and, to a lesser extent, equity securities
("Obligations"), to take advantage of market opportunities and pricing
inefficiencies between the perceived value of an Obligation and its market
value. Generally, such portfolio managers conduct their investment programs
through unregistered investment funds (collectively, the "Investment
Funds"), in which the Fund invests as a limited partner or member along
with other investors. The Fund commenced operations on August 1, 2002.
The Fund's Board of Directors (the "Directors") has overall responsibility
to manage and control the business affairs of the Fund, including the
exclusive authority to oversee and to establish policies regarding the
management, conduct and operation of the Fund's business. The Directors
have engaged UBS Fund Advisor, L.L.C. ("UBSFA", the "Adviser" and, when
providing services under the Administration Agreement, the
"Administrator"), 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 a direct 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 or a portion thereof (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, 2007
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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 Directors 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 cost recovery
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; interest expense; 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
The Fund has reclassified $7,499,472 and $11,402,184 from accumulated net
investment loss and accumulated net realized gain, respectively, to net
capital contributions during the year ended December 31, 2007. 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, 2007
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES (CONTINUED)
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes".
This standard defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as "more-likely-than-not"
to be sustained by the taxing authority and requires measurement of a tax
position meeting the more-likely-than-not criterion, based on the largest
benefit that is more than 50 percent likely to be realized. Management has
analyzed the Fund's tax positions taken on federal income tax returns for
all open tax years (tax years ended December 31, 2003-2006) for purposes of
implementing FIN 48, and has concluded that no provision for income tax is
required in the Fund's financial statements. The Fund recognizes interest
and penalties, if any, related to unrecognized tax benefits as income tax
expense in the statement of operations. During the period, the Fund did not
incur any interest or penalties.
Each Member is individually required to report on its own tax return its
distributive share of the Fund's taxable income or loss.
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, 2007, there were no
outstanding 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.
8
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
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 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 $7,500 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, 2007 were $34,568,
which is included in other expense.
Other investment partnerships sponsored by UBS Americas or its affiliates
may also maintain investment interests in the Investment Funds owned by the
Fund.
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
9
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
4. ADMINISTRATION AND CUSTODIAN FEES (CONTINUED)
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. LOAN PAYABLE
Effective July 1, 2007, the Fund, along with other UBS sponsored funds,
entered into a $200,000,000 committed, unsecured revolving line of credit
with Bank of Montreal--Chicago Branch, which is the Illinois branch of the
parent to 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 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, 2007 the Funds' average interest rate paid on borrowings were
6.71% per annum and the average borrowings outstanding were $915,544. The
Fund had no borrowings outstanding at December 31, 2007. Interest expense
for the year ended December 31, 2007 was $61,433. The fund had no interest
payable at December 31, 2007.
On December 21, 2007 and December 27, 2007, the Fund along with other UBS
sponsored funds, entered into the ninth amendment and the tenth amendment
respectively to the existing credit agreement. These two amendments
provided a temporary increase in the credit line from $200,000,000 to
$400,000,000 for the period commencing January 4, 2008, through and
including February 15, 2008. Commencing February 16, 2008, the credit line
reverts back to a $200,000,000 total unsecured facility which terminates on
July 29, 2008.
6. SECURITIES TRANSACTIONS
Aggregate purchases and sales of Investment Funds for the year ended
December 31, 2007, amounted to $171,122,167 and 16,577,233, 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 Schedule K-1. The Fund has not yet received all such schedule
K-1's for the year ended December 31, 2007.
10
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
7. INVESTMENTS
As of December 31, 2007, the Fund had investments in Investment Funds, none
of which were related parties.
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. One or more
underlying fund investments have entered into a side pocket arrangement.
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. NEW ACCOUNTING PRONOUNCEMENTS
On September 20, 2006, the FASB released Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" ("FAS 157"). FAS 157
establishes an authoritative definition of fair value, sets out a framework
for measuring fair value, and requires additional disclosures about
fair-value measurements. The application of FAS 157 is required for fiscal
years beginning after November 15, 2007 and interim periods within those
fiscal years. Management believes that the application of FAS 157 will not
have a material impact on the Fund's financial statements.
11
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
11. FINANCIAL HIGHLIGHTS
The following represents the ratios to average net assets and other
supplemental information for the periods indicated:
YEARS ENDED DECEMBER 31,
2007 2006 2005 2004 2003
---- ---- ---- ---- ----
Ratio of net investment
loss to average net (1.93)%
assets (c) (1.78)% (1.93)% (1.97)% (2.03)%
Ratio of total expenses
to average net assets (a,c) 2.12% 1.99% 2.09% 2.00% 2.09%
Portfolio turnover rate 4.42% 7.60% 24.36% 6.71% --
Total return (b) 18.54% 15.58% 4.36% 9.96% 18.81%
Average debt ratio (c) 0.24% -- 1.09% -- N/A
Net asset value at end of
year $562,791,338 $275,562,734 $196,934,747 $146,190,291 $105,976,358
<FN>
(a) Ratio of total expenses to average net assets does not include the impact of expenses and incentive fees
related to the underlying Investment Funds.
(b) 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.
(c) The average net assets used in the above ratios are calculated using pre-tender net assets.
</FN>
12
UBS CREDIT RECOVERY FUND, LLC
SCHEDULE OF PORTFOLIO INVESTMENTS
- --------------------------------------------------------------------------------
DECEMBER 31, 2007
- --------------------------------------------------------------------------------
REALIZED AND
UNREALIZED
GAIN/(LOSS)
% OF MEMBERS' FROM
INVESTMENT FUND COST FAIR VALUE CAPITAL INVESTMENTS
- -------------------------------------------------------- ------------ ------------ ------------- -----------
Trilogy Financial Partners, L.P. $ 25,500,000 32,878,541 5.84% $ 385,875
Whitebox Hedged High Yield Fund, L.P. 9,500,000 17,966,388 3.19 4,447,989
Whitebox Hedged High Yield Fund, LTD 18,250,000 25,352,563 4.51 5,510,313
------------ ------------ ------ -----------
CAPITAL STRUCTURE ARBITRAGE SUBTOTAL $ 53,250,000 $ 76,197,492 13.54% $10,344,177
Indus Structured Finance Fund, L.P. $ 3,483,850 $ 3,923,777 0.70% $ 439,927
Marathon Structured Finance Fund, L.P. 14,550,715 18,529,206 3.29 454,266
Marathon Structured Finance Fund, L.P. (side pocket) 449,285 449,285 0.08 --
Styx Partners, L.P. 31,000,000 38,767,359 6.89 2,137,018
------------ ------------ ------ -----------
DIRECT LOANS/STRUCTURED FINANCE SUBTOTAL $ 49,483,850 $ 61,669,627 10.96% $ 3,031,211
Aspen Partners, L.P. Series A -- $ 928,447 0.16% $ (901,113)
Gramercy Argentina Opportunity Fund, LTD. $ 10,000,000 10,213,149 1.81 213,149
Gramercy Emerging Markets 3c7 LLC 15,000,000 15,920,049 2.83 920,049
Highland Crusader Fund L.P. 13,500,000 15,768,770 2.80 (636,147)
Marathon Distressed Subprime 20,000,000 20,194,473 3.59 194,473
Marathon Special Opportunity Fund, L.P. 28,500,000 36,577,573 6.50 1,620,163
Quadrangle Debt Recovery Fund, L.P. 6,750,000 17,212,042 3.06 926,290
Subprime Credit Strategies Fund II, L.P. -- 3,385,059 0.60 13,649,500
------------ ------------ ------ -----------
DISTRESSED CREDIT SUBTOTAL $ 93,750,000 $120,199,562 $ 21.35% $15,986,364
Ahab Partners, L.P. $ 9,000,000 $ 16,463,451 2.93% $ 1,751,914
Camulos Master Fund L.P. 22,500,000 24,335,159 4.32 (289,773)
Canyon Value Realization Fund, L.P. 18,900,000 24,584,372 4.37 956,773
Claren Road Credit Partners, L.P. 47,500,000 50,687,128 9.01 2,846,616
Cyrus Credit Opportunities Fund II, L.P. 1,638,317 1,799,744 0.32 161,427
Cyrus Credit Opportunities Fund II, L.P. (side pocket) 22,761,683 26,335,538 4.68 482,039
Harbinger Capital Partners Fund I, L.P. 16,150,000 53,381,412 9.49 28,201,080
Harbinger Capital Partners Special Situations Fund, L.P. 5,250,000 17,071,770 3.03 10,757,798
Highland Credit Strategies Fund LTD 11,500,000 17,868,078 3.18 1,770,627
Pardus European Special Opportunities Fund, L.P. 13,500,000 12,956,252 2.30 (4,049,326)
------------ ------------ ------ -----------
DIVERSIFIED CREDIT SUBTOTAL $168,700,000 $245,482,904 43.63% $42,588,675
TOTAL $365,183,850 $503,549,585 89.48% $71,950,427
============ ============ ====== ===========
INITIAL DOLLAR AMOUNT OF FAIR
ACQUISITION FIRST AVAILABLE VALUE FOR FIRST
INVESTMENT FUND DATE LIQUIDITY* REDEMPTION AVAILABLE REDEMPTION
- -------------------------------------------------------- ----------- ---------- --------------- ---------------------
Trilogy Financial Partners, L.P. 01/01/2003 Quarterly 06/30/2008** 10,634,711
Whitebox Hedged High Yield Fund, L.P. 02/01/2004 Monthly
Whitebox Hedged High Yield Fund, LTD 09/01/2005 Monthly
CAPITAL STRUCTURE ARBITRAGE SUBTOTAL
Indus Structured Finance Fund, L.P. 05/01/2007 Annually 04/30/2010 3,923,777
Marathon Structured Finance Fund, L.P. 11/01/2004 Quarterly
Marathon Structured Finance Fund, L.P. (side pocket) 11/01/2004 N/A
Styx Partners, L.P. 08/01/2002 Annually
DIRECT LOANS/STRUCTURED FINANCE SUBTOTAL
Aspen Partners, L.P. Series A 10/01/2002 Annually
Gramercy Argentina Opportunity Fund, LTD. 08/01/2007 Quarterly 09/30/2008 10,213,149
Gramercy Emerging Markets 3c7 LLC 08/01/2007 Semi-Annually
Highland Crusader Fund L.P. 10/01/2005 Quarterly
Marathon Distressed Subprime 09/01/2007 Every 18 months 06/30/2009 20,194,473
Marathon Special Opportunity Fund, L.P. 10/01/2002 Annually 09/30/2009** 15,366,452
Quadrangle Debt Recovery Fund, L.P. 10/01/2002 Quarterly
Subprime Credit Strategies Fund II, L.P. 11/01/2006 Quarterly
DISTRESSED CREDIT SUBTOTAL
Ahab Partners, L.P. 08/01/2002 Quarterly
Camulos Master Fund L.P. 02/01/2006 Quarterly 06/30/2008 A
Canyon Value Realization Fund, L.P. 08/01/2002 Annually
Claren Road Credit Partners, L.P. 10/01/2006 Quarterly
Cyrus Credit Opportunities Fund II, L.P. 08/01/2002 Annually
Cyrus Credit Opportunities Fund II, L.P. (side pocket) 08/01/2002 N/A
Harbinger Capital Partners Fund I, L.P. 08/01/2002 Quarterly 06/30/2008** 3,861,384
Harbinger Capital Partners Special Situations Fund, L.P. 08/01/2006 Annually 09/30/2008 17,071,770
Highland Credit Strategies Fund LTD 04/01/2006 Quarterly
Pardus European Special Opportunities Fund, L.P. 02/01/2006 Quarterly
DIVERSIFIED CREDIT SUBTOTAL
<FN>
* Available frequency of redemptions after initial lock up period.
** The dollar amount of fair value for first available redemption can be redeemed commencing on the date listed. The remaining
investment amount has no lock-up or other redemption restrictions.
A Camulos Master Fund, L.P. has a fair value of $24,335,159. Of this balance, $8,375,952 is locked-up and restricted from
redemption until 6/30/2008 and $4,411,569 is locked-up and restricted from redemption until 9/30/2008. The remaining
investment amount has no lock-up or other redemption restrictions.
</FN>
The preceding notes are an integral part of these financial statements.
13
UBS CREDIT RECOVERY FUND, L.L.C. (UNAUDITED)
The Directors (including the Independent Directors) last evaluated the
Investment Management Agreement at a meeting on July 20, 2007. 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 Management Agreement. The Directors reviewed materials furnished by
the Adviser, including information regarding the Adviser, its affiliates and its
personnel, operations and financial condition. Tables indicating comparative fee
information, and comparative performance information, as well as a summary
financial analysis for the Fund, were also included in the meeting materials and
were reviewed and discussed. The Directors discussed with representatives of the
Adviser the Fund's operations and the Adviser's ability to provide advisory and
other services to the Fund.
The Directors reviewed, among other things, the nature of the advisory
services to be provided to the Fund 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 discussed the ability
of the Adviser to manage the Fund's investments in accordance with the Fund's
stated investment objectives and policies, as well as the services to be
provided by the Adviser to the Fund, including administrative and compliance
services, oversight of Fund accounting, marketing services, assistance in
meeting legal and regulatory requirements and other services necessary for the
operation of the Fund. The Directors acknowledged the Adviser's employment of
highly skilled investment professionals, research analysts and administrative,
legal and compliance staff members to ensure that a high level of quality in
compliance and administrative services would be provided to the Fund. The
Directors also recognized the benefits which the Fund derives from the resources
available to the Adviser and the Adviser's affiliates, including UBS AG and UBS
Financial Services Inc. ("UBS Financial"). Accordingly, 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 reviewed the performance of the Fund and compared that
performance to the performance of other investment companies presented by UBS
Financial which had objectives and strategies similar to those of the Fund and
which are managed by other, third-party investment advisers ("Comparable
Funds"). The Directors observed that the Fund's performance was better than all
but one Comparable Fund for the first five months of 2007, and since inception
was at the median performance of its Comparable Funds. The Directors also
compared the volatility of the Fund to that of its Comparable Funds. The
Directors observed that the Fund's volatility was at the median volatility of
its Comparable Funds.
The Directors considered the fees being charged by the Adviser for its
services to the Fund as compared to those charged to the Comparable Funds, and
as compared to the fees charged by UBS Fund Advisor, L.L.C. ("UBSFA") and its
affiliates for other UBS alternative investment products. The information
presented to the Directors showed that the management fee being charged to the
Fund was higher than the median management fee being charged to its Comparable
Funds, although lower than the highest management fee being charged to any such
Comparable Fund. The Directors also noted that the Fund was not subject to any
incentive fee. In comparing the management fee being charged to the Fund to the
fees being charged by UBSFA and its affiliates for other UBS alternative
investment products, the Directors observed
that although the management fee charged to the Fund was the highest being
charged to an Alternative Investment Group fund-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 UBSFA both before
payment to brokers and after payment to brokers and concluded that the profits
to be realized by UBSFA and its affiliates under the Fund's Investment
Management Agreement and from other relationships between the Fund and UBSFA
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 were reasonable. The Directors concluded that
approval of the Investment Management Agreement was in the best interests of the
Fund and its shareholders.
DIRECTORS AND OFFICERS (UNAUDITED)
Information pertaining to the Directors and officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Directors and is available without charge, upon request,
by calling UBS Financial Services Inc.'s, Alternative Investment Group at
800-580-2359.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
IN FUND
COMPLEX OTHER TRUSTEESHIPS/
TERM OF OFFICE OVERSEEN DIRECTORSHIPS HELD BY
NAME, AGE, ADDRESS AND AND LENGTH OF PRINCIPAL OCCUPATION(S) BY DIRECTOR OUTSIDE FUND
POSITION(S) WITH FUNDS TIME SERVED(1) DURING PAST 5 YEARS DIRECTOR(2) COMPLEX
- -------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- -------------------------------------------------------------------------------------------------------------------------
Meyer Feldberg (65)(3) Term -- Dean Emeritus and Professor of 42 Director of:
UBS Financial Services Inc. Indefinite Leadership and Ethics of the Primedia, Inc.,
1285 Avenue of the Americas Length--since Graduate School of Business, Macy's, Inc.,
New York, NY 10019 Commencement of Columbia University; Senior Revlon, Inc., NYC
Director Operations Advisor to Morgan Stanley Ballet and SAPPI Ltd.
Advisory Director of
Welsh Carson Anderson
& Stowe and President
of NYC Global Partners.
- -------------------------------------------------------------------------------------------------------------------------
George W. Gowen (78) Term -- Law partner of Dunnington, 13 None
UBS Financial Services Inc. Indefinite Bartholow & Miller
1285 Avenue of the Americas Length--since
New York, NY 10019 Commencement of
Director Operations
- -------------------------------------------------------------------------------------------------------------------------
Stephen H. Penman (61) Term -- Professor of Financial 13 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
- -------------------------------------------------------------------------------------------------------------------------
OFFICER(S) WHO ARE NOT DIRECTORS
- -------------------------------------------------------------------------------------------------------------------------
Robert F. Aufenanger (54)
UBS Financial Services Inc. Term -- Executive Director of UBS
51 West 52nd Street Indefinite Alternative Investments US
New York, NY 10019 Length--since since April 2007 Prior to N/A N/A
Principal Accounting Officer May 1, 2007 April 2007, Chief Financial
Officer and Senior Vice
President of Alternative
Investments Group at U.S. Trust
Corporation from 2003 - 2007;
Consultant to private equity
funds from 2002 - 2003
- -------------------------------------------------------------------------------------------------------------------------
Frank Pluchino (48)
UBS Financial Services Inc. Term - Director of Compliance of UBS
1000 Harbor Boulevard Indefinite Financial Services Inc. since
Weehawken, NJ 07086 Length - since 2003 and Deputy Director of N/A N/A
Chief Compliance Officer July 19, 2005 Compliance UBS Financial
Services of Puerto Rico Inc.
since October 2006. Prior to
2003, Chief Compliance Officer
of LibertyView Capital
Management, Inc., an investment
adviser, and LibertyView
Alternative Asset Management,
Inc., an NASD broker-dealer.
- -------------------------------------------------------------------------------------------------------------------------
Douglas Lindgren (46)
UBS Financial Services Inc. Term - Managing Director of UBS
1285 Avenue of the Americas Indefinite Financial Services Inc. since
New York, NY 10019 Length - since June 2005. Prior to June 2005, N/A N/A
Principal Executive Officer July 19, 2005 Managing Director and Head of
Alternative Investments of
United States Trust Company,
N.A.
- -------------------------------------------------------------------------------------------------------------------------
<FN>
(1) For Directors, their terms are for the duration of the term of the Fund, unless his status as a Director shall be
sooner terminated by death, adjudicated incompetent, voluntarily withdraw, physically unable to perform duties, removed
either by vote or written consent of at 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 42 funds/portfolios in the complex as of December 31, 2007, 29 are advised by an affiliate of UBS Financial
Services Inc. and 13 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.
</FN>
UBS FINANCIAL SERVICES INC. IS A SUBSIDIARY OF UBS AG
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 UBS Financial Services Inc.'s Alternative Investment
Group at 800-580-2359.
UBS FINANCIAL SERVICES INC. IS A SUBSIDIARY OF UBS AG
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
$66,615 in 2007 and $54,140 in 2006. 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 $15,000 in 2007 and $5,000 in 2006. 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 $110,500 in 2007 and
$80,000 in 2006. 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 $0
in 2007 and $0 in 2006.
(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 $3.0 million for 2007 and $3.0 million for 2006.
(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. The Board of
Directors (the "Board") of the Funds has adopted these Policies and Procedures
as the Funds'. The Adviser will notify the Board of any changes to the Adviser's
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 or Legal 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 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
Joseph M. Sciortino, the other members of the portfolio management team, are
jointly and primarily responsible for the allocation of the Fund's investments.
Mr. Sienko has served as a Portfolio Manager of the Fund since its inception,
and as head of the Adviser's portfolio management group since 1998. He is also
currently an Executive Director of UBS Financial Services. Mr. Sinder has been a
Portfolio Manager of the Fund since its inception. Mr. Sinder has been
associated with the Adviser since 1998 and is also an Executive Director of UBS
Financial Services. Mr. Sciortino has been associated with the Fund since
December 2006 and joined the portfolio management team at that time. Mr.
Sciortino has been associated with the Adviser since 2006 and is also a Director
of UBS Financial Services. Previously, he served as Senior Analyst at Lake
Partners, Inc. from April 2001 though August 2006.
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 $2,625,683,742 4 $441,041,623 0 N/A
RUSSELL SINDER
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 $2,625,683,742 4 $441,041,623 0 N/A
JOSEPH M. SCIORTINO
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 $2,625,683,742 4 $441,041,623 0 N/A
(1) Of these accounts, 5 accounts with total assets of approximately
$1,360,954,398 charge performance-based advisory fees.
(2) Of these accounts, 3 accounts with total assets of approximately
$160,199,591 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 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)),
or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the 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) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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/ Douglas Lindgren
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Douglas Lindgren, Principal Executive Officer
Date March 5, 2008
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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/ Douglas Lindgren
-------------------------------------------------------
Douglas Lindgren, Principal Executive Officer
Date March 5, 2008
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By (Signature and Title)* /s/ Robert Aufenanger
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Robert Aufenanger, Principal Financial Officer
Date March 5, 2008
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* Print the name and title of each signing officer under his or her signature.