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)
Steven S. Drachman
c/o UBS Financial Services Inc.
51W 52nd Street, 23rd Floor
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
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Date of reporting period: June 30, 2009
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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.
FINANCIAL STATEMENTS
(UNAUDITED)
SEMI-ANNUAL REPORT
PERIOD FROM JANUARY 1, 2009 TO JUNE 30, 2009
UBS CREDIT RECOVERY FUND, L.L.C.
FINANCIAL STATEMENTS
(UNAUDITED)
SEMI-ANNUAL REPORT
PERIOD FROM JANUARY 1, 2009 TO JUNE 30, 2009
CONTENTS
Statement of Assets, Liabilities and Members' Capital.................... 1
Statement of Operations.................................................. 2
Statements of Changes in Members' Capital................................ 3
Statement of Cash Flows.................................................. 4
Financial Highlights .................................................... 5
Notes to Financial Statements............................................ 6
Schedule of Portfolio Investments........................................ 14
UBS CREDIT RECOVERY FUND, L.L.C.
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
(UNAUDITED)
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JUNE 30, 2009
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ASSETS
Investments in Investment Funds, at fair value
(cost $372,078,803) $338,221,851
Investments in Other Securities, at fair value
(cost $179,739) 152,321
Cash and cash equivalents 124,872,023
Receivable from Investment Funds 7,411,645
Interest receivable 5,026
Unrealized appreciation from foreign currency contracts 4,141
Other assets 52,334
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TOTAL ASSETS 470,719,341
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LIABILITIES
Payables:
Payable for settled foreign currency contract 1,718,840
Investment Management Fee 557,516
Management Fee 115,348
Professional fees 96,197
Administration fee 84,203
Other liabilities 32,757
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TOTAL LIABILITIES 2,604,861
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NET ASSETS $468,114,480
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MEMBERS' CAPITAL
Represented by:
Net capital contributions $501,994,708
Accumulated net unrealized appreciation/(depreciation) on
investments and other assets and liabilities
denominated in foreign currencies (33,880,228)
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MEMBERS' CAPITAL $468,114,480
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The accompanying notes are an integral part of these financial statements.
1
UBS CREDIT RECOVERY FUND, L.L.C.
STATEMENT OF OPERATIONS
(UNAUDITED)
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PERIOD FROM JANUARY 1, 2009 TO JUNE 30, 2009
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $ 22,032
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TOTAL INVESTMENT INCOME 22,032
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EXPENSES
Investment Management Fee 3,172,229
Management Fee 656,323
Professional fees 262,829
Administration fee 234,276
Other expenses 205,496
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TOTAL EXPENSES 4,531,153
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NET INVESTMENT LOSS (4,509,121)
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NET REALIZED AND UNREALIZED GAIN/LOSS FROM INVESTMENTS
Net realized gain/(loss) from:
Investment funds (7,765,690)
Forwards and foreign currency transactions 1,711,660
Net change in unrealized appreciation/depreciation from
investment funds, other securities and
foreign currency contracts and transactions 38,418,581
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NET REALIZED AND UNREALIZED GAIN/LOSS FROM INVESTMENTS 32,364,551
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NET INCREASE IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS $27,855,430
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The accompanying notes are an integral part of these financial statements.
2
UBS CREDIT RECOVERY FUND, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
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YEAR ENDED DECEMBER 31, 2008 AND PERIOD
FROM JANUARY 1, 2009 TO JUNE 30, 2009 (UNAUDITED)
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UBS FUND ADVISOR,
L.L.C. MEMBERS TOTAL
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MEMBERS' CAPITAL AT JANUARY 1, 2008 $ 28,234 $562,763,104 $ 562,791,338
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment income/(loss) (140) (13,246,010) (13,246,150)
Net realized gain/(loss) from investments (31) (18,675,184) (18,675,215)
Net change in unrealized
appreciation/depreciation from investments (7,649) (207,565,484) (207,573,133)
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS (7,820) (239,486,678) (239,494,498)
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MEMBERS' CAPITAL TRANSACTIONS
Members' subscriptions -- 301,247,619 301,247,619
Members' withdrawals -- (205,667,815) (205,667,815)
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS -- 95,579,804 95,579,804
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MEMBERS' CAPITAL AT DECEMBER 31, 2008 $20,414 $418,856,230 $418,876,644
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INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment income/(loss) (65) (4,509,056) (4,509,121)
Net realized gain/(loss) from investments (363) (6,053,667) (6,054,030)
Net change in unrealized appreciation/depreciation from
investment funds, other securities, and foreign currency
contracts and transactions 1,893 38,416,688 38,418,581
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 1,465 27,853,965 27,855,430
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MEMBERS' CAPITAL TRANSACTIONS
Members' subscriptions -- 21,382,406 21,382,406
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NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS -- 21,382,406 21,382,406
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MEMBERS' CAPITAL AT JUNE 30, 2009 $21,879 $468,092,601 $ 468,114,480
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The accompanying notes are an integral part of these financial statements.
3
UBS CREDIT RECOVERY FUND, L.L.C.
STATEMENT OF CASH FLOWS
(UNAUDITED)
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PERIOD FROM JANUARY 1, 2009 TO JUNE 30, 2009
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CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in Members' capital derived from operations $ 27,855,430
Adjustments to reconcile net increase in Member's capital derived from operations
to net cash provided by operating activities:
Purchases of investments (36,282,817)
Proceeds from disposition of investments 68,060,333
Net realized (gain)/loss from investments 7,765,690
Net change in unrealized appreciation/depreciation from investments (38,418,581)
Changes in assets and liabilities:
(Increase) decrease in assets:
Interest receivable 17,932
Receivables from Investment Funds 99,561,328
Other assets (46,514)
Increase (decrease) in payables:
Administration fee (33,909)
Forward contract payable 1,718,840
Investment Management Fee (235,134)
Management Fee (48,649)
Professional fees (188,914)
Other liabilities 12,985
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NET CASH PROVIDED BY OPERATING ACTIVITIES 129,738,020
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Members' subscriptions 21,382,406
Payments on Members' withdrawals (205,667,815)
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NET CASH USED IN FINANCING ACTIVITIES (184,285,409)
Net decrease in cash and cash equivalents (54,547,389)
Cash and Cash Equivalents--Beginning of Period 179,419,412
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CASH AND CASH EQUIVALENTS--END OF PERIOD $124,872,023
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The accompanying notes are an integral part of these financial statements.
4
UBS CREDIT RECOVERY FUND, L.L.C.
FINANCIAL HIGHLIGHTS
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JUNE 30, 2009
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June 30, 2009 The following represents the ratios to average net assets
and other supplemental information for the periods indicated:
PERIOD FROM
JANUARY 1, 2009 YEARS ENDED DECEMBER 31,
TO JUNE 30, 2009 ------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ---- ---- ---- ---- ----
Ratio of net investment
loss to average net
assets(b,c) (2.07%)a (1.92%) (1.93%) (1.78%) (1.93%) (1.97%)
Ratio of total expenses to
average net assets(b,c) 2.08%a 2.07% 2.12% 1.99% 2.09% 2.00%
Portfolio turnover rate 10.73% 33.56% 4.42% 7.60% 24.36% 6.71%
Total return(d) 6.42% (28.77%) 18.54% 15.58% 4.36% 9.96%
Average debt ratio(b) -- -- 0.24% -- 1.09% --
Net asset value at end
of period $468,114,480 $418,876,644 $562,791,338 $275,562,734 $196,934,747 $146,190,291
(a) Annualized.
(b) The average net assets used in the above ratios are calculated
using pre-tender net assets.
(c) Ratio of total expenses to average net assets and net investment
loss does not include the impact of expenses, incentive
allocations or incentive fees related to the underlying
Investment Funds.
(d) 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 returns
may vary from the above based on the timing of capital
transactions.
The accompanying notes are an integral part of these financial statements.
5
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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JUNE 30, 2009
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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
and commenced operations on August 1, 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 fair 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'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. Such transfers may
be made even if the balance of the capital account to such transferee
is equal to or less than the transferor's initial capital contribution.
6
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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JUNE 30, 2009
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2. SIGNIFICANT ACCOUNTING POLICIES
A. PORTFOLIO VALUATION
The Fund adopted the 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. Under FAS 157, fair value is the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.
Various inputs are used in determining the fair value of the Fund's
investments relating to FAS 157. These inputs are summarized in the
three broad levels listed below.
LEVEL 1--quoted prices in active markets for identical securities.
LEVEL 2--other significant observable inputs (including quoted prices
for similar securities, interest rates, prepayment spreads, credit
risk, etc.)
LEVEL 3--significant unobservable inputs (including the Fund's own
assumptions in determining the fair value of investments.)
Financial Accounting Standards Board ("FASB") Staff Position ("FSP")
157-4 was issued on April 9, 2009. It provides additional guidance for
estimating fair value in accordance with FAS 157, when the volume and
level of activity for the asset or liability have significantly
decreased and provides guidance on identifying circumstances that
indicate a transaction is not orderly. This FSP also expands the
quantitative disclosures required by FAS 157. For assets and
liabilities measured at fair value on a recurring basis during the
period, this FSP requires quantitative disclosures about the fair value
measurements separately for each major category of assets and
liabilities, as well as a reconciliation of beginning and ending
balances of Level 3 assets and liabilities broken down by major
category. "Major category" is defined as major security types as
described in FSP FAS 115-2. As a result, the Fund shall now include in
its FAS 157 tables the following major security types (noted in FSP FAS
115-2), though additional types may also be necessary:
a. Equity securities (segregated by industry type, company size, or
investment objective)
b. Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies
c. Debt securities issued by states of the United States and
political subdivisions of the states
d. Debt securities issued by foreign governments
e. Corporate debt securities
f. Residential mortgage-backed securities
g. Commercial mortgage-backed securities
h. Collateralized debt obligations
i. Other debt obligations
7
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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JUNE 30, 2009
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
A detailed depiction of the portfolio broken down into the above
mentioned FAS 157 levels can be found in the tables following the
Schedule of Portfolio Investments.
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
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
Investment Funds are carried at fair value. 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 has assessed factors including, but not
limited to the individual Investment Funds' compliance with FAS 157,
price transparency and valuation procedures in place, subscription and
redemption activity, level of illiquid securities held, and the
existence or absence of certain redemption restrictions. 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).
The fair value of the Fund's assets and liabilities which qualify as
financial instruments under Statement of Financial Accounting Standards
No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
approximates the carrying amounts presented in the Statement of Assets,
Liabilities and Members' Capital.
B. INVESTMENT TRANSACTIONS AND INCOME RECOGNITION
The Fund accounts for realized gains and losses from Investment Fund
transactions based on the pro-rata ratio of the fair value and cost of
the underlying investment at the date of redemption. Interest income is
recorded on the accrual basis.
C. FUND EXPENSES
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; offering and organization costs; due diligence,
8
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. FUND EXPENSES (CONTINUED)
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.
D. INCOME TAXES
The Fund has reclassified $4,509,121 and $6,054,030 from accumulated
net investment loss and accumulated net realized loss on investments,
respectively, to net capital contributions during the six month period
ended June 30, 2009. The reclassification was to reflect, as an
adjustment to net contributions, the amount of estimated taxable income
or loss that have been allocated to the Fund's Members as of June 30,
2009 and had no effect on net assets.
The Fund is subject to the provisions of FASB 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, 2004-2007) and the
positions to be taken for the federal income tax return to be filed for
the tax year ended December 31, 2008 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 ended June 30, 2009, 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 PFPC
Trust Company (an affiliate of PNC Bank, NA), (the "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
9
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. REPURCHASE AGREEMENTS (CONTINUED)
seller defaults, and the fair value of the collateral declines,
realization of the collateral by the Fund may be delayed or limited. As
of June 30, 2009, 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.
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 "Management 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 Management Fee
and the Investment Management Fee will be paid to the Administrator and
Adviser 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 Management 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 bears 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 Management Fee which are similarly allocated to all Members
other than the Adviser and the Administrator as described above.
10
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS (CONTINUED)
Each Director of the Fund receives an annual retainer of $7,500 plus a
fee for each meeting attended. The Chairman of the Board of Directors
and the Chairman of the Audit Committee of the Board of Directors each
receive an additional annual retainer in the amounts of $10,000 and
$15,000, respectively. These additional annual retainer amounts are
paid for by the Fund on a pro-rata basis with ten other UBS funds where
UBSFA is the investment adviser. 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 period from January 1, 2009 to
June 30, 2009 were $26,089 which is included in other expenses.
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
PNC Global Investment Servicing (U.S.), Inc. ("PNC"), a member of The
PNC Financial Services Group, Inc., serves as Administrative and
Accounting Agent to the Fund, and in that capacity provides certain
administrative, accounting, record keeping, tax and Member related
services. PNC 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 PNC.
The Custodian of the Fund's assets provides custodial services for the
Fund.
5. INVESTMENTS
As of June 30, 2009, the Fund had investments in Investment Funds, none
of which were related parties.
Aggregate purchases and proceeds from sales of investments for the
period from January 1, 2009 to June 30, 2009, amounted to $36,282,817
and $68,060,333, 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 tax basis of investments for 2009
will not be finalized by the Fund until after the fiscal year end.
The agreements related to investments in Investment Funds provide for
compensation to the general partners/managers in the form of management
fees of 1.00% to 2.00% (per annum) of net assets and
11
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
5. INVESTMENTS (CONTINUED)
performance incentive fees or allocations of 20.00% of net profits
earned. One or more underlying fund investments have entered into a
side pocket arrangement.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Investment Funds in which the
Fund invests trade various financial instruments and enter into various
investment activities with off-balance sheet risk. These include, but
are not limited to, short selling activities, writing option contracts,
contracts for differences, equity swaps, distressed investing, merger
arbitrage and convertible arbitrage. The Fund's risk of loss in these
Investment Funds is limited to the value of these investments as
reported by the Fund.
The Fund may enter into forward foreign currency exchange contracts for
the purchase or sale of a specific foreign currency at a fixed price on
a future date as a hedge against either specific transactions or
portfolio positions. The Fund may also purchase and sell forward
contracts to seek to increase total return. All commitments are
"marked-to-market" daily at the applicable translation rates and any
resulting unrealized gains or losses are recorded in the Fund's
financial statements. The Fund records realized gains or losses at the
time a forward contract is offset by entry into a closing transaction
or extinguished by delivery of the currency. Risks may arise upon
entering into these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar.
On January 1, 2009, the Fund adopted the FASB released Statement of
Financial Accounting Standards No. 161 DISCLOSURES ABOUT DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("FAS 161"). FAS 161 requires
qualitative disclosures about objectives and strategies for using
derivatives, quantitative disclosures about fair value amounts of gains
and losses on derivative instruments and disclosures about
credit-risk-related contingent features in derivative agreements. All
changes to accounting policies and disclosures have been made in
accordance with FAS 161 and are incorporated for the current period as
part of the disclosures with this Note.
7. 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
that the likelihood of such an event is remote.
12
UBS CREDIT RECOVERY FUND, L.L.C.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENT
Management has evaluated the impact of all subsequent events on the
Fund through August 25, 2009, the date the financial statements were
issued, and has determined that there were no subsequent events
requiring recognition or disclosure in the financial statements.
13
UBS CREDIT RECOVERY FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
REALIZED AND
UNREALIZED
% OF GAIN/(LOSS)
MEMBERS' FROM
INVESTMENT FUND COST FAIR VALUE CAPITAL INVESTMENTS
--------------------------------------------------------- ------------ ------------ -------- -------------
Trilogy Financial Partners, L.P. (a) $ 6,407,357 $ 5,882,168 1.26% $ (629,884)
Whitebox Hedged High Yield Fund, L.P. (a) 7,021,518 8,156,274 1.74 2,111,281
Whitebox Hedged High Yield, Ltd. (a) 30,661,108 22,399,259 4.78 5,816,470
------------ ------------ ----- ------------
CAPITAL STRUCTURE ARBITRAGE SUBTOTAL $ 44,089,983 $ 36,437,701 7.78% $ 7,297,867
European Special Opportunities Fund II, Ltd., Class B (a) 16,424,909 16,563,048 3.54 415,103
Indus Structured Finance Fund, L.P., Class A 10,183,058 6,792,301 1.45 (320,366)
Marathon Distressed Subprime Fund, L.P. 20,000,000 15,435,849 3.30 502,694
Marathon Structured Finance Fund L.P. (a) 8,676,748 7,880,630 1.68 (911,920)
Marathon Structured Finance Fund, L.P. (b) 2,466,141 1,737,763 0.37 (364,066)
Styx Partners, L.P. 43,000,000 48,327,231 10.33 (513,736)
------------ ------------ ----- ------------
DIRECT LOANS/STRUCTURED FINANCE SUBTOTAL $100,750,856 $ 96,736,822 20.67% $ (1,192,291)
Gramercy Argentina Opportunity Fund, Ltd. 10,000,000 3,008,651 0.64 1,622,367
Gramercy Emerging Markets 3c7, L.L.C. 9,132,002 6,035,021 1.29 6,218,665
Gramercy Onshore Fund SPV, L.L.C. 8,790,728 4,691,051 1.00 (4,815,956)
Marathon Special Opportunity Fund, L.P. 20,975,269 21,264,528 4.54 1,693,945
Marathon Special Opportunity Fund, L.P. (b) 1,685,257 1,782,748 0.38 (178,931)
Marathon Special Opportunity Fund, L.P. (b) 3,306,160 3,517,725 0.75 (146,554)
Marathon Special Opportunity Fund, L.P. (b) 989,135 880,760 0.19 (108,375)
Marathon Special Opportunity Fund, L.P. (a) 338,574 306,509 0.07 (123,371)
Monarch Debt Recovery Fund, L.P. 6,750,000 13,123,252 2.81 1,464,707
------------ ------------ ----- ------------
DISTRESSED CREDIT SUBTOTAL $ 61,967,125 $ 54,610,245 11.67% $ 5,626,497
Ahab Partners, L.P. (a) 15,777,279 12,331,450 2.63 (1,954,308)
Brigade Leveraged Capital Structures Fund, L.P. 31,477,650 32,524,635 6.95 6,742,175
Camulos Partners, L.P. (a) 18,313,956 7,090,699 1.51 (188,645)
Canyon Value Realization Fund, L.P. 3,293,949 3,833,063 0.82 805,832
Canyon Value Realization Fund, L.P. (b) 7,784,885 7,734,493 1.65 1,087,743
Claren Road Credit Partners, L.P. 24,785,723 32,113,336 6.86 4,685,631
Claren Road Credit Partners, L.P. (L Interest payable) (b) 5,731,585 918,848 0.20 (4,812,736)
Claren Road Credit Partners, L.P. (L Interest) (b) 891,653 735,426 0.16 5,017,796
Cyrus Opportunities Fund II, L.P. (b) 456,428 421,918 0.09 (26,199)
Cyrus Opportunities Fund II, L.P. (a) 3,581,304 2,788,300 0.60 173,761
Harbinger Capital Partners Fund I, L.P. 438,763 886,636 0.19 (14,431)
Harbinger Capital Partners Fund I, L.P. (L Interest) 689,197 1,028,124 0.22 366,620
Harbinger Capital Partners Special Situations Fund, L.P. (b) 1,328,967 1,265,046 0.27 (63,921)
Harbinger Capital Partners Special Situations Fund, L.P. 4,266,526 6,624,353 1.42 626,934
Harbinger Class PE Holdings (U.S.) Trust 6,952,974 6,821,403 1.46 (131,571)
Knighthead Domestic Fund, L.P. 16,000,000 18,772,489 4.01 4,911,850
Pardus European Special Opportunities Fund, L.P. (a) 13,500,000 4,095,420 0.87 566,109
Redwood Domestic Fund, L.P. 10,000,000 10,451,444 2.23 2,904,335
------------ ------------ ----- ------------
DIVERSIFIED CREDIT SUBTOTAL $165,270,839 $150,437,083 32.14% $ 20,696,975
Euro Foreign Currency Forward Contract -- 4,141 -- 71,006
Other Securities 179,739 152,321 0.03 (27,418)
Redeemed Investment Funds -- -- -- (108,085)
------------ ------------ ----- ------------
TOTAL $372,258,542 $338,378,313 72.29% $ 32,364,551
============ ============ ===== ============
DOLLAR AMOUNT OF
INITIAL FAIR VALUE FOR
ACQUISITION FIRST AVAILABLE FIRST AVAILABLE
INVESTMENT FUND DATE LIQUIDITY* REDEMPTION** REDEMPTION
--------------------------------------------------------- ----------- --------------- --------------- ----------------
Trilogy Financial Partners, L.P. (a) 1/1/2003 N/A
Whitebox Hedged High Yield Fund, L.P. (a) 2/1/2004 N/A
Whitebox Hedged High Yield, Ltd. (a) 9/1/2005 N/A
CAPITAL STRUCTURE ARBITRAGE SUBTOTAL
European Special Opportunities Fund II, Ltd., Class B (a) 2/1/2008 N/A
Indus Structured Finance Fund, L.P., Class A 5/1/2007 Semi-Annually 6/30/2012 6,792,301
Marathon Distressed Subprime Fund, L.P. 9/1/2007 Every 18 months
Marathon Structured Finance Fund L.P. (a) 11/1/2004 N/A
Marathon Structured Finance Fund, L.P. (b) 11/1/2004 N/A
Styx Partners, L.P. 8/1/2002 Annually
DIRECT LOANS/STRUCTURED FINANCE SUBTOTAL
Gramercy Argentina Opportunity Fund, Ltd. 8/1/2007 Quarterly
Gramercy Emerging Markets 3c7, L.L.C. 8/1/2007 Semi-Annually
Gramercy Onshore Fund SPV, L.L.C. 8/1/2007 N/A
Marathon Special Opportunity Fund, L.P. 10/1/2002 Every 24 months 9/30/2009*** 9,439,744
Marathon Special Opportunity Fund, L.P. (b) 10/1/2002 N/A
Marathon Special Opportunity Fund, L.P. (b) 10/1/2002 N/A
Marathon Special Opportunity Fund, L.P. (b) 10/1/2002 N/A
Marathon Special Opportunity Fund, L.P. (a) 10/1/2002 N/A
Monarch Debt Recovery Fund, L.P. 10/1/2002 Annually
DISTRESSED CREDIT SUBTOTAL
Ahab Partners, L.P. (a) 8/1/2002 N/A
Brigade Leveraged Capital Structures Fund, L.P. 2/1/2008 Quarterly
Camulos Partners, L.P. (a) 2/1/2006 N/A
Canyon Value Realization Fund, L.P. 8/1/2002 Annually
Canyon Value Realization Fund, L.P. (b) 8/1/2002 N/A
Claren Road Credit Partners, L.P. 10/1/2006 Quarterly
Claren Road Credit Partners, L.P. (L Interest payable) (b) 10/1/2006 N/A
Claren Road Credit Partners, L.P. (L Interest) (b) 10/1/2006 N/A
Cyrus Opportunities Fund II, L.P. (b) 8/1/2002 N/A
Cyrus Opportunities Fund II, L.P. (a) 8/1/2002 N/A
Harbinger Capital Partners Fund I, L.P. 8/1/2002 Quarterly
Harbinger Capital Partners Fund I, L.P. (L Interest) 8/1/2006 N/A
Harbinger Capital Partners Special Situations Fund, L.P. (b) 8/1/2006 N/A
Harbinger Capital Partners Special Situations Fund, L.P. 8/1/2006 Anniversary
Harbinger Class PE Holdings (U.S.) Trust 8/1/2002 N/A
Knighthead Domestic Fund, L.P. 6/1/2008 Every 24 months 6/30/2010 18,772,489
Pardus European Special Opportunities Fund, L.P. (a) 2/1/2006 N/A
Redwood Domestic Fund, L.P. 10/1/2008 Every 24 months 9/30/2010 10,451,444
DIVERSIFIED CREDIT SUBTOTAL
Euro Foreign Currency Forward Contract
Other Securities
Redeemed Investment Funds
TOTAL
The preceding notes are an integral part of these financial statements.
14
UBS CREDIT RECOVERY FUND, L.L.C.
SCHEDULE OF PORTFOLIO INVESTMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
JUNE 30, 2009
- --------------------------------------------------------------------------------
* Available frequency of redemptions after the initial lock-up period, if
any. Different tranches may have varying liquidity terms.
** Investment Funds with no dates can be redeemed in full.
*** The dollar amount of fair value for the first available redemption can be
redeemed commencing on the date listed. The remaining investment amount has
no lock up or other redemption restrictions.
(a) The Investment Fund is in liquidation. In addition to any redemption
proceeds that may have already been received, the Fund will continue to
receive proceeds periodically as the Investment Fund liquidates its
underlying investments.
(b) A portion or all of the Funds' interests in the Investment Fund are held in
side pockets which have restricted liquidity.
The following is a summary of the inputs used in valuing the Fund's investments
at fair value. The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those
securities.
- --------------------------------------------------------------------------------------------------------------------
LEVEL 2 LEVEL 3
TOTAL FAIR SIGNIFICANT SIGNIFICANT
VALUE AT LEVEL 1 OBSERVABLE UNOBSERVABLE
DESCRIPTION JUNE 30, 2009 QUOTED PRICES INPUTS INPUTS
- --------------------------------------------------------------------------------------------------------------------
Capital Structure Arbitrage $ 36,437,701 $ -- $ -- $ 36,437,701
Direct Loans/Structured Finance 96,736,822 -- -- 96,736,822
Distressed Credit 54,610,245 -- -- 54,610,245
Diversified Credit 150,437,083 -- -- 150,437,083
Euro Foreign Currency Forward Contract 4,141 -- 4,141 --
Other Securities 152,321 152,321 -- --
Total Assets $338,378,313 $152,321 $ 4,141 $338,221,851
----------------------------------------------------------------------
The preceding notes are an integral part of these financial statements.
15
The following is a reconciliation of assets in which significant unobservable
inputs (Level 3) were used in determining fair value:
- ----------------------------------------------------------------------------------------------------------------------------
Balance as Transfers
of Accrued Realized in and/or Balance as
December 31, discounts/ gain/ Change in unrealized Net purchases/ out of June 30,
DESCRIPTION 2008 premiums (loss) appreciation/depreciation (sales) Level 3 2009
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN
INVESTMENT
STRATEGIES
- ----------------------------------------------------------------------------------------------------------------------------
CAPITAL 50,233,342 -- (3,414,350) 10,712,217 (21,093,508) -- 36,437,701
STRUCTURE
ARBITRAGE
- ----------------------------------------------------------------------------------------------------------------------------
DIRECT 103,777,994 -- (263,727) (928,564) (5,848,881) -- 96,736,822
LOANS /
STRUCTURED
FINANCE
- ----------------------------------------------------------------------------------------------------------------------------
DISTRESSED
CREDIT 51,120,715 -- (1,197,329) 6,823,825 (2,136,966) -- 54,610,245
- ----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED
CREDIT 132,677,350 -- (2,890,284) 23,587,259 (2,937,242) -- 150,437,083
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 337,809,401 -- (7,765,690) 40,194,737 (32,016,597) -- 338,221,851
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) on Level 3 assets and
liabilities still held as of June 30, 2009 is $40,433,818.
The preceding notes are an integral part of these financial statements.
16
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the
close of the reporting period is included as part of the report to
shareholders filed under Item 1 of this form.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) Not applicable.
(b) There has been no change, as of the date of this filing, in any of the
portfolio managers identified in response to paragraph (a)(1) of this Item
in the registrant's most recently filed annual report on Form N-CSR.
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.
-------------------------------------------------------------------
By (Signature and Title)* /s/ Craig Goos
-------------------------------------------------------
Craig Goos, Principal Executive Officer
Date September 3, 2009
----------------------------------------------------------------------------
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/ Craig Goos
-------------------------------------------------------
Craig Goos, Principal Executive Officer
Date September 3, 2009
----------------------------------------------------------------------------
By (Signature and Title)* /s/ Robert Aufenanger
-------------------------------------------------------
Robert Aufenanger, Principal Financial Officer
Date September 3, 2009
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.