0000950123-11-080540.txt : 20110826
0000950123-11-080540.hdr.sgml : 20110826
20110826161745
ACCESSION NUMBER: 0000950123-11-080540
CONFORMED SUBMISSION TYPE: N-CSRS
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20110630
FILED AS OF DATE: 20110826
DATE AS OF CHANGE: 20110826
EFFECTIVENESS DATE: 20110826
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: O'Connor Fund of Funds: Long/Short Credit Strategies LLC
CENTRAL INDEX KEY: 0001174281
IRS NUMBER: 030454045
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-CSRS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-21117
FILM NUMBER: 111060180
BUSINESS ADDRESS:
STREET 1: C/O UBS ALT. AND QUANT. INVESTMENTS LLC
STREET 2: 677 WASHINGTON BOULEVARD
CITY: STAMFORD
STATE: DE
ZIP: 06901
BUSINESS PHONE: (203) 719-1850
MAIL ADDRESS:
STREET 1: C/O UBS ALT. AND QUANT. INVESTMENTS LLC
STREET 2: 677 WASHINGTON BOULEVARD
CITY: STAMFORD
STATE: DE
ZIP: 06901
FORMER COMPANY:
FORMER CONFORMED NAME: UBS CREDIT RECOVERY FUND LLC
DATE OF NAME CHANGE: 20070223
FORMER COMPANY:
FORMER CONFORMED NAME: UBS CREDIT & RECOVERY FUND LLC
DATE OF NAME CHANGE: 20061201
FORMER COMPANY:
FORMER CONFORMED NAME: UBS PW CREDIT & RECOVERY FUND LLC
DATE OF NAME CHANGE: 20020524
N-CSRS
1
w84145nvcsrs.txt
N-CSRS
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
O'Connor Fund of Funds: Long/Short Credit Strategies LLC
(formerly, UBS Credit Recovery Fund, L.L.C.)
(Exact name of registrant as specified in charter)
299 Park Avenue, 29th Floor
New York, NY 10171
(Address of principal executive offices) (Zip code)
James M. Hnilo, Esq.
UBS Alternative and Quantitative Investments LLC
One North Wacker Drive, 32nd Floor
Chicago, Illinois 60606
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 525-5000
Date of fiscal year end: December 31
Date of reporting period: June 30, 2011
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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
The Report to Shareholders is attached herewith.
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC
(FORMERLY UBS CREDIT RECOVERY FUND, L.L.C.)
FINANCIAL STATEMENTS
(UNAUDITED)
SEMI-ANNUAL REPORT
PERIOD FROM JANUARY 1, 2011 TO JUNE 30, 2011
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC
(FORMERLY UBS CREDIT RECOVERY FUND, L.L.C.)
FINANCIAL STATEMENTS
(UNAUDITED)
SEMI-ANNUAL REPORT
PERIOD FROM JANUARY 1, 2011 TO JUNE 30, 2011
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 16
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS' CAPITAL
(UNAUDITED)
JUNE 30, 2011
-------------
ASSETS
Investments in Investment Funds, at fair value (cost $294,435,425) $349,734,214
Investments in other securities, at fair value (cost $34,452) 21,416
Cash and cash equivalents 14,204,470
Receivable from Highland Crusader Fund, L.P. 10,905,327
Receivable from Highland Credit Strategies Fund, Ltd. 4,981,730
Receivable from Investment Funds 309,174
Other assets 99,260
------------
TOTAL ASSETS 380,255,591
------------
LIABILITIES
Unrealized depreciation on foreign currency contracts 78,149
Subscriptions received in advance 510,000
Investment Management Fee payable 462,207
Professional fees payable 197,964
Management Fee payable 95,629
Administration fee payable 61,224
Directors' fees payable 12,068
Custody fee payable 600
Other liabilities 264,635
------------
TOTAL LIABILITIES 1,682,476
------------
MEMBERS' CAPITAL $378,573,115
------------
MEMBERS' CAPITAL
Represented by:
Net capital contributions $323,159,196
Accumulated net unrealized appreciation/(depreciation) on
investments in Investment Funds, foreign
currency contracts and translations and receivables 55,413,919
------------
MEMBERS' CAPITAL $378,573,115
------------
The accompanying notes are an integral part of these financial statements.
1
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
STATEMENT OF OPERATIONS
(UNAUDITED)
PERIOD FROM JANUARY 1, 2011 TO JUNE 30, 2011
INVESTMENT INCOME
Interest $ 4,837
-----------
TOTAL INVESTMENT INCOME 4,837
-----------
EXPENSES
Investment Management Fee 2,746,438
Management Fee 568,228
Administration fee 219,204
Professional fees 198,003
Loan commitment fees 86,016
Directors' fees 29,152
Loan interest 9,125
Custody fee 7,019
Printing, insurance and other expenses 220,633
-----------
TOTAL EXPENSES 4,083,818
-----------
Administration and custody fees waived (34,650)
NET EXPENSES 4,049,168
-----------
NET INVESTMENT LOSS (4,044,331)
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS
Net realized gain/(loss) from:
Investments in Investment Funds and other securities 5,677,855
Foreign currency contracts and transactions (1,161,869)
Net change in unrealized appreciation/depreciation on
investments in Investment Funds, investments in
other securities, foreign currency contracts and
translations and receivables 5,238,642
-----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) FROM INVESTMENTS 9,754,628
-----------
NET INCREASE IN MEMBERS' CAPITAL DERIVED FROM OPERATIONS $ 5,710,297
-----------
The accompanying notes are an integral part of these financial statements.
2
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
YEAR ENDED DECEMBER 31, 2010 AND PERIOD FROM JANUARY 1, 2011 TO JUNE 30, 2011
(UNAUDITED)
ADVISER MEMBERS TOTAL
------- ------------- -------------
MEMBERS' CAPITAL AT JANUARY 1, 2010 $24,241 $ 411,817,215 $ 411,841,456
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment income/(loss) (146) (8,979,097) (8,979,243)
Net realized gain/(loss) from investments in Investment
Funds and foreign currency contracts and
transactions 1,219 21,926,873 21,928,092
Net change in unrealized appreciation/depreciation on
investments in Investment Funds, investments in
other securities and foreign currency contracts and
translations 1,413 24,993,275 24,994,688
------- ------------- -------------
NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 2,486 37,941,051 37,943,537
------- ------------- -------------
MEMBERS' CAPITAL TRANSACTIONS
Members' subscriptions -- 29,971,934 29,971,934
Members' withdrawals -- (111,919,134) (111,919,134)
------- ------------- -------------
NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS -- (81,947,200) (81,947,200)
------- ------------- -------------
MEMBERS' CAPITAL AT DECEMBER 31, 2010 $26,727 $ 367,811,066 $ 367,837,793
------- ------------- -------------
INCREASE (DECREASE) FROM OPERATIONS
Pro rata allocation:
Net investment income/(loss) (203) (4,044,128) (4,044,331)
Net realized gain/(loss) from investments in Investment
Funds, other securities and foreign currency
contracts and transactions 430 4,515,556 4,515,986
Net change in unrealized appreciation/depreciation on
investments in Investment Funds, investments in
other securities, foreign currency contracts and
translations and receivables 154 5,238,488 5,238,642
------- ------------- -------------
NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM OPERATIONS 381 5,709,916 5,710,297
------- ------------- -------------
MEMBERS' CAPITAL TRANSACTIONS
Adviser and Members' subscriptions 25,140 4,999,885 5,025,025
------- ------------- -------------
NET INCREASE (DECREASE) IN MEMBERS' CAPITAL
DERIVED FROM CAPITAL TRANSACTIONS 25,140 4,999,885 5,025,025
------- ------------- -------------
MEMBERS' CAPITAL AT JUNE 30, 2011 $52,248 $ 378,520,867 $ 378,573,115
------- ------------- -------------
The accompanying notes are an integral part of these financial statements.
3
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
STATEMENT OF CASH FLOWS
(UNAUDITED)
PERIOD FROM JANUARY 1, 2011 TO JUNE 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in members' capital derived from operations $ 5,710,297
Adjustments to reconcile net increase in member's capital derived from operations
to net cash provided by operating activities:
Purchases of investments in Investment Funds and other securities (58,000,000)
Proceeds from disposition of investments in Investment Funds and other securities 43,339,795
Net realized gain/(loss) from investments in Investment Funds and other securities (5,677,855)
Net change in unrealized appreciation/depreciation on investments in Investment Funds,
investments in other securities, foreign currency contracts and translations
and receivables (5,238,642)
Changes in assets and liabilities:
(Increase) decrease in assets:
Advanced subscriptions in Investment Funds 12,000,000
Interest receivable 2,080
Receivable from Highland Credit Strategies Fund, Ltd. (4,981,730)
Receivable from Highland Crusader Fund, L.P. (10,905,327)
Receivable from Investment Funds 104,510,977
Other assets (30,516)
Increase (decrease) in liabilities:
Administration fee payable (57,422)
Custody fee payable (450)
Directors' fees payable 12,068
Investment Management Fee payable (95,866)
Management Fee payable (19,834)
Professional fees payable 23,456
Other liabilities 91,271
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,682,302
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Adviser's subscriptions, including change in subscriptions received in advance 25,140
Proceeds from Members' subscriptions, including change in subscriptions received in advance 4,280,000
Payments on Members' withdrawals, including change in withdrawals payable (111,919,134)
Proceeds from loan 27,000,000
Principal payment on loan (27,000,000)
-------------
NET CASH USED IN FINANCING ACTIVITIES (107,613,994)
Net decrease in cash and cash equivalents (26,931,692)
Cash and cash equivalents--beginning of period 41,136,162
-------------
CASH AND CASH EQUIVALENTS--END OF PERIOD $ 14,204,470
-------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 9,125
-------------
The accompanying notes are an integral part of these financial statements.
4
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
FINANCIAL HIGHLIGHTS
JUNE 30, 2011
The following represents the ratios to average members' capital and other
supplemental information for all Members, excluding the Adviser, for the periods
indicated.
An individual Member's ratios and returns may vary from the below based on the
timing of capital transactions.
PERIOD FROM
JANUARY 1,
2011 TO JUNE YEARS ENDED DECEMBER 31,
30, 2011 -------------------------------------------------------------------------
(UNAUDITED) 2010 2009 2008 2007 2006
------------ ------------ ------------ ------------ ------------ ------------
Ratio of net investment loss to
average members' capital (a, b) (2.16%)(c) (2.03%) (2.01%) (1.92%) (1.93%) (1.78%)
Ratio of gross expenses to
average members' capital (a, b) 2.18%(c) 2.04% 2.03% 2.07% 2.12% 1.99%
Ratio of administration and
custody fees waived to
average members' capital
(a, b, d) (0.02%)(c) 0.00%e 0.00% 0.00% 0.00% 0.00%
Ratio of net expenses to
average members'
capital (a, b) 2.16%(c) 2.04% 2.03% 2.07% 2.12% 1.99%
Portfolio turnover rate 12.85% 16.23% 23.27% 33.56% 4.42% 7.60%
Total return (f) 1.55% 8.67% 17.16% (28.77%) 18.54% 15.58%
Average debt ratio (a) 0.28% 0.00% 0.00% 0.01% 0.24% 0.00%
Members' capital at end of
period (including the
Adviser) $378,573,115 $367,837,793 $411,841,456 $418,876,644 $562,791,338 $275,562,734
(a) The average members' capital used in the above ratios is calculated using
pre-tender members' capital, excluding the Adviser.
(b) Ratios of net investment loss and gross/net expenses to average members'
capital do not include the impact of expenses and incentive allocations or
incentive fees related to the underlying Investment Funds.
(c) Annualized.
(d) The administration and custody fees waiver was effective November 1, 2010.
Therefore, the ratio of administration and custody fees waived was not
applicable for the years ended December 31, 2006 through December 31, 2009.
(e) Less than 0.005%.
(f) 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 return for periods less than a
full year are not annualized.
The accompanying notes are an integral part of these financial statements.
5
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2011
1. ORGANIZATION
O'Connor Fund of Funds: Long/Short Credit Strategies LLC (formerly 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, member or
shareholder along with other investors.
The Fund's Board of Directors (the "Directors") have 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 Alternative and Quantitative Investments LLC
("UBS A&Q", 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 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 Directors may determine and are generally
accepted monthly. The Directors reserve 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 (the "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
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
2. NEW ACCOUNTING PRONOUNCEMENTS
In May 2011, the Financial Accounting Standards Board ("FASB") issued
Codification Accounting Standards Update No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs ("ASU
2011-04"). ASU 2011-04 requires disclosure of all transfers between Level 1
and Level 2 of the fair value hierarchy and the reasons for those
transfers. In addition, ASU 2011-04 expands the qualitative and
quantitative fair value disclosure requirements for fair value measurements
categorized in Level 3 of the fair value hierarchy and requires a
description of the valuation processes in place and a description of the
sensitivity of the fair value to changes in unobservable inputs and
interrelationships between those inputs if a change in those inputs would
result in a significantly different fair value measurement. ASU 2011-04 is
effective for fiscal years beginning after December 15, 2011 and for
interim periods within those fiscal years. The adoption of the ASU 2011-04
is currently being assessed but is not expected to have a material impact
on the Fund's financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES
A. PORTFOLIO VALUATION
The Fund values its investments at fair value, in accordance with U.S.
generally accepted accounting principles ("GAAP"), which 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 which are summarized in the three broad levels listed below.
LEVEL 1-- quoted prices in active markets for identical securities
LEVEL 2-- fair value of investments in Investment Funds with the ability to
redeem at net asset value as of the measurement date, or within one year of
the measurement date
LEVEL 3-- fair value of investments in Investment Funds that do not have
the ability to redeem at net asset value within one year of the measurement
date
The Fund recognizes transfers into and out of the levels indicated above at
the end of the reporting period. All transfers into and out of Level 3 can
be found in the Level 3 reconciliation table within the Schedule of
Portfolio Investments.
GAAP provides guidance in determining whether there has been a significant
decrease in the volume and level of activity for an asset or liability when
compared with normal market activity for such asset or liability (or
similar assets or liabilities). GAAP also provides guidance on identifying
7
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
circumstances that indicate a transaction with regards to such an asset or
liability is not orderly. In its consideration, the Fund must consider
inputs and valuation techniques used for each class of assets and
liabilities. Judgment is used to determine the appropriate classes of
assets and liabilities for which disclosures about fair value measurements
are provided. Fair value measurement disclosures for each class of assets
and liabilities requires greater disaggregation than the Fund's line items
in the Statement of Assets, Liabilities and Members' Capital. The Fund
determines the appropriate classes for those disclosures on the basis of
the nature and risks of the assets and liabilities and their classification
in the fair value hierarchy (i.e., Levels 1, 2, and 3).
For assets and liabilities measured at fair value on a recurring basis
during the period, the Fund provides quantitative disclosures about the
fair value measurements separately for each class of assets and
liabilities, as well as a reconciliation of beginning and ending balances
of Level 3 assets and liabilities broken down by class.
The following is a summary of the investment strategies and any
restrictions on the liquidity provisions of the investments in Investment
Funds held in the Fund as of June 30, 2011. Investment Funds with no
current redemption restrictions may be subject to future gates, lock-up
provisions or other restrictions, in accordance with their offering
documents. The Fund had no unfunded capital commitments as of June 30,
2011. Effective June 30, 2011, the Fund used the following categories to
classify its Investment Funds.
The Investment Funds in the credit strategy utilize credit analysis to
evaluate potential investments and use debt or debt-linked instruments to
execute their investment theses. Their approach can be either fundamental,
quantitative, or a combination of both. Investment Funds within this
strategy are generally subject to 30 - 180 day redemption notice periods.
Investment Funds representing approximately 26 percent of the fair value of
the investments in this strategy are side pockets, liquidating trusts or
private equity positions where the liquidation of assets is expected over
the next 12 - 48 months. The remaining approximately 74 percent of the
Investment Funds have either initial redemption dates commencing in the
future (4 percent) or are available to be redeemed with no restrictions (70
percent), as of the measurement date. Two Investment Funds, with a fair
value of $34,122,277, transferred from Level 2 to Level 3 at the
measurement date.
8
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
The Investment Funds in the relative value strategy, a broad category,
generally encompassing strategies that are non-fundamental and
non-directional, and often quantitatively driven. The Investment Funds in
this strategy typically use arbitrage to exploit mispricings and other
opportunities in various asset classes, geographies, and time horizons. The
Investment Funds frequently focus on capturing the spread between two
assets, while maintaining neutrality to other factors, such as geography,
changes in interest rates, equity market movement, and currencies.
Investment Funds within this strategy are generally subject to 45 - 90 day
redemption notice periods and are available to be redeemed with no
restrictions, as of the measurement date.
A detailed depiction of each investment in the portfolio by investment
strategy, including any additional liquidity terms and other restrictions,
as well as a breakdown of the portfolio into the fair value measurement
levels, can be found in the tables within 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
memorandums, 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 fair value measurements, price transparency and
valuation procedures in place, and subscription and redemption activity.
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 relating to certain underlying investments of these
Investment Funds, for which there is no ready market, has been estimated by
the respective Investment Funds' management and is based upon available
information in the absence of readily ascertainable fair values and does
not necessarily represent amounts that might ultimately be realized. Due to
the inherent uncertainty of valuation, those estimated fair values may
differ significantly from the values that would have been used had a ready
market for the investments existed. These differences could be material.
9
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. PORTFOLIO VALUATION (CONTINUED)
It is unknown on an aggregate basis whether the Investment Funds held any
investments whereby the Fund's proportionate share exceeded 5% of the
Fund's net assets at June 30, 2011.
The fair value of the Fund's assets and liabilities which qualify as
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 and
expenses are 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; offering and organization
costs; due diligence, including travel and related expenses; expenses of
meetings of Directors; all costs with respect to communications to Members;
and other types of expenses approved by the Directors.
D. INCOME TAXES
The Fund has reclassified $4,044,331 and $4,515,986 from accumulated net
investment loss and accumulated net realized gain from investments,
respectively, to net capital contributions during the six month period
ended June 30, 2011. 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, 2011 and had no
effect on members' capital.
The Fund files income tax returns in the U.S. federal jurisdiction and
applicable states. Management has analyzed the Fund's tax positions taken
on its federal and state income tax returns for all open tax years, and has
concluded that no provision for federal or state income tax is required in
the Fund's financial statements. The Fund's federal and state income tax
returns for tax years for which the applicable statutes of limitations have
not expired are subject to examination by the Internal Revenue Service and
state departments of revenue. The Fund recognizes interest and penalties,
if any, related to unrecognized tax benefits as income tax expense in the
Statement of Operations. For the six month period ended June 30, 2011, the
Fund did not incur any interest or penalties.
10
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES (CONTINUED)
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 held in custodial accounts. The
Fund has not experienced any losses in such accounts and does not believe
it is exposed to any significant credit risk on such accounts.
F. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of increases and decreases in members' capital from operations
during the reporting period. Actual results could differ from those
estimates.
4. 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 members' capital, excluding the capital
account attributable to the Adviser.
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 members' capital, excluding the capital account
attributable to the Adviser. The Management Fee and Investment Management
Fee will be paid to the Adviser out of the Fund's assets and debited
against the Members' capital accounts, excluding the capital account
attributable to the Adviser. A portion of the Investment Management Fee and
the Management Fee is paid by UBS A&Q to its affiliates.
11
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
4. RELATED PARTY TRANSACTIONS (CONTINUED)
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 is similarly allocated to all Members other than the
Adviser or Administrator as described above.
Each Director of the Fund receives an annual retainer of $8,250 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 amount of $20,000. These additional
annual retainer amounts are paid for by the Fund on a pro-rata basis with
ten other UBS funds where UBS A&Q is the investment adviser. All Directors
are reimbursed by the Fund for all reasonable out of pocket expenses.
Other investment partnerships sponsored by UBS AG or its affiliates may
also maintain investment interests in the Investment Funds owned by the
Fund.
5. ADMINISTRATION AND CUSTODY FEES
PFPC Trust Company (the "Custodian"), which was renamed BNY Mellon
Investment Servicing Trust Company effective July 1, 2011, provides
custodial services for the Fund. The Custodian entered into a service
agreement whereby The Bank of New York Mellon provides securities clearance
functions, as needed.
BNY Mellon Investment Servicing (US) Inc. ("BNY Mellon") serves as
accounting and investor servicing agent to the Fund and in that capacity
provides certain administrative, accounting, record keeping, tax and Member
related services. BNY Mellon receives a monthly fee primarily based upon
(i) the average members' capital of the Fund subject to a minimum monthly
fee, and (ii) the aggregate members' capital of the Fund and certain other
investment funds sponsored or advised by UBS AG, UBS Americas, Inc. or
their affiliates. Additionally, the Fund reimburses certain out of pocket
expenses incurred by BNY Mellon.
12
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
5. ADMINISTRATION AND CUSTODY FEES (CONTINUED)
Effective March 26, 2010, the Custodian and BNY Mellon have agreed to a fee
reduction for reimbursement of the Fund's line of credit commitment fees
("Fee Reduction") for a period of 364 days from November 1, 2010, the
effective date of the Fund's line of credit agreement with State Street
Bank and Trust Company ("Initial Term"). Based on the methodology within
the agreement, the Custodian and BNY Mellon have agreed to waive $69,300
for the Fund over the Initial Term. For the six month period ended June 30,
2011, the Custodian and BNY Mellon waived $3,600 and $31,050, respectively,
which is shown in aggregate as administration and custody fees waived on
the Statement of Operations.
6. LOAN PAYABLE
Effective November 1, 2010, the Fund, along with other UBS sponsored funds,
entered into a one year, $250,000,000 committed, secured revolving line of
credit with State Street Bank and Trust Company. The Fund is limited to
$69,300,000 (the "Borrower Sublimit Amount") of the secured revolving line
of credit with a maximum borrowing limit of 15% of the Fund's Members'
Capital. The interest rate on the borrowing is the higher of (a) 1.50%
above the Overnight LIBOR Rate and (b) 1.50% above the Federal Funds Rate,
in each case as in effect from time to time. There is a commitment fee
payable by the Fund, calculated at 25 basis points per annum of the
Borrower Sublimit Amount not utilized.
For the six month period ended June 30, 2011, the Fund's average interest
rate paid on borrowings was 1.74% per annum and the average borrowings
outstanding was $1,044,199. The Fund did not have any borrowings
outstanding at June 30, 2011. Interest expense for the six month period
ended June 30, 2011 was $9,125, of which none was payable at June 30, 2011.
7. INVESTMENTS
As of June 30, 2011, the Fund had investments in Investment Funds, none of
which were related parties.
Aggregate purchases and proceeds from sales of investments for the six
month period ended June 30, 2011 amounted to $58,000,000 and $43,339,795,
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 2011 will not be
finalized by the Fund until after the fiscal year end.
13
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
7. INVESTMENTS (CONTINUED)
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 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. Detailed
information about the Investment Funds' portfolios is not available.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Investment Funds in which the Fund
invests trade various financial instruments and enter into various
investment activities with off-balance sheet risk. These include, but are
not limited to, short selling activities, writing option contracts,
contracts for differences, equity swaps, distressed investing, merger
arbitrage and convertible arbitrage. The Fund's risk of loss in these
Investment Funds is limited to the fair value of these investments.
The Fund has entered into a forward foreign currency exchange contract 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.
The Fund entered into a forward foreign currency exchange contract to hedge
against a Euro denominated Investment Fund. The Fund enters into these
contracts from time to time to mitigate the foreign currency risks
associated with these types of investments.
The Fund is required to present enhanced information in order to provide
users of financial statements with an improved degree of transparency and
understanding of how and why an entity uses derivative instruments, how
derivative instruments are accounted for, and how derivative instruments
affect an entity's financial position, results of operations and its cash
flows. In order to provide such information to financial statement users,
the Fund provides qualitative disclosures about an entity's associated risk
exposures, quantitative disclosures about fair value amounts of derivative
instruments and the gains and losses from derivative instruments.
14
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
The net realized loss and net change in unrealized gain on forward foreign
currency exchange contracts for the six month period ended June 30, 2011 is
($1,161,869) and $68,043, respectively, and are included in the net
realized gain/(loss) from foreign currency contracts and transactions and
net change in unrealized appreciation/depreciation on investments in
Investment Funds, investments in other securities and foreign currency
contracts and translations on the Statement of Operations. Unrealized
depreciation on foreign currency contracts is included on the Statement of
Assets, Liabilities and Members' Capital.
The volume of activity of forward foreign currency exchange contracts that
is presented in the Schedule of Portfolio Investments is consistent with
the derivative activity during the six month period ended June 30, 2011.
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, the Fund believes that the likelihood
of such an event is remote.
15
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC (FORMERLY UBS CREDIT
RECOVERY FUND, L.L.C.)
SCHEDULE OF PORTFOLIO INVESTMENTS
(UNAUDITED)
JUNE 30, 2011
DOLLAR
AMOUNT OF
REALIZED AND FAIR VALUE
UNREALIZED FIRST FOR FIRST
% OF GAIN/(LOSS) INITIAL AVAILABLE AVAILABLE
MEMBERS' FROM ACQUISITION LIQUIDITY REDEMPTION REDEMPTION
INVESTMENT FUND COST FAIR VALUE CAPITAL INVESTMENTS DATE (A) (B) (B)
--------------------------------------- ------------ ------------ -------- ------------ ----------- --------- ---------- ----------
CREDIT
Ahab Partners, L.P. (c) $ 6,577,237 $ 7,349,021 1.94 $ 560,474 8/1/2002 N/A
Brevan Howard Credit Catalysts Fund,
L.P. (d) 22,000,000 24,966,653 6.59 1,016,670 6/1/2010 Monthly
Brigade Leveraged Capital Structures
Fund, L.P. (d) 21,826,694 28,162,851 7.44 1,023,537 2/1/2008 Quarterly
Camulos Partners, L.P. (c) 1,640,423 312,103 0.08 (76,300) 2/1/2006 N/A
Canyon Value Realization Fund, L.P.
(d),(e) 1,885,745 2,620,889 0.69 92,794 8/1/2002 N/A
Chatham Asset Partners High Yield
Fund, L.P. (d) 12,000,000 12,215,637 3.23 215,637 1/1/2011 Quarterly
Claren Road Credit Partners, L.P., L
Interest payable (e) 4,070,202 8,157,566 2.15 3,500,657 10/1/2006 N/A
Cyan Warwick European Distressed &
Special Situations Credit Fund LP 7,900,000 7,955,279 2.10 63,156 8/1/2010 Quarterly 9/30/2012 7,955,279
Cyrus Opportunities Fund II, L.P. (c) 808,225 893,428 0.24 47,246 8/1/2002 N/A
Cyrus Opportunities Fund II, L.P. (e) 456,428 825,436 0.22 72,273 8/1/2002 N/A
European Special Opportunities Fund
II, Ltd., Class B (c) 9,800,792 10,934,142 2.89 894,284 2/1/2008 N/A
GCA Credit Opportunity Fund, L.L.C. (d) 21,000,000 21,307,322 5.63 307,322 2/1/2011 Quarterly
Gracie Credit Opportunities Fund,
L.L.C. (d) 25,000,000 26,444,916 6.99 224,684 11/1/2009 Quarterly
Harbinger Capital Partners Fund I,
L.P., Class L (e) 118,968 522,676 0.14 15,574 8/1/2006 N/A
Harbinger Capital Partners Special
Situations Fund, L.P. (e) 1,328,967 1,066,925 0.28 17,665 8/1/2006 N/A
Harbinger Capital Partners Special
Situations Fund, L.P. (c) 2,727,293 5,471,210 1.45 (176,762) 8/1/2006 N/A
Harbinger Class PE Holdings (US) Trust
(e) 4,947,928 3,415,586 0.90 (230,494) 8/1/2002 N/A
Indus Structured Finance Fund, L.P.,
Class A (f) 10,006,738 5,319,128 1.40 (375,275) 5/1/2007 N/A 6/30/2012 5,319,128
Every 24
Knighthead Domestic Fund, L.P. 11,270,919 19,982,086 5.28 915,514 6/1/2008 months
Marathon Distressed Subprime Fund, Every 18
L.P. (d) 3,488,866 4,936,407 1.30 1,528,970 9/1/2007 months
Marathon Special Opportunity Fund,
L.P. (e) 4,131,760 4,498,901 1.19 15,761 10/1/2002 N/A
Every 24
Marathon Special Opportunity Fund, L.P. 9,852,600 14,140,191 3.73 390,021 10/1/2002 months
Marathon Special Opportunity Fund,
L.P. (d),(c) 149,650 284,091 0.07 116,615 10/1/2002 N/A
Marathon Structured Finance Fund, L.P.
(c) 2,170,085 2,649,703 0.70 274,945 11/1/2004 N/A
Marathon Structured Finance Fund, L.P.
(e) 2,250,441 1,737,206 0.46 68,500 11/1/2004 N/A
Mariner-Tricadia Credit Strategies,
L.P. (d) 10,000,000 9,960,400 2.63 (39,600) 6/1/2011 Quarterly
Monarch Debt Recovery Fund, L.P. (d) 6,750,000 20,426,855 5.40 1,214,041 10/1/2002 Annually
Normandy Hill Fund, L.P. (d) 15,000,000 14,579,926 3.85 (81,223) 4/1/2010 Quarterly
Every 24
Redwood Domestic Fund, L.P. 10,000,000 17,564,081 4.64 1,163,811 10/1/2008 months
Styx Partners, L.P. (c) 15,034,467 16,988,698 4.49 638,901 8/1/2002 N/A
Whitebox Hedged High Yield Fund, L.P.
(c) 571,168 816,179 0.22 (75,845) 2/1/2004 N/A
Whitebox Hedged High Yield, Ltd. (c) 2,493,804 2,257,851 0.60 (208,769) 9/1/2005 N/A
------------ ------------ -------- ------------
CREDIT SUBTOTAL $247,259,400 $298,763,343 78.92% $ 13,114,784
RELATIVE VALUE
Linden Investors, L.P. (d) 15,000,000 14,406,541 3.80 (593,459) 6/1/2011 Quarterly
One William Street Capital Partners,
L.P. (d) 14,176,025 17,226,210 4.55 167,084 12/1/2009 Quarterly
Waterstone Market Neutral Fund, L.P.
(d) 18,000,000 19,338,120 5.11 679,999 7/1/2010 Quarterly
------------ ------------ -------- ------------
RELATIVE VALUE SUBTOTAL $ 47,176,025 $ 50,970,871 13.46% $ 253,624
REALIZED
AND
UNREALIZED
% OF GAIN/(LOSS)
UNREALIZED MEMBERS' FROM
EURO FX CONTRACTS COST GAIN/(LOSS) CAPITAL INVESTMENTS
----------------- ------------ ------------ -------- ------------
Euro Foreign Currency Forward Contract
(g) -- (78,149) (0.02) (1,093,826)
The preceding notes are an integral part of these financial statements.
16
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC
(FORMERLY UBS CREDIT RECOVERY FUND, L.L.C.)
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
REALIZED AND
UNREALIZED
% OF GAIN/(LOSS)
MEMBERS' FROM
INVESTMENT FUND COST FAIR VALUE CAPITAL INVESTMENTS
--------------- ------------ ------------ -------- ------------
Other Securities (h) $ 34,452 $ 21,416 0.01 $ (14,539)
Redeemed Investment Funds -- -- -- (2,711,730)
------------ ------------ ----- ------------
TOTAL $294,469,877 $349,677,481 92.37% $ 9,548,313
============ ============ ===== ============
(a) Available frequency of redemptions after the initial lock-up period, if
any. Different tranches may have varying liquidity terms.
(b) Investment Funds with no dates or amounts can be redeemed in full.
(c) 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.
(d) Investment Funds categorized as Level 2 investments.
(e) A portion or all of the Fund's interests in the Investment Fund are held in
side pockets which have restricted liquidity.
(f) The Investment Fund is a private equity position that is expected to be
fully distributed to its investors over the next 48 months.
(g) The current fair value of the Euro foreign currency forward sale contract
open with Morgan Stanley & Co. Incorporated is $(9,981,719) and the value
on settlement date of September 30, 2011 is $(9,903,570).
(h) Securities received from in-kind distributions from Investment Funds which
have been held for less than one year.
Complete information about the Investment Funds' underlying investments is not
readily available.
The fund has a receivable recorded on the Statement of Assets, Liabilities and
Members' Capital from Highland Credit Strategies Ltd. and Highland Crusader
Fund, L.P. in the amounts of $4,981,730 and $10,905,327, respectively. The
underlying investments held are managed within the Credit strategies. The
unrealized gain/(loss) on the receivable from Highland Credit Strategies Ltd.
and Highland Crusader Fund, L.P. for the period January 1, 2011 through June 30,
2011 is $887,095 and $(680,780), respectively which is recorded in net change in
unrealized appreciation/depreciation on investments in Investment Funds,
investments in other securities, foreign currency contracts and translations and
receivables on the Statement of Operations.
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 the Fund's investments
are not necessarily an indication of the risk associated with investing in those
investments. The Fund's valuation procedures require evaluation of all relevant
factors available at the time the Fund values its portfolio. These relevant
factors include the individual Investment Funds' compliance with fair value
measurements, price transparency and valuation procedures in place, and
subscription and redemption activity.
The Fund's investments are categorized in three levels as disclosed below. Level
1 discloses the amount of investments where the values of those investments are
based upon quoted prices in active markets for identical securities. Level 2
discloses the amount of investments where the Fund has the ability to redeem at
net asset value as of the June 30, 2011 measurement date, or within one year of
the measurement date. Level 3 discloses the amount of investments where the Fund
does not have the ability to redeem at net asset value within one year of the
June 30, 2011 measurement date. There were no transfers between Level 1 and
Level 2 at June 30, 2011.
ASSETS TABLE
TOTAL FAIR
VALUE
AT
DESCRIPTION JUNE 30, 2011 LEVEL 1 LEVEL 2 LEVEL 3
----------- ------------- ------- ------------ ------------
Credit $298,763,343 $-- $165,905,947 $132,857,396
Relative Value 50,970,871 -- 50,970,871 --
Other Securities 21,416 -- -- 21,416
------------ --- ------------ ------------
TOTAL ASSETS $349,755,630 $-- $216,876,818 $132,878,812
------------ --- ------------ ------------
The preceding notes are an integral part of these financial statements.
17
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT STRATEGIES LLC
(FORMERLY UBS CREDIT RECOVERY FUND, L.L.C.)
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2011
LIABILITIES TABLE
TOTAL FAIR
VALUE
AT
DESCRIPTION JUNE 30, 2011 LEVEL 1 LEVEL 2 LEVEL 3
----------- ------------- ------- -------- -------
Euro FX Contracts $(78,149) $-- $(78,149) $--
-------- --- -------- ---
TOTAL LIABILITIES $(78,149) $-- $(78,149) $--
-------- --- -------- ---
The following is a reconciliation of assets in which significant unobservable
inputs (Level 3) were used in determining fair value:
NET
TRANSFERS
BALANCE CHANGE IN IN
AS OF UNREALIZED AND/OR BALANCE
DECEMBER 31, STRATEGY REALIZED GAIN/ APPRECIATION / (OUT) OF AS OF
DESCRIPTION 2010 RECLASSIFICATION* (LOSS) DEPRECIATION PURCHASES SALES LEVEL 3 ** JUNE 30, 2011
----------- ------------ ----------------- -------------- -------------- --------- ------------ ----------- -------------
Credit $ -- $113,972,343 $(1,808,605) $5,257,632 $-- $(18,686,251) $34,122,277 $132,857,396
Direct Loans /
Structured
Finance 49,121,650 (49,121,650) -- -- -- -- -- --
Distressed Credit 12,531,703 (12,531,703) -- -- -- -- -- --
Diversified Credit 52,318,990 (52,318,990) -- -- -- -- -- --
Other Securities -- -- -- -- -- -- 21,416 21,416
------------ ------------ ----------- ---------- --- ------------ ----------- ------------
Total $113,972,343 $ -- $(1,808,605) $5,257,632 $-- $(18,686,251) $34,143,693 $132,878,812
------------ ------------ ----------- ---------- --- ------------ ----------- ------------
* Effective June 30, 2011, the Fund's underlying Fund investments were
reclassified into new investment strategies. See Note 3a in the Notes to
the Financial Statements for further description of the new investment
strategies.
** The transfer into Level 3 investments in the amount of $34,122,277 is due
to the liquidity of the underlying Investment Funds in relation to the
change in the measurement date from December 31, 2010 to June 30, 2011. For
the period ended June 30, 2011, Other Securities were classified as Level 3
investments as the determination of value for these investments was based
upon significant unobservable inputs.
Net change in unrealized appreciation/depreciation on Level 3 assets still held
as of June 30, 2011 is $9,289,399.
The preceding notes are an integral part of these financial statements.
18
O'CONNOR FUND OF FUNDS: LONG/SHORT CREDIT LLC (UNAUDITED)
The Directors (including the Independent Directors) last evaluated the
Investment Management Agreement at a meeting on May 18, 2011. 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
UBS Alternative and Quantitative Investments LLC (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
investment management and compliance services would be provided to the Fund. The
Directors also recognized the benefits that the Fund derives from the resources
available to the Adviser and the Adviser's affiliates, including UBS AG and UBS
Financial Services Inc. 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 the
Adviser 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 noted that there were no funds or accounts managed by the
Adviser or its affiliates with similar investment objectives, policies and
strategies as the Fund. The Directors recognized that certain of the Comparable
Funds, as private funds, are not subject to certain investment restrictions
under the 1940 Act that are applicable to the Fund and which can adversely
affect the Fund's performance relative to that of its respective Comparable
Funds. The Directors observed that the Fund's one-year performance for the
period ended March 31, 2011 exceeded the median performance of the 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. The
information presented to the Directors showed that although the combination of
the Fund's management fee and service fee was above the median management fee of
the Comparable Funds, unlike the Comparable Funds,
the Fund did not charge an incentive fee. In light of the foregoing, the
Directors felt that the combination of management fee and incentive fee being
charged to the Fund was appropriate and was within the overall range of the fees
paid by the Comparable Funds.
The Directors also considered the profitability of the Adviser both before
payment to brokers and after payment to brokers and concluded that the profits
to be realized by the Adviser and its affiliates under the Fund's Investment
Management Agreement and from other relationships between the Fund and the
Adviser were within a range the Directors considered reasonable and appropriate.
The Directors also discussed the fact that the Fund was not large enough at that
time to support a request for breakpoints due to economies of scale. The
Directors determined that the fees under the Investment Management Agreement do
not constitute fees that are so disproportionally large as to bear no reasonable
relationship to the services rendered and that could not have been the product
of arm's length bargaining, and concluded that the fees were reasonable. The
Directors concluded that approval of the Fund's Investment Management Agreement
was in the best interests of the Fund and its investors.
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) O'Connor Fund of Funds: Long/Short Credit Strategies LLC (formerly,
UBS Credit Recovery Fund, L.L.C.)
By (Signature and Title)* /s/ William Ferri
------------------------------------------
William Ferri, Principal Executive Officer
Date August 26, 2011
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/ William Ferri
------------------------------------------
William Ferri, Principal Executive Officer
Date August 26, 2011
By (Signature and Title)* /s/ Robert Aufenanger
----------------------------------------------
Robert Aufenanger, Principal Financial Officer
Date August 26, 2011
* Print the name and title of each signing officer under his or her
signature.
EX-99.CERT
2
w84145exv99wcert.txt
EX-99.CERT
EXHIBIT 99.CERT
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT
AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, William Ferri, certify that:
1. I have reviewed this report on Form N-CSR of O'Connor Fund of Funds:
Long/Short Credit Strategies LLC (formerly, UBS Credit Recovery Fund,
L.L.C.);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in net
assets, and cash flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
control over financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the 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; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 26, 2011 /s/ William Ferri
------------------------------------------
William Ferri, Principal Executive Officer
EXHIBIT 99.CERT
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT
AND SECTION 302 OF THE SARBANES-OXLEY ACT
I, Robert Aufenanger, certify that:
1. I have reviewed this report on Form N-CSR of O'Connor Fund of Funds:
Long/Short Credit Strategies LLC (formerly, UBS Credit Recovery Fund,
L.L.C.);
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations, changes in net
assets, and cash flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and for, the periods
presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940) and internal
control over financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of a date
within 90 days prior to the filing date of this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the 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; and
5. The registrant's other certifying officer(s) and I have disclosed to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 26, 2011 /s/ Robert Aufenanger
----------------------------------------------
Robert Aufenanger, Principal Financial Officer
EX-99.906CERT
3
w84145exv99w906cert.txt
EX-99.906CERT
EXHIBIT 99.906CERT
CERTIFICATION PURSUANT TO RULE 30A-2(B) UNDER THE 1940 ACT
AND SECTION 906 OF THE SARBANES-OXLEY ACT
I, William Ferri, Principal Executive Officer of O'Connor Fund of Funds:
Long/Short Credit Strategies LLC (formerly, UBS Credit Recovery Fund, L.L.C.)
(the "Registrant"), certify that:
1. The Form N-CSR of the Registrant (the "Report") fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Registrant.
Date: August 26, 2011 /s/ William Ferri
------------------------------------------
William Ferri, Principal Executive Officer
I, Robert Aufenanger, Principal Financial Officer of O'Connor Fund of Funds:
Long/Short Credit Strategies LLC (formerly, UBS Credit Recovery Fund, L.L.C.)
(the "Registrant"), certify that:
1. The Form N-CSR of the Registrant (the "Report") fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Registrant.
Date: August 26, 2011 /s/ Robert Aufenanger
----------------------------------------------
Robert Aufenanger, Principal Financial Officer