Shareholders to vote on liquidation of 4 PR closed-ended funds

By The Star Staff

Shareholders of four Puerto Rico tax-exempt closed-ended funds, with a combined total of some $187 million in net assets, will soon vote on whether to liquidate the funds. The development follows a protracted legal dispute involving investment banking company UBS, according to Fidelity.

The funds posted notices last week to the Securities and Exchange Commission’s EDGAR site notifying shareholders that the funds’ boards are recommending liquidation. It is unclear whether dates have been set for the shareholder votes on liquidation.

The funds in question are Tax Free Fund for Puerto Rico Residents Inc., Puerto Rico Residents Tax-Free Fund Inc., Puerto Rico Residents Tax-Free Fund IV Inc., and Puerto Rico Residents Tax-Free Fund VI. The funds had been managed by UBS Asset Managers of Puerto Rico until July 19, after which Atlas Asset Management took over, as reported by Fidelity.

For each fund to liquidate its holdings, holders of most of the shares in the fund must approve the action.

Puerto Rico-based investment fund Ocean Capital has been struggling with UBS for several years to change the funds’ directors. The U.S. Court of Appeals for the First Circuit ruled in Ocean Capital’s favor in one case in May, Fidelity reported.

Tax Free Fund for Puerto Rico Residents had $50.4 million in net assets as of Dec. 31, 2024. Of this, 30.4% were Puerto Rico Sales Tax Financing Corp. (COFINA) bonds and 12.4% were United States municipal bonds, the report said.

Puerto Rico Residents Tax-Free Fund had $26 million in net assets as of Aug. 31, 2024, of which 57% was COFINA, 13% was other U.S. municipal bonds and 0.3% was other Puerto Rico municipal bonds.

Puerto Rico Residents Tax-Free Fund IV had $106.6 million in net assets, with 36% being for Puerto Rico municipal bonds and 5.4% for U.S. municipal bonds.

Puerto Rico Residents Tax-Free Fund VI had $4 million in net assets as of Sept. 30, 2024, with 42% in COFINA bonds and 30% in U.S. municipal bonds.

A significant portion of Puerto Rico residents who invest in the island’s municipal bonds do so through closed-ended funds. UBS continues to manage several Puerto Rico-based municipal bond funds, including both closed-ended and open-ended funds.

Ocean Capital has directors running three of the funds, with the exception of Puerto Rico Residents Tax-Free Fund VI, Fidelity reported.