Puerto Rico funds’ shareholders will vote on liquidation

Shareholders of four Puerto Rico tax-exempt closed ended funds, with about $187 million in total net assets, will vote whether to liquidate shortly, after a several year legal struggle involving UBS.

The funds posted notices last week to the Securities and Exchange Commission’s EDGAR site notifying shareholders that the funds’ boards are recommending liquidation.

The affected funds 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, though the posting only mentioned the first three funds. They were managed by UBS Asset Managers of Puerto Rico until July 19.

Since then, Atlas Asset Management has taken over. Atlas couldn’t be immediately reached for comment.

UBS declined to comment.

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.

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 and Use Tax (COFINA) bonds and 12.4% were United States municipal bonds.

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.

Many Puerto Rico residents who invest in Puerto Rico municipal bonds do so through closed ended funds. UBS retains management over several Puerto Rico closed-ended and open-ended municipal bond funds.

Ocean Capital has directors running three of funds, with the exception of Puerto Rico Residents Tax-Free Fund VI, according to a financial market source.

It is unclear whether dates have been set for the shareholder votes on liquidation.

A spokesperson for Ocean Capital couldn’t immediately provide a comment on the latest developments.