Puerto Rico Bond Fund Sheds Leverage and Two-Thirds of Its Fee in Handover Year

The discount to net asset value narrowed from 44.3 percent to 27.1 percent even as the fund’s total return trailed the municipal market by more than three points.

September 14, 2026

Tax-Free Fixed Income Fund IV for Puerto Rico Residents closed its first full fiscal year under new management with no leverage outstanding, an advisory fee cut by two-thirds, and a discount to net asset value that narrowed by nearly half. What it did not deliver was performance.

The closed-end fund returned 1.04 percent at net asset value for the fiscal year ended March 31, 2026, against 4.29 percent for the Bloomberg Municipal Bond Index. Net asset value fell 14 cents to $3.36 a share. The shares, which are not registered under the Securities Act of 1933 and change hands only through private transactions, carried an indicated market price of $2.45 at year-end — a 27.1 percent discount to NAV, against 44.3 percent a year earlier.

That compression, rather than portfolio results, was the most visible change for shareholders, and it arrived alongside a near-total replacement of the fund’s adviser, auditor, custodian, administrator, officers and board.

Leverage gone, cash built up

The fund sold roughly $39 million of COFINA bonds and U.S. agency securities during the year and applied the proceeds to repaying its leverage program. No reverse repurchase agreements were outstanding at March 31, 2026. Over the course of the year, borrowings peaked at $43.1 million and averaged $11.7 million at an average rate of 4.63 percent, with total originations of $196 million.

Another $17 million arrived through calls and paydowns, part of which funded the dividend, and roughly $14 million was held in cash at year-end. The fund’s other leverage channel, its Tax-Exempt Secured Obligations program, has been suspended since May 2021 pending 1933 Act registration.

Net investment income fell to $4.4 million from $5.6 million, which the adviser attributed in part to higher professional expenses and lower other income. Dividends paid rose to $5.3 million from $5.0 million, because the fund distributed approximately $890,000 of net investment income carried over from prior years, worth about 3 cents a share. Dividend yield was 7.14 percent on market value and 5.21 percent on NAV. Monthly dividends of $0.01458 a share, totaling $443,750 each, were declared in April, May, June and July of 2026.

The fee reset

UBS Asset Managers of Puerto Rico, a division of UBS Trust Company of Puerto Rico, ceased to be the fund’s investment adviser on July 19, 2025, in furtherance of a shareholder proposal effective May 20, 2025. Atlas Asset Management took over the next day on an interim agreement, and shareholders approved a new advisory agreement with Atlas on December 30, 2025.

The economics changed materially:

• Under UBS (April 1 to July 19, 2025) — 0.75 percent of average weekly gross assets, amounting to $316,248, of which UBS voluntarily waived $210,832 for a net fee of $105,416.
• Under Atlas (July 20 to March 31, 2026) — 0.25 percent of weekly net assets, amounting to $173,407. The new agreement caps the fee at that level.

Charging on net rather than gross assets compounds the reduction for a fund that had been running reverse repurchase leverage. Administrative, custody and transfer agency fees paid to UBS Trust Company totaled $214,197 for the year, with $58,696 waived for a net $155,501. Independent directors received aggregate compensation of $60,270.

Where the money sits

The portfolio remains concentrated in Puerto Rico credit and in a single equity-linked position, with Puerto Rico exposure at 48.96 percent of investments at year-end.

COFINA bonds, at 24.82 percent, are the largest Puerto Rico holding. They are secured by 53.65 percent of pledged sales and use tax collections through 2058, amounting to $552.9 million for fiscal 2026 and rising 4 percent annually to a cap of $992.5 million in fiscal 2041. COFINA reported in October 2025 that all required collections for the period had been transferred to the bond trustee. Those bonds carry no rating — and they are the entirety of the fund’s not-rated bucket, because the COFINA board has still not applied for one.

Preferred shares of Universal Insurance Group, held since their 2004 issuance, represent 17.68 percent of the portfolio and declined in value during the year. Defaulted Puerto Rico Electric Power Authority bonds account for 3.75 percent and rose in price. U.S. agencies and U.S. municipals make up 42.15 percent and 8.89 percent respectively.

Credit quality is barbelled: 47.57 percent AA, 6.18 percent A, 21.43 percent below BBB and 24.82 percent unrated.

The PREPA restructuring moved again during the period. In March 2026 the District Court denied bondholders their administrative expense claim; all parties appealed, and in April the court lifted its litigation stay far enough to permit discovery on the value of the bondholders’ collateral. The Oversight Board’s Fifth Amended Plan remains the operative proposal.

A board and an audit trail in transition

Governance turnover continued after year-end. Brent Rosenthal and Jose Izquierdo were elected to the board on April 6, 2026; Clotilde Perez and Agustin Cabrer resigned two days later. The fund’s secretary and its Puerto Rico legal counsel both departed on April 9.

The vote tallies at the 2025 annual meeting, finally held April 6 after adjournment from March, show how lopsided the shareholder base has become. Rosenthal and Izquierdo drew more than 14.2 million votes each, while the two other nominees on the ballot drew fewer than 460,000 apiece and were opposed by more. Three by-law proposals submitted by Ocean Capital — including one lowering the quorum threshold from half to a third of outstanding shares — each passed with more than 15.1 million votes in favor. Separately, the fund’s 2021 annual meeting has still never transacted business; it stands adjourned to May 21, 2026 after 33 proxy statement amendments.

On the audit side, Ernst & Young resigned on July 24, 2025, and Grant Thornton Puerto Rico was appointed effective April 2, 2026, leaving more than eight months without an accountant of record. Grant Thornton audited only the fiscal 2026 statements; the prior year’s statement of changes in net assets and the financial highlights for fiscal 2022 through 2025 were the work of other auditors. Audit fees fell to $72,335 from $80,739. The board disclosed that it has no audit committee financial expert and intends to appoint one.

Effective August 24, 2026, State Street Bank and Trust took over custody and fund administration, ending UBS Trust Company’s remaining roles and JPMorgan Chase’s sub-custodian mandate. Paul Hopgood, president of Atlas, has managed the portfolio since July 2025 and owns no shares of the fund. The fund repurchased no common shares during the year.

Nowhere in the report — including a subsequent-events disclosure that runs through August 31, 2026 — is there any reference to the wind-down that shareholders are now being asked to approve. The fund and its sister vehicle have separately proposed ceasing operations and liquidating their portfolios.