According to various reports, UBS’s proprietary closed-end bond funds in its Puerto Rico family of funds have suffered significant decreases in value. Owners of these investments may be wondering where they can sell their shares. Unfortunately, the recent negative news on the UBS Puerto Rico funds highlights one the biggest problems with close-end funds generally and the UBS Puerto Rico family of funds specifically – their lack of liquidity. These investments are not sold on an exchange and can sometimes be very difficult to sell.
The following information, taken from UBS’s informational brochure on the UBS Puerto Rico family of funds, discusses the “secondary market” for these investments:
“After the initial offering, however, the shares of the USB Puerto Rico closed-end funds (Funds) are traded in a secondary market between investors. The Funds are not listed on an exchange, but since the first Fund was issued in 1994, the Firm has facilitated secondary market transactions for clients who wish to buy or sell Fund shares. It has done so by maintaining a trading desk that quotes a “bid” and “offer” price for each of the Funds, and executing transactions for customers of the Firm who want to trade. The prices quoted by the trading desk represent its judgment of the market price for shares of each Fund. The price quotes may take into account factors, including, but not limited to, customer orders and/or indications of interest for the funds, supply and demand of fund shares, the size and age of the Firm’s inventory, and the size, price and age of open customer orders and recent trading prices and volumes, after-tax yields of the funds or similar funds, and NAV and/or changes in the fund’s NAV. The prices quoted by the trading desk may be higher than the NAV of the Fund (in which case the price is at a premium) or less than the NAV of the Fund (in which case the price is at a discount). Depending on market liquidity conditions, orders to buy or sell at the quoted price may not receive immediate execution, and you may not be able to sell your shares at the price quoted by the Trading Desk. The trading desk may quote an “indicative” bid or offer, which means that it is not obligated to transact at the quoted price. The Firm is not required to purchase shares of a Fund from clients seeking to sell their shares.
When the Firm does purchase shares from clients seeking to sell, it sells them immediately to other clients or holds the shares in its inventory for eventual resale to other clients. Accordingly, the ability to sell shares will depend on the interest of other Firm clients in buying shares, or the Firm’s willingness to commit additional capital to holding shares in inventory.”
Based on the foregoing, it appears that UBS controls the only known “market” for these investments at this time. To make matters worse, in poor economic times like those currently being experienced in Puerto Rico, the likelihood that these particular closed-end funds would be trading at a discount to NAV is high. The combination of negative news and no established trading market makes the investments difficult to sell without offering a substantial discount.
Given the difficulty in selling the UBS Puerto Rico Funds and the fact that many have declined substantially, investors may want to consider their legal options. The White Law Group is investigating the liability that FINRA registered broker-dealers may have for recommending risky closed-end municipal bond fund investments like the UBS Puerto Rico Funds.
It appears that firms sold these investments by highlighting the potential tax benefits. According to UBS, qualifying Puerto Rico investors could “benefit from investing in securities issued by Puerto Rico Funds because they are tax exempt from Puerto Rico and United States estate and gift taxes and may provide tax-exempt or tax-advantaged income, depending on the type of fund and its investment specifications.”
Unfortunately such sales pitches ignore the substantial risks of closed-end funds, particularly those over-concentrated in one market.
Brokerage firms and financial advisers have certain duties to their clients, including insuring that an investment is appropriate in light of the investor’s age, income, net worth, investment experience, and investment objectives. If a broker or brokerage firm fails in these responsibilities, investors may have an actionable claim to recover their investment losses in a claim through FINRA dispute resolution.
The White Law Group is specifically investigating the following UBS Puerto Rico fund investments (among others):
UBS Puerto Rico Fixed Income Fund I, Inc.
UBS Puerto Rico Fixed Income Fund II, Inc.
UBS Puerto Rico Fixed Income Fund III, Inc.
UBS Puerto Rico Fixed Income Fund IV, Inc.
UBS Puerto Rico Fixed Income Fund V, Inc.
UBS Puerto Rico Fixed Income Fund VI, Inc.
UBS Puerto Rico Investors Tax-Free Fund, Inc.
UBS Puerto Rico Investors Tax-Free Fund, Inc. III
UBS Puerto Rico AAA Portfolio Bond Fund, Inc.
UBS Puerto Rico AAA Portfolio Bond Fund II, Inc.
UBS Puerto Rico AAA Portfolio Target Maturity Fund, Inc.
UBS Tax Free Puerto Rico Target Maturity Fund Inc.
UBS Puerto Rico Mortgage-Backed & Government Securities Fund, Inc.
UBS Puerto Rico GNMA & US Government, Inc.
If you invested in a UBS Puerto Rico Fund investment and would like to discuss your litigation options, please call The White Law Group’s Boca Raton, Florida office at 561-807-6804 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at www.WhiteSecuritiesLaw.com. For more information on The White Law Group’s investigation, visit http://www.whitesecuritieslaw.com/2013/10/14/update-on-securities-fraud-investigation-involving-ubss-family-of-puerto-rico-funds/.