Allianz Considers Merging the Municipal Advantage Fund CEF Into One of Its Other Funds

Sep.28.06 | About: PIMCO Municipal (MAF)

Phillip Goldstein sent a letter yesterday to the chairman of the Municipal Advantage Fund (MAF), requesting that action be taken to address the fund's discount. He suggests merging MAF into another Allianz closed-end fund as one remedy, and he appears ready to nominate his own slate of directors at the next shareholders meeting if the board takes no action before December.

For MAF shareholders, I don't see any downside to the fund being merged into another Allianz closed-end fund. As the letter mentioned, all of their other closed-end funds are trading at premiums, and they have had better performance. A merger could also be good for Allianz since the assets would be kept in a closed-end fund, instead of a redeemable open end fund.

Since Phillip Goldstein's proposal would keep MAF's assets in an Allianz CEF, it seems to me that the board will give it strong consideration. Because of this, I think MAF is an intriguing investment opportunity. If the board does go along with the merger suggestion, investors could benefit from the possibility that the -11.5% discount will be eliminated.

Also, if the board decides it does not want to do anything about the discount, the downside to holdings MAF is probably relatively limited. MAF could go down in value, but since it is a muni bond fund, I wouldn't expect its returns to be all that volatile, at least compared to a Thailand focused closed-end fund.

MAF 1-yr chart:

MAF 1-yr chart

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