Proxy Battle Heating Up at Pioneer Tax Advantaged Trust Fund

Back in July of last year, I posted a recommendation for the Pioneer Tax Advantaged Balanced Trust Fund (PBF), a closed end fund. At the time the discount from NAV was over 17%.

PBF has performed quite well and the discount from NAV has now shrunk to 9.4%. The main reason for the shrinking discount is that two different activist investor groups have recently filed proxy statements with the intention of launching a hostile proxy contest for three seats on the Fund's Board of Trustees.

The two dissident groups are Western Investment LLC (Arthur Lipson) and Cornerstone Advisors (Ralph Bradshaw). (I have previously posted on some of Bradshaw's funds (CRF and CLM) that sell at large premiums over NAV.) It is interesting that each dissident group will be recommending different people for the three seats on the board.

On Friday, I received proxies from Pioneer management who will be vigorously opposing both of the above dissident groups and their alternate boards and shareholder proposals which are:

1) To adopt a managed distribution policy.
2) To change the fund's investment objective to seek capital appreciation with current income as a secondary objective.
3) To terminate the investment advisory agreement between the fund and Pioneer Investment Management.

It is easy to understand why Pioneer is vigorously opposing these proposals, especially the third one.

I own shares of PBF both in a taxable account and in a tax-deferred IRA account. I'm considering a sale of some of the shares in the tax-deferred IRA account, since I would not have to pay a capital gains tax. One negative in this situation is that Pioneer will be vigorously fighting the dissidents which will most likely lead to higher legal costs for the fund. And if the dissidents fail in their efforts, the discount could easily move higher again.

But I plan to hold onto the shares in the taxable account, since I would have to pay a fairly large capital gains tax on a sale, and I am interested to see how things develops.

I have not yet received any official proxy material from either dissident group, but at this stage I am leaning toward supporting the board nominees from the Arthur Lipson group, since they control more shares than Bradshaw's group and are more likely to succeed. Although Bradshaw seems to have a knack for creating large premiums over NAV for the funds that he runs.

The Fund's Annual Meeting is scheduled for June 8, 2007 in Boston. There should be a lot of fireworks, and if any of my readers live in the Boston area you may want to attend.

PBF 1-yr chart: