DEFC14A: Pioneer Municipal High Income Funds Seek Stockholder Approval for New Advisory Agreement Amidst Saba Capital Opposition

Pioneer Municipal High Income Funds are seeking stockholder approval for a new investment advisory agreement with Victory Capital Management Inc. following Amundi's merger with Victory Holdings, while facing opposition from Saba Capital.

Summary

• Pioneer Municipal High Income Fund, Inc., Pioneer Municipal High Income Advantage Fund, Inc., and Pioneer Municipal High Income Opportunities Fund, Inc. are holding special meetings on March 26, 2025, to seek stockholder approval for a new investment advisory agreement with Victory Capital Management Inc.
• This change is prompted by a transaction where Amundi Holdings US, Inc., the parent company of the current investment advisor Amundi Asset Management US, Inc., will combine with Victory Capital Holdings, Inc.
• Upon completion of the transaction, Amundi will become a strategic shareholder of Victory Capital.
• The current advisory agreement with Amundi US will automatically terminate upon the transaction's completion.
• The proposed new agreement ensures that Victory Capital will succeed Amundi US as the investment advisor.
• The funds' current portfolio managers are expected to continue managing the funds as part of Pioneer Investments, a Victory Capital investment franchise.
• The investment objectives and strategies of the funds will remain unchanged.
• The advisory fee rate will remain the same under the new agreement.
• Victory Capital has agreed to waive advisory fees and/or reimburse expenses for at least three years to maintain the funds' total net annual operating expenses at or below current levels.
• Saba Capital Management, L.P., an activist investor holding significant shares in each fund (18.15% of MHI, 16.40% of MAV, and 12.52% of MIO), is expected to oppose the new agreement.
• The Board of Directors recommends voting FOR the new investment advisory agreement to prevent disruption by Saba Capital, who they believe is seeking short-term profits at the expense of long-term investors.
• The transaction is expected to close at the end of the first quarter of 2025, pending regulatory approvals and other conditions.
• If the new agreement is not approved and the transaction proceeds, an interim investment advisory agreement with Victory Capital will be implemented for up to 150 days.
• Amundi managed more than $2.3 trillion of assets as of December 31, 2024.
• Amundi US's total AUM as of December 31, 2024 was $114 billion, comprised of AUM of approximately 63% and 37% from U.S. and non-U.S. investors, respectively.
• Victory Capitals total assets under management are $171.9 billion, and it has $176.1 billion in total client assets, as of December 31, 2024.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The document outlines a strategic transaction with potential benefits, but also highlights the risk of activist investor opposition. The Board's recommendation and assurances of continuity contribute to a moderately positive outlook.

Positives

• The funds' investment objectives and strategies will remain unchanged.
• The advisory fee rate will remain the same.
• Victory Capital will waive fees and/or reimburse expenses for at least three years to maintain current operating expense levels.
• Current portfolio managers are expected to continue managing the funds.
• The Board believes the transaction could lead to operating efficiencies due to Victory Capital's greater scale.
• Victory Capital has advised the Board that it does not anticipate that having Victory Capital provide investment advisory services would result in any reduction in the level or quality of services now provided to your Fund, and that Victory Capital is not aware of any circumstances that may have any adverse effect on its ability to fulfill its obligations to your Fund.

Negatives

• Saba Capital, an activist investor, is expected to launch a campaign against the approval of the new investment advisory agreement.
• Saba Capital's actions could disrupt the funds' operations and potentially leave the funds without an investment advisor.
• The funds will transition from certain of the Funds current service providers, including fund administration, to the Victory Funds service providers following the consummation of the Transaction.
• The Directors considered that the fees Victory Capital would charge for administration services are higher than the fees that Amundi US receives as reimbursement for services rendered.

Risks

• Failure to approve the new investment advisory agreement could lead to disruption by Saba Capital.
• The transaction may not be completed if regulatory approvals are not obtained or other conditions are not met.
• If the transaction proceeds without stockholder approval, an interim agreement will be in place for a limited time, creating uncertainty.
• There is no guarantee that the MCSAA will be enforceable with respect to the Funds.
• The exercise of the provisions of the MCSAA may create exposure to liability for the Funds.

Future Outlook

The transaction is expected to close at the end of the first quarter of 2025, subject to regulatory approvals. The funds' investment objectives and strategies are expected to remain the same. Victory Capital will waive fees and/or reimburse expenses for at least three years to maintain current operating expense levels.

Management Comments

• The Board of Directors recommends voting FOR the new investment advisory agreement with Victory Capital.
• Victory Capital has advised the Board of Directors of your Fund that it does not anticipate that having Victory Capital provide investment advisory services would result in any reduction in the level or quality of services now provided to your Fund, and that Victory Capital is not aware of any circumstances that may have any adverse effect on its ability to fulfill its obligations to your Fund.

Industry Context

The announcement reflects ongoing consolidation trends in the asset management industry, with larger firms acquiring smaller players to achieve scale and expand their product offerings. The involvement of activist investors like Saba Capital is also a common theme in the closed-end fund space, as they seek to unlock value through various strategies.

Comparison to Industry Standards

• Victory Capital's acquisition of Amundi US is similar to other deals in the asset management industry where larger firms acquire smaller ones to expand their capabilities and geographic reach.
• BlackRock's acquisition of Merrill Lynch Investment Managers and Janus Henderson's merger are examples of similar consolidation trends.
• The advisory fee rates of 0.60% to 0.80% are within the typical range for closed-end municipal bond funds, but the specific level depends on the fund's size, complexity, and performance.
• Comparing the funds' expense ratios to their peer groups using Strategic Insight data provides a benchmark for assessing their cost-effectiveness.
• The opposition from Saba Capital is a common occurrence in the closed-end fund space, with firms like Bulldog Investors and Karpus Management also engaging in activist strategies.

Management Changes

Stakeholder Impact

• Shareholders will vote on the new investment advisory agreement, impacting the management of their investments.
• Portfolio managers are expected to continue their roles, providing continuity for investors.
• The transaction could lead to operating efficiencies, potentially benefiting shareholders.
• Employees of Amundi US will transition to Victory Capital, affecting their employment.

Next Steps

• Stockholders must vote on the new investment advisory agreement by March 25, 2025.
• The transaction is expected to close at the end of the first quarter of 2025, pending regulatory approvals.
• If the agreement is not approved, the Board will consider further actions consistent with their fiduciary duties.

Key Dates

Keywords

investment advisory agreement, Victory Capital, Amundi, Saba Capital, merger, closed-end funds, proxy statement, municipal high income funds, investment management, stockholder vote