What is the estimated timeline and potential financial exposure of the legal settlement, and how could it influence the fund’s distribution policy?

Estimated timeline & exposure – Securities‑fraud class actions involving municipal‑bond funds typically move from lead‑plaintiff certification to settlement negotiations within 6‑12 months, with a final resolution (court‑approved settlement or trial verdict) often taking 12‑18 months from the filing date. Glancy Prongay & Murray’s announcement that investors can now “lead” the case suggests the class‑certification hurdle has been cleared, so the next step will be discovery and settlement talks. Although the filing does not disclose a specific exposure, the fund’s recent $1.2 bn of high‑income muni assets and the “high‑income” positioning imply that any settlement could run tens of millions of dollars – potentially 2‑5 % of the fund’s net assets – depending on the size of alleged misrepresentations and the ultimate damages multiplier applied by the court.

Impact on distribution policy – A material cash outflow to satisfy a settlement would directly shrink the fund’s liquidity pool. Management is likely to preserve capital by either postponing or reducing the quarterly distribution rate, especially since the fund’s current yield (≈ 5.4 % p.a.) is a key selling point for income‑focused investors. A lower payout would also help keep the NAV stable and avoid forced asset sales that could depress municipal‑bond prices in the portfolio. Expect the fund’s board to issue a distribution‑policy amendment within the next 2‑3 months, with guidance that any settlement‑related cash drag will be reflected in the forthcoming distribution announcement.

Trading implications – The news has already pushed the fund’s share price (and associated class‑share NAVs) ≈ 6‑8 % lower on sentiment‑driven sell pressure. Short‑interest has spiked, indicating that market participants anticipate a downward‑adjusted NAV once the settlement cost is baked in. For long‑term investors, the risk‑adjusted return outlook is now weaker; a prudent move is to reduce exposure or hedge with municipal‑bond ETFs that are less concentrated in the fund’s high‑yield segment. Conversely, opportunistic traders could look for a bounce if the fund announces a modest, cash‑preserving distribution cut rather than a full halt, as the price may recover a portion of the initial decline on the back of reduced uncertainty. Monitoring the fund’s next distribution notice (expected in late Q4 2025) and any settlement press releases will be critical for timing entry/exit decisions.