SEC Provides Relief to Assist Registered Funds Affected by the Coronavirus
March 16, 2020
On March 13, 2020, the Securities and Exchange Commission (SEC) issued an order providing relief from certain provisions of the Investment Company Act of 1940 (1940 Act) for registered investment companies (funds) whose operations may be affected by the coronavirus (1940 Act Order).1 The SEC also issued an order providing relief from certain provisions of the Investment Advisers Act of 1940 and the rules thereunder for registered investment advisers.2 The 1940 Act Order addresses: (i) the in-person voting requirements for certain approvals under Sections 15(c) and 32(a) and Rules 12b-1 and 15a-4; (ii) the filing requirements relating to Forms N-CEN and N-PORT; (iii) the transmittal to shareholders of annual and semi-annual reports; and (iv) the notice filing requirements relating to Form N-23C-2.3 The SEC also issued a statement concerning potential enforcement actions and a fund’s failure to timely deliver a prospectus in connection with subsequent sales of shares.
In-Person Board Meeting Requirements for Registered Investments Companies
The 1940 Act Order provides that, from March 13, 2020 to June 15, 2020, a fund and any investment adviser of or principal underwriter for such fund will be exempt from the requirements under Sections 15(c) and 32(a) and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii), that provide that votes of the board of directors of the fund be cast in person, provided that:
- reliance on the 1940 Act Order is necessary or appropriate due to circumstances related to current or potential effects of the coronavirus;
- the votes required to be cast at an in-person meeting are instead cast at a meeting in which directors may participate by any means of communication that allows all directors participating to hear each other simultaneously during the meeting; and
- the board of directors, including a majority of the directors who are not interested persons of the fund, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting.
Forms N-CEN and N-PORT Filing Requirements and Transmittal of Annual and Semi-Annual Reports to Investors
From March 13, 2020 to April 30, 2020, a fund that is required to file Form N-CEN or Form N-PORT is temporarily exempt from such form filing requirements. During the same period, a fund also is temporarily exempt from the requirements to transmit annual and semi-annual reports to investors. These exemptions are available provided that the conditions below are satisfied:
- The fund is unable to meet a filing deadline or prepare or transmit the report due to circumstances related to current or potential effects of the coronavirus;
- The fund promptly notifies the SEC staff via email at IM-EmergencyRelief@sec.gov stating: (i) that it is relying on the 1940 Act Order; (ii) a brief description of the reasons why it could not file its report or why it could not transmit its report on a timely basis; and (iii) the estimated date by which it expects to file or transmit the report.
- The fund includes a statement on its public website briefly stating that it is relying on the 1940 Act Order and the reasons why it could not file its reports or prepare and transmit its reports on a timely basis;
- The fund transmits the annual or semi-annual reports to shareholders as soon as practicable, but not later than 45 days after the original due date and files the report within 10 days of its transmission to shareholders;
- The fund required to file such Form N-CEN or Form N-PORT files such report as soon as practicable, but not later than 45 days after the original due date; and
- Any Form N-CEN or Form N-PORT filed pursuant to the 1940 Act Order must include a statement of the filer that it relied on the 1940 Act Order and the reasons why it was unable to file such report on a timely basis.
The SEC also issued a statement that it would not provide a basis for an enforcement action if a fund does not deliver to investors its current prospectus if the prospectus is not able to be timely delivered because of circumstances related to the coronavirus and delivery was due on or after March 13, 2020 but on or prior to April 30, 2020, provided that the sale of shares to the investor was not an initial purchase by the investor of shares of the fund and:
- The fund:
- Notifies Division of Investment Management staff via email at IM-EmergencyRelief@sec.gov stating: (1) that it is relying on this SEC position; (2) a brief description of the reasons why it or any other person required could not deliver the prospectus to investors on a timely basis; and (3) the estimated date by which it expects the prospectus to be delivered;
- Publishes on its public website that it intends to rely on the SEC position and briefly states the reasons why it could not deliver the prospectus on a timely basis;
- Publishes its current prospectus on its public website; and
- Delivery was originally required on or after March 13, 2020 but on or prior to April 30, 2020, and the prospectus is delivered to investors as soon as practicable, but not later than 45 days after the date originally required.
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The full text of the SEC’s press release and the 1940 Act Order may be accessed by clicking the following links:
The SEC has stated that it may extend the time period for relief and implement any additional conditions or relief measures as warranted.
Seward & Kissel LLP will continue to provide insight on any related developments. If you have any questions concerning the 1940 Act Order, please contact any member of our Registered Funds Group.
1 Order Under Section 6(c) and Section 38(a) of the Investment Company Act of 1940 Granting Exemptions from Specified Provisions of the Investment Company Act and Certain Rules Thereunder; Commission Statement Regarding Prospectus Delivery, Investment Company Act Release No. 33817 (March 13, 2020) available at https://www.sec.gov/rules/other/2020/ic-33817.pdf. The 1940 Act Order also applies to unit investment trusts with respect to the relief concerning shareholder reports and Forms N-CEN and N-PORT filings and the prospectus delivery statement discussed herein. Further, the 1940 Act Order also provides relief to business development companies with respect to the in-person board meeting requirements and the timing of filing of Form N-23C-2.
2 Order Under Section 206A of the Investment Advisers Act of 1940 Granting Exemptions from Specified Provisions of the Investment Advisers Act and Certain Rules Thereunder, Advisers Act Release No. 5463 (March 13, 2020) available at https://www.sec.gov/rules/other/2020/ia-5463.pdf. See also Seward & Kissel’s client alert “SEC Provides Temporary Conditional Relief from Certain Form ADV and Form PF Filing Requirements in Response to the Coronavirus” (March 15, 2020) available at https://www.sewkis.com/publications/sec-provides-temporary-conditional-relief-from-certain-form-adv-and-form-pf-filing-requirements-in-response-to-the-coronavirus/.
3 The 1940 Act Order provides temporary relief to closed-end funds for the period from March 13, 2020 through June 15, 2020 for the filing of Form N-23C-2 relating to the call or redemption of securities where advance notice is required under Rule 23c-2, provided that the closed-end funds satisfy the conditions in the 1940 Act Order.