On March 13, 2020, the SEC issued an exemptive order under the Investment Company Act of 1940 (the “1940 Act” and the “1940 Act Order”) providing relief for registered management investment companies and business development companies (“BDCs” and together, “Funds”) impacted by the coronavirus disease 2019 (“COVID-19”).¹ In addition to Funds, certain aspects of the relief apply to registered unit investment trusts (“UITs”), including registered insurance company separate accounts that support variable insurance products.² Recognizing that COVID-19 has led to disruptions to transportation, including buses, subways, trains and airplanes, and the imposition of quarantines around the world, the SEC provided the relief described below under the 1940 Act to Funds (and to any investment adviser or principal underwriter of such Funds) and UITs impacted by the current or potential effects of COVID-19.

Board Meeting Requirements

For Funds, the 1940 Act Order provides relief from 1940 Act sections and rules requiring that certain agreements, plans or arrangements be approved by the company’s board of directors by an in-person vote. Previously, in a March 4, 2020, SEC Staff Statement regarding COVID-19, the SEC’s Division of Investment Management stated that, through June 15, 2020, it would not recommend an enforcement action if the directors of a Fund seeking to approve or renew a contract, plan, arrangement or selection subject to in-person voting requirements did so telephonically, by video conference, or by other means by which all participating directors may participate and communicate with each other simultaneously.³ 

The 1940 Act Order provides exemptive relief that is similar to the relief provided in the SEC Staff Statement. Through June 15, 2020, a Fund (and any investment adviser of or principal underwriter for such fund) will be exempt from requirements under Section 15(c) (dealing with approval of advisory contracts) and Section 32(a) (dealing with the selection of accountants) of the 1940 Act, and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the 1940 Act, requiring that board votes 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 COVID-19;
• 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, including a majority of the directors who are not interested persons of the Fund, ratifies the action taken pursuant to the exemption by vote cast at the next in-person meeting.

Form N-CEN and N-PORT

The 1940 Act Order also exempts Funds and UITs affected by COVID-19 from certain Form N-CEN filing deadlines (applicable to Funds and UITs) and Form N-PORT filing deadlines (applicable to Funds and exchange-traded funds organized as UITs) that would have fallen on or between March 13, 2020 and April 30, 2020. Such filings on Form N-CEN (pursuant to Rule 30a-1 under the 1940 Act) and Form N-PORT (pursuant to Rule 30b1-9 under the 1940 Act) are temporarily extended under the 1940 Act Order by up to 45 days, provided that the following conditions are met:

• the Fund or UIT is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19;
• the Fund or UIT promptly notifies the SEC Staff via email at IM-EmergencyRelief@sec.gov stating:
  • that it is relying on the 1940 Act Order;
  • a brief description of the reasons why it could not file its report on a timely basis; and
  • the estimated date by which it expects to file the report.
• the Fund or UIT 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 report on a timely basis;
• the Fund or UIT files such report on Form N-CEN or Form N-PORT, as applicable, as soon as practicable, but not later than 45 days after the original due date; and
• the Form N-CEN or Form N-PORT filed pursuant to the 1940 Act Order includes a statement of the filer that it relied on the 1940 Act Order, and the reasons why the filer was unable to file such report on a timely basis.

Annual and Semi-Annual Reports

Similarly, the 1940 Act Order exempts Funds and UITs affected by COVID-19 from certain annual and semi-annual report filing and/or transmission deadlines, under Section 30(e) of the 1940 Act and Rules 30e-1 and 30e-2 under the 1940 Act, that would have fallen on or between March 13, 2020 and April 30, 2020, provided that the Fund or UIT meets the following conditions:

• the Fund or UIT is unable to prepare and/or transmit the report due to circumstances related to current or potential effects of COVID-19;
• the Fund or UIT promptly notifies the Staff via email at IM-EmergencyRelief@sec.gov stating:
  • that it is relying on the 1940 Act Order;
  • a brief description of the reasons why it could not transmit the report on a timely basis; and
  • the estimated date by which it expects to transmit the report;
• the Fund or UIT includes a statement on its website briefly stating that it is relying on the 1940 Act Order and the reasons why it could not prepare and/or transmit the report on a timely basis; and
• the Fund or UIT transmits the report to investors as soon as practicable, but not later than 45 days after the original due date and (to the extent applicable) files the report within ten days of its transmission to investors.

Form N-23c-2

Recognizing that, due to recent market movements, registered closed-end Funds and BDCs may seek to call or redeem securities, from March 13, 2020 to June 15, 2020, the 1940 Act Order also exempts closed-end registered Funds and BDCs from the requirement to file with the SEC notices of their intention to call or redeem securities at least 30 days in advance under Sections 23(c) and 63, as applicable, of the 1940 Act, and Rule 23c-2 thereunder, if the Fund files a notice on Form N-23C-2 (the “Notice”) with the SEC fewer than 30 days prior to, including the same business day as, the company’s call or redemption of securities of which it is the issuer, provided that the Fund:

• promptly notifies SEC Staff via email at IM-EmergencyRelief@sec.gov stating:
  • that it is relying on the 1940 Act Order; and 
  • a brief description of the reasons why it needs to file a Notice fewer than 30 days in advance of the date set by the Fund for calling or redeeming the securities of which it is the issuer;
• ensures that the filing of the Notice on an abbreviated timeframe is permitted under relevant state law and the Fund’s governing documents;
• files a Notice that contains all the information required by Rule 23c-2 prior to: 
  • any call or redemption of existing securities; 
  • the commencement of any offering of replacement securities; and
  • providing notification to the existing shareholders whose securities are being called or redeemed.

Prospectus Delivery

Recognizing that there may be difficulties in the timely delivery of prospectuses, the SEC took the position in the 1940 Act Order that there would not be a basis for an SEC enforcement action if a Fund or UIT does not deliver to investors its current prospectus, where the prospectus is not able to be timely delivered because of circumstances related to COVID-19, subject to the conditions below.  

• the sale of securities to the investor was not an initial purchase by the investor of securities in the Fund or UIT;
• the Fund or UIT notifies SEC Staff via email at IM-EmergencyRelief@sec.gov stating: 
  • that it is relying on this SEC position; 
  • 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
  • the estimated date by which it expects the prospectus to be delivered. 
• the Fund or UIT publishes on its public website that it intends to rely on the SEC position in the 1940 Act Order and briefly states the reasons why it could not deliver the prospectus on a timely basis;
• the Fund or UIT 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.

Importantly, as noted above, this prospectus delivery relief does not apply to the initial purchase of securities by a new investor in a Fund or UIT. The relief may apply only to existing investors in a Fund or UIT.

Final Takeaway

The 1940 Act Order, as well as the order issued under the Investment Advisers Act of 1940 and the Staff Statement from March 4, 2020, signifies recognition by the SEC of the significant impacts of COVID-19 on the operations of Funds and UITs and their service providers. The 1940 Act Order notes that the SEC intends to continue to monitor the current situation. The time period for any or all of the relief may, if necessary, be extended with any additional conditions that are deemed appropriate, and the SEC may continue to issue other relief as necessary or appropriate.

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¹The SEC also issued an exemptive order under the Investment Advisers Act of 1940, covering Form ADV and Form PF.
²With respect to a registered separate account supporting a variable insurance product, the insurance company depositor would be required to take steps on behalf of the separate account in order to rely on the 1940 Act Order, such as the insurance company notifying the SEC Staff and making the necessary publications on its website. 
³For more information, see our March 10, 2020 legal alert, “Coronavirus - The SEC acts quickly - United States,” available at https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/coronavirus/COVID-19-The-SEC-acts-quickly.

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