UPDATED: SEC Extends Sweeping Temporary Exemptions Granted to Funds to Comply with Voting, Reporting and Prospectus Delivery Requirements

Shearman & Sterling LLPIn an Order dated March 25, 2020, the Securities and Exchange Commission extended the exemptions offered to investment companies, business development companies (BDCs) and investment advisers grappling with challenges to the routine meeting and reporting requirements of the Investment Company Act of 1940 and the Investment Advisers Act of 1940 caused by COVID-19.

The Order supersedes the original order that provided sweeping, temporary relief to funds, BDCs and unit investment trusts (UITs) from the requirements to hold in-person meetings to approve advisory contracts, rule 12b-1 plans and independent auditors; from certain filing requirements; the requirement to send reports to shareholders; notice of call or redemption requirements that apply to closed-end funds and BDCs; and certain prospectus delivery requirements. The Order provides the same exemptions from requirements of the Investment Company Act but extends the period for which the exemptions are available and updates the associated notice requirements. As discussed below, the Order eases certain conditions required to rely on the relief from those conditions in the original order.

In person voting requirements for registered investment companies and BDCs. Subject to certain conditions, the Order extends by and additional two months the exemption for registered investment companies, BDCs, and their investment advisers and principal underwriters from certain statutory in-person meeting requirements:

  • Approval of investment advisory contracts (Section 15(c))
  • Approval of principal underwriter agreements (Section 15(c))
  • Approval of Rule 12b-1 distribution plans (Rule 12b-1)
  • Approval of independent public accountants (Section 32(a))

Boards are exempt from the requirement to take these actions at an in-person meeting called specifically for that purpose, provided they meet the following conditions:

  • Reliance on the 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 allow 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 registered management investment company or BDC, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting. 

The in-person meeting exemption is limited to the period from March 13, 2020 until August 15, 2020 (the original order extended through June 15, 2020).

Forms N-CEN and N-PORT filing requirements. The Order extends by an additional two months the temporary exemption for registered funds required to file Form N-CEN (pursuant to Rule 30a-1) or Form N-PORT (pursuant to Rule 30b1-9), provided a fund (i) is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19; (ii) promptly notifies the Commission staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on the Order; and (iii) discloses on its website a brief statement that it is relying on the Order. 

The Order eliminates the original order’s conditions that a fund claiming the relief (i) describe in its email to the Commission staff the reasons why the fund is unable to file Form N-CEN or Form N-PORT, and (ii) provide Commission staff with an estimated date by which it expects to file such report.

The Order maintains the original order’s conditions that (i) the filer files the Form N-CEN or Form N-PORT as soon as practicable, but not later than 45 days after the original due date; and (ii) any Form N-CEN or Form N-PORT filed pursuant to the Order must include a statement of the filer that it relied on the Order and the reasons why it was unable to file it on a timely basis. 

The N-CEN and N-PORT filing exemption is limited to reports with an original due date on or after March 13, 2020, but on or prior to June 30, 2020 (the original order covered reports with due dates through April 30, 2020).

Transmittal of annual and semi-annual reports. The Order extends by an additional two months the temporary exemption for registered funds and UITs from the requirements of Section 30(e) and related rules to send annual and semi-annual reports to shareholders and unit holders, provided a fund or UIT (i) is unable to prepare or transmit the report due to circumstances related to current or potential effects of COVID-19, (ii) promptly notifies the staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on the Order, and (iii) discloses on its website a brief statement that they are relying on the Order.

The Order eliminates the original order’s conditions that a registered fund or UIT (i) describe to the Commission staff and include on its website the reasons why it is unable to file its report on a timely basis, and (ii) provide the Commission staff with an estimated date by which it expects to file such report.

The Order maintains the original order’s conditions that the fund send the reports to shareholders as soon as practicable, but not later than 45 days after the original due date and files the report within ten days of its transmission to shareholders.

The exemption to send reports to shareholders/unitholders is limited to reports with an original due date on or after March 13, 2020, but on or prior to June 30, 2020 (the original order covered reports with due dates through April 30, 2020).

Notices of closed-end funds and BDCs to call or redeem securities. The Order extends the temporary exemptions for closed-end funds and BDCs from filing notices of their intent to call or redeem securities at least 30 days in advance (required by Section 23(c) for closed-end funds and Section 63 for BDCs), provided the fund complies with the following conditions:

The closed-end fund or BDC relying on the Order:

  • promptly notifies Commission staff via email at IM-EmergencyRelief@sec.gov stating:
    • that it is relying on this Order; and
    • ensures that the filing of the notice on an abbreviated time frame 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.

The Order eliminates the original order’s conditions that a closed-end fund or BDC must describe to Commission staff 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 securities.

The notice of call or redemption exemption is limited to the period from March 13, 2020 until August 15, 2020 (the original order extended through June 15, 2020).

Prospectus delivery requirements. The Order temporarily exempts registered funds from the prospectus delivery requirements due to COVID-19 circumstances, as long as the sale of shares was not an initial purchase of shares, provided that the fund complies with the following conditions:

The Fund:

  • Notifies Commission staff via email at IM-EmergencyRelief@sec.gov stating that it is relying on the Commission position;
  • Publishes on its public website that it intends to rely on the Commission position;
  • Publishes its current prospectus on its website; and
  • Delivery was originally required on or after March 25, 2020 but on or prior to June 30, 2020 (the outside date under the original order was 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.

The Order eliminates the original order’s conditions that a fund must (i) describe to Commission staff and disclose on its website the reasons why it or any other person required could not deliver the prospectus to investors on a timely basis, and (ii) provide the Commission staff with an estimated date by which it expects the prospectus to be delivered.

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We will continue to keep you informed of developments as they occur.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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