Ramifications of the COVID-19 Outbreak on Open-End Investment Companies

Client Alert
March 16, 2020

By Domenick Pugliese and Rachael Schwartz

As the outbreak of COVID-19 has spread internationally, it has impacted almost every facet of life in the United States. Financial markets too have been severely impacted with extreme levels of volatility and, for most broad market indices, the end of the recent long-running bull market. Registered investment companies such as mutual funds ("funds"), and the advisers who manage them, have also seen significant disruptions to many aspects of their businesses and operations. The Securities and Exchange Commission (the "Commission") has been proactive in providing relief to funds, fund boards and to investment advisers in a number of areas.

Below we review some of the more significant regulatory-related initiatives implemented in the past few days by the Commission to relieve certain burdens on funds, boards and advisers. We also highlight certain questions or areas of focus which boards may wish to discuss with management in the upcoming weeks. Finally, as travel restrictions have taken wide-spread effect across the country, many boards will be looking to conduct their meetings by video or telephone conference in the coming months. We provide certain practical tips for boards and management to consider when converting the next in-person board meeting to a video or telephonic meeting.

Regulatory Developments

On March 13, 2020, the Commission issued an order (the "Emergency Order") providing funds, fund boards and advisers with temporary relief from certain requirement of the Investment Company Act.

Relief relating to the in-person voting requirement

The Emergency Order provides that – until June 15, 2020—funds, boards and advisers will be exempt from the requirement that the following approvals must be done at an in-person meeting:

In order to take advantage of this relief, any such action must be taken at a telephonic meeting or video conference where all directors can hear each other simultaneously. At this meeting, the board must conclude that reliance on the Emergency Order is necessary or appropriate due to circumstances related to current or potential effects of COVID-19. Finally, any matters approved in reliance on the Emergency Order must be ratified at the next in-person meeting by the board, including by a majority of independent Trustees.

Relief from filing deadlines for Form N-CEN and N-PORT

The Emergency Order provides that, with respect to funds that are required to make filings of either Form-N-CEN or N-PORT on or prior to April 30, 2020 (but after March 12, 2020), the deadline for such filing will be extended to no more than 45 days after the original due date provided:

Relief with Respect to the Preparation or Transmittal of Annual and Semi-Annual Reports

The Emergency Order provides that, with respect to funds that are required to transmit annual or semi-annual reports to shareholders on or prior to April 30, 2020 (but after March 12, 2020), the deadline for such transmittal will be extended to no more than 45 days after the original due date provided:

Relief Relating to Prospectus Delivery

Finally, the Emergency Order contains a statement from the Commission whereby it announced that the Commission has taken the position that it would not provide a basis for a Commission enforcement action if a registered fund does not deliver a current prospectus to investors under the following circumstances:

Questions and Areas of Focus for Boards Relating to COVID-19

In the wake of the extreme market volatility and other uncertainties surrounding the COVID-19 pandemic, there are certain areas of focus and questions that boards may want to explore with management and advisers with respect to the funds they oversee. Some of these questions and areas of focus might include:

Considerations when Setting up Telephonic and Video Meetings

As funds take advantage of the Emergency Order to turn their next in-person meetings into telephonic or video conferences, boards and management may wish to restructure certain portions of their meetings to better accommodate the telephone or video structure of the meetings. Many board meetings typically run 6-10 hours day and may last one or more days. In this light, it may be appropriate for boards and management to consider the following:

The situation surrounding COVID-19 remain fluid and fast developing. It is important that all Trustees remain abreast of developments and their potential impact on the funds they oversee.

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