Division of Investment Management - (COVID-19) Response FAQs
By Toppan_Merrill
1 min read | Industry Insights Insights Home
SEC Relief1

The staff of the Division of Investment Management has prepared the following responses to questions about funds and advisers affected by COVID-19. These responses represent the views of the staff of the Division. They are not a rule, regulation, or statement of the Securities and Exchange Commission (“SEC”). The SEC has neither approved nor disapproved this content. These responses, like all staff guidance, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

For additional information concerning the SEC’s response to COVID-19, please see the information available here.

I. Contacting the Division of Investment Management

Question I.1.

Q.  How should a fund, SEC-registered investment adviser or exempt reporting adviser contact the staff if it has questions or concerns related to impacts of COVID-19 on its operations or compliance?

A.  For questions regarding Form ADV, including related questions about temporary relief the SEC has provided, please email IARDLive@sec.gov.

For questions regarding Form PF, including related questions about temporary relief the SEC has provided, please email FormPF@sec.gov.

For questions regarding Form N-LIQUID, please email IM-N-LIQUID@sec.gov and also contact: Tim Husson, Associate Director, at (202) 551-6803 and Jon Hertzke, Assistant Director, at (202) 551-6247.

For general questions or concerns related to impacts of COVID-19 on the operations or compliance of funds and advisers, including questions about temporary relief the SEC has provided, please email IM-EmergencyRelief@sec.gov.

II. Investment advisers

Question II.1.

Q.  Has the SEC provided any relief for registered investment advisers and exempt reporting advisers affected by COVID-19?

A.  Yes.  On March 13, 2020, the SEC issued an order providing the relief described below.  On March 25, 2020, the SEC issued a new order (Advisers Act Release No. 5469) that superseded the original order and extended the period for which the relief is available.  Subject to the conditions of the order, it provides temporary exemptive relief from the deadlines for certain filing or delivery obligations:

  • For registered investment advisers and exempt reporting advisers affected by COVID-19, the requirements to file an amendment to Form ADV Parts 1 and 2 or file reports on Form ADV part 1A, respectively.
  • For registered investment advisers affected by COVID-19, the requirements to deliver amended Form ADV Part 2 brochures, brochure supplements or a summary of material changes to existing clients where the disclosures are not able to be timely delivered because of circumstances related to COVID-19.
  • For private fund advisers affected by COVID-19, the requirement to file Form PF.

In each case, the filing or delivery obligation would need to be satisfied as soon as practicable but no later than 45 days after the original due date.

In addition, the SEC has adopted a temporary final rule to provide relief from the Form ID notarization process for certain filers.  See Securities Act Release No. 10768.

The relief described above is time-limited.  Please refer to the SEC releases for details on the periods for which relief is available.

Question II.2.

Q.  Will SEC staff view an adviser’s reliance on the temporary relief provided in response to COVID-19 as a risk factor for examining the adviser’s business continuity plans?

A.  The Office of Compliance Inspections and Examinations (OCIE) recently stated that it “is fully aware of the regulatory relief that was provided to registrants in response to COVID-19” and that, “reliance on regulatory relief will not be a risk factor utilized in determining whether OCIE commences an examination.  We encourage registrants to utilize available regulatory relief as needed.” See OCIE Statement on Operations and Exams – Health, Safety, Investor Protection and Continued Operations are our Priorities, available here.

Question II.3.

Q.  Has the Division of Investment Management provided any guidance for advisers affected by COVID-19?

A.  Yes.  The Division of Investment Management has issued several new and updated FAQs, and advisers may also find useful some of the Division’s existing FAQs. For example:

  • Form ADV requirements:
    • New FAQ addressing whether an adviser is required to update Form ADV Item 1.F in order to list the temporary teleworking addresses of its employees, available here.
  • Custody rule requirements:
    • Updated FAQ regarding inadvertent receipt of client securities when an adviser’s personnel may be unable to access mail or deliveries (Question II.1), available here.
    • FAQ addressing compliance when a pooled investment vehicle fails to distribute its audited financial statements within 120 days after the end of its fiscal year due to certain unforeseeable circumstances (Question VI.9), available here.
    • New FAQ regarding inability to complete surprise examinations (Question IV.7), available here.
    • New FAQ regarding custody of certain privately issued securities that are evidenced by physical certificates (Question VII.4), available here.

III. Investment companies

Question III.1.

Q.  Has the SEC provided any relief for registered investment companies and business development companies (“BDCs”) affected by COVID‑19?

A.  Yes.  The SEC has issued several orders providing temporary relief to registered investment companies and BDCs affected by COVID-19, as described below.  The relief described in this response is time-limited.  Please refer to the SEC releases for details on the periods for which relief is available.

In-person board meetings and certain filing, transmittal and delivery obligations

On March 13, 2020, the SEC issued an order providing the relief described below.  On March 25, 2020, the SEC issued a new order that superseded the original order and extended the period for which the relief is available.  Subject to the conditions of the order, it provides temporary exemptive relief from the following obligations:

  • For registered management investment companies, BDCs, and any investment adviser or principal underwriter of such companies, in circumstances related to the current or potential effects of COVID-19, the Investment Company Act sections and rules that require certain agreements, plans or arrangements be approved by the company’s board of directors by an in-person vote.
  • For registered management investment companies and unit investment trusts affected by COVID-19, the Form N-CEN and Form N-PORT filing deadlines.
  • For registered management investment companies and unit investment trusts affected by COVID-19, the annual and semi-annual report transmittal deadlines.
  • For registered closed-end investment companies and BDCs, the requirement to file Form N-23C-2 at least 30 days prior to calling or redeeming securities.

The SEC also addressed, in the order, delivery to existing investors of the current prospectus of a registered fund where the prospectus is not able to be timely delivered because of circumstances related to COVID-19, where the sale of shares to the investor was not an initial purchase and subject to the other conditions described in the order.  The order did not, however, provide relief from prospectus filing requirements or for delivery to new investors.  In this regard, the Division of Investment Management recently reminded investment company issuers of their obligations under section 10(a)(3) of the Securities Act of 1933 to update the information in their prospectuses, including the required underlying certified financial statements.  To the extent that an investment company is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, the investment company should engage with the Division of Investment Management.  Please see above for ways to contact the Division.

Each of the filing, transmittal and delivery obligations described above would need to be satisfied as soon as practicable but no later than 45 days after the original due date.

On March 13, 2020, the SEC issued an order providing temporary relief for issuers (including investment companies) from the requirement to furnish certain proxy soliciting materials and information materials in areas where the common carrier has suspended delivery service and the other conditions in the order are satisfied.  On March 25, 2020, the SEC extended the period for which the relief is available in a new order that superseded the original order.

Temporary additional funding flexibility

On March 23, 2020, the SEC issued an order providing additional temporary flexibility to obtain short-term funding to (1) registered open-end management investment companies other than money market funds (“open-end funds”) and (2) insurance company separate accounts registered as unit investment trusts (“separate accounts”).  Subject to the conditions in the order, it provides the following temporary exemptive relief from the Investment Company Act of 1940:

  • Relief permitting registered open-end funds and insurance company separate accounts to borrow money from certain affiliates.
  • Relief that permits additional flexibility under existing interfund lending arrangements and extends the ability to use interfund lending arrangements to funds that do not currently have exemptive relief.
  • Relief that permits registered open-end funds to enter into lending arrangements or borrowings that deviate from fundamental policies, subject to prior board approval.

Temporary additional flexibility for BDCs

On April 8, 2020, the SEC issued an order providing additional temporary flexibility for BDCs to issue and sell senior securities and participate in certain joint enterprises or other joint arrangements that would otherwise be prohibited by Section 57(a)(4) of the Investment Company Act and Rule 17d-1 thereunder.  Subject to the conditions in the order, it provides the following temporary relief:

  • Exemptive relief from certain asset coverage requirements under Sections 18(a)(1)(A) and 18(a)(2)(A) of the Investment Company Act, as modified for BDCs by Sections 61(a)(1) and 61(a)(2), and the requirement of Section 18(b) of the Investment Company Act to determine asset coverage on the basis of values calculated as of a time within forty-eight hours next preceding the time of such determination, with regard to the issuance and sale of senior securities by BDCs.
  • Expanded relief from Sections 17(d) and 57(a)(4) of the Investment Company Act and Rule 17d-1 thereunder for BDCs that have existing co-investment exemptive relief.

Question III.2.

Q.  Has the Division of Investment Management provided any assistance for investment companies affected by COVID-19?

A.  Yes.  The Division of Investment Management has taken temporary positions in the no-action letters described below, which funds affected by COVID-19 may find useful.

  • In one letter, the staff addresses the ability of certain affiliates to purchase debt securities from a mutual fund, under the circumstances and subject to the conditions described in the letter.
  • In another letter, the staff addresses the ability of certain affiliates to purchase securities from a money market fund, under the circumstances and subject to the conditions described in the letter.  

In addition, the staff of the Division of Investment Management, together with the staff of the Division of Corporation Finance, has published guidance to assist issuers (including registered investment companies and BDCs), shareholders, and other market participants affected by COVID-19 with meeting their obligations under the federal proxy rules with respect to shareholder meetings.  The staff issued this guidance on March 13, 2020, and updated it on April 7, 2020.

Question III.3.

Q.  Has the SEC provided any relief from in-person board meeting requirements?  Does this relief cover approvals of new auditors or advisory contracts?

A. Yes.  As noted above, the SEC has provided temporary exemptive relief for registered management investment companies, BDCs, and any investment adviser or principal underwriter of such companies, in circumstances related to the current or potential effects of COVID-19, from the requirements imposed under sections 15(c) and 32(a) of the Investment Company Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the Investment Company Act that votes of the board of directors of either the registered management investment company or BDC be cast in person.  The relief is subject to conditions described in the SEC’s order.

In addition, the Division of Investment Management provided guidance last year regarding these requirements.  See Independent Directors Council (Feb. 28, 2019), available here

Question III.4.

Q.  The SEC recently provided certain investment companies temporary additional flexibility to obtain short-term funding.  Are closed-end funds permitted to rely on this relief for borrowing?

A.  No, the March 23, 2020, order did not extend the temporary relief for borrowing to closed-end funds.  However, the SEC and its staff continue to assess impacts relating to COVID-19 on investors and market participants, and closed-end funds seeking to request relief should contact the Division of Investment Management.  Please see above for ways to contact the Division.

Question III.5.

Q:  Item 34.1 of Form N-2 requires a closed-end fund to undertake to suspend its offering of shares until it amends its prospectus if the fund’s net asset value declines more than 10% from the fund’s net asset value as of the effective date of its registration statement.  Several closed-end funds have informed us that their net asset value has declined more than 10% due to current market conditions associated with COVID-19.  These funds have asked whether they can satisfy the Item 34.1 undertaking by filing a prospectus supplement pursuant to Rule 497 under the Securities Act of 1933 instead of filing an amendment to their registration statement.

A:  If a closed-end fund’s net asset value declines by more than 10% due to the market conditions referenced above, the staff of the Division of Investment Management would not object to the fund satisfying the Item 34.1 undertaking by filing a prospectus supplement pursuant to Rule 497 under the Securities Act of 1933 if the fund notifies its Disclosure Review and Accounting Office staff reviewer of the name(s) of the closed-end fund(s) which intend to so file.  The staff would appreciate this notice at least one business day in advance of filing the prospectus supplement.  The fund may restart its offering of shares as of filing the prospectus supplement. 

Funds should consider including the following disclosure in the prospectus supplement:

  • that the fund’s net asset value has fallen and that, in accordance with the undertaking, the fund’s offering has been suspended as of a certain date;
  • the date on which the fund will restart its offering;
  • the extent, in dollars and by percentage amount, that the net asset value has fallen from the effective date of the fund’s registration statement; 
  • the fund’s net asset value as of a recent date and, if exchange traded, the last reported share price on the exchange;
  • an explanation of why the net asset value has fallen; and
  • any material information that needs to be updated in the prospectus such as how current market conditions have impacted the fund and its portfolio holdings.  If relevant, this disclosure should be tailored to specifically describe the impact of market conditions on the particular types of investments held by the fund.

Source: Securities and Exchange Commission

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