On April 14, 2020, the staff of the US Securities and Exchange Commission’s (“SEC”) Division of Investment Management (“Staff” and such division, the “Division”) published a statement to emphasize the ongoing importance to update and deliver required information to investors in a timely manner consistent with investment companies’ disclosure obligations, even during this period of operational challenge posed by COVID-19 (the “Statement”). The Statement reviews the obligations of registered funds to update prospectuses (and related financial statements) and discusses prospectus delivery in this environment, as summarized below.
In the Statement, the Staff reminded registered funds about their obligations under Section 10(a)(3) of the Securities Act of 1933 to update the information in their prospectuses, including underlying certified financial statements. Many funds have fiscal year ends of December 31, which means that they are approaching the May 1, 2020 filing deadline. Without such an update, the fund would be unable to continue to sell shares to new investors and sell additional shares to existing investors.
COVID-19 Risk Disclosures: Notably, the Staff specifically encouraged registered funds to consider whether their disclosures, including risk disclosures, should be revised based on how COVID-19-related events may affect the fund, as well as its investments.
The Statement reminded funds that, as part of its COVID-19 response efforts, the SEC stated that it would not provide a basis for enforcement action if a fund does not physically deliver to existing investors the fund’s current prospectus where the prospectus is not able to be timely delivered because of circumstances related to COVID-19, as long as certain conditions are met.1
However, the Staff cautioned that with respect to sales of fund shares to new purchasers, the fund must deliver the prospectus (or summary prospectus) not only in a timely manner but also based on the delivery preferences that have been expressed by the investor. The Staff observed that investment companies generally deliver required materials to investors in paper unless an investor consents to electronic delivery and encouraged funds to communicate with investors about delivery preferences.
Funds That Encounter Obstacles
In the Statement, the Staff recognized that some funds may encounter particularized obstacles. The Staff wants funds to engage the Division if they are unable to make certain filings or meet other requirements due to COVID-19. The Staff warned, however, that while the Division will consider “appropriate” assistance, the Division remains committed to the principle of making timely and relevant information available to investors.
The Statement is part of an evolving COVID-19 response that is moving across regulatory agencies. For information on other SEC developments related to the pandemic, please visit our COVID-19 Portal.
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And for any legal questions related to this pandemic, please contact the authors of this article or Mayer Brown’s COVID-19 Core Response Team at FW-SIG-COVID-19-Core-Response-Team@mayerbrown.com.
1 See 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 (March 13, 2020), available at https://www.sec.gov/rules/other/2020/ic-33817.pdf, and 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 (March 25, 2020), available at https://www.sec.gov/rules/other/2020/ic-33824.pdf (extending the Commission’s prospectus delivery statement to investment company prospectuses required to be delivered to existing investors on or before June 30, 2020). See also our Legal Updates “US SEC Staff Publishes Guidance on Annual Shareholder Meetings Related to COVID-19” and “COVID-19: US SEC Provides Temporary, Conditional Relief to Funds and Advisers.”