Many news reports have recounted how the partial government shutdown has affected government employees, shuttered national parks, and unsettled the stock market. But few, if any, have given much thought to how the shutdown affects the oversight responsibilities of mutual fund directors.

Yes, the impact of government shutdown has trickled down to mutual funds, and thus its fund boards. While there is little that fund directors can do to end the shutdown, they should be aware of how it can affect the funds that they oversee.

The Securities and Exchange Commission announced that until further notice, the agency will have a very limited number of staff members available, and they will only respond to "emergency situations involving market integrity and investor protection, including law enforcement." The SEC has adopted an Operations Plan that kicked in last month, which provides for the SEC to furlough most of its employees.

During the shutdown, the Division of Investment Management, consistent with the Operations Plan, has instructed its skeleton "essential" staff not to respond to questions about pending matters or to "accelerate" the effective date of registration statements and amendments. EDGAR, the SEC's electronic filing system, however, will remain open.

Here are some issues that fund directors may want to keep on their radar:

New funds and share classes. The shutdown may mean that we won't see any new funds or share classes for a while as the SEC registration statement review process grounds to a complete halt. (Incidentally, fund investors are not the only ones who may be deprived of new products. The shutdown hit the Alcohol and Tobacco Tax and Trade Bureau, which issues licenses to breweries before they can begin operations. Forget about new beers for the duration of the shutdown.)

When a manager wants to create a new registered investment company, a new series portfolio, or a new share class, it files a new registration statement, or amends an existing registration statement of an existing trust entity. If the new fund registration statement or amendment is complete in all material respects (and complies with the applicable rule), it will become effective automatically on the 75th day after filing. Generally, the SEC may halt the filing if its staff sees something in the filing that it does not like.

In practice, however, many registrants (that's SEC-talk for the registered investment companies) include on the cover page of the filing a "delaying amendment" legend. A delaying amendment indefinitely delays the effective date of the registration statement, thus giving the SEC staff a chance to review and comment on the filing. The SEC staff informally encourages registrants to include a delaying amendment on filings of new funds.

Procedurally, when the SEC staff provides comments on the registration statement for the new fund, the registrant prepares a "pre-effective amendment" that addresses the comments. When the staff is satisfied that its comments have been addressed, the registrant requests that the SEC "accelerate" the effective date of the filing by issuing an order of effectiveness. During the shutdown, the SEC will not accelerate the effectiveness of a registration statement, thus leaving planned offerings in an inconvenient state of limbo and marketing campaigns in a state of flux.

Fund reorganizations. The inability to register new funds also affects the scheduling of fund reorganizations. That is, if an existing fund plans to merge into a newly created shell, it may have to wait. Similarly, the surviving fund in a reorganization must file a "combined proxy statement and prospectus," which serves the dual purposes of registering the issuance of shares of the surviving fund to be distributed upon the reorganization and as a proxy statement to obtain the approval of shareholders of the funds that will merge into the surviving fund. Those proxy/registration statements (filed on Form N-14) that are materially complete and comply with the SEC rules can become effective automatically 30 days after filing, but, again, many registrants include a delaying amendment legend on the cover page.

In each of these cases, registrants can choose to wait out the government shutdown or "pull," or remove, the delaying amendment and refile the registration statement. Pulling the delaying amendment, however, resets the clock. Registrants may decide not to include a delaying amendment, thus assuring that the registration statement will become effective on the 75th day after filing. You can always file a delaying amendment later if necessary.

Waiting out the shutdown does not guarantee that the SEC staff will get you back on schedule, because there likely will be a long backlog when they get back to work. Pulling the delaying amendment runs the risk that the SEC staff, after the fact, views the filing as not complete or includes disclosure that it finds objectionable.

Existing funds. Amendments to registration statements that include new material disclosure generally become effective 60 days after filing. If a fund files the amendment fewer than 60 days before the targeted date, it must ask the SEC staff to accelerate the effective date. This delay could possibly leave a fund without an effective registration statement, and it would then have to stop selling shares.

Exemptive applications. Applications for exemptive orders also have ground to a halt. A registrant that expects to obtain a much-needed order to conduct its business will have to wait. This delay could affect the ability to operate an ETF, a multi-manager fund, to engage in a "joint transaction," which in turn could hold up other transactions.

What can fund directors do now?

In two words: not much. Fund directors should ask management how the shutdown delay will affect their funds, and what alternative plans, if any, management has to address delays in filings of fund prospectuses, reorganization proxy statement/prospectuses and exemptive applications. By understanding the risks arising out of the shutdown, and any proposed "Plan B" that management has developed, fund directors can be better informed and prepared to act should the shutdown continue and turn a mere inconvenience into a crisis that requires immediate attention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.