70436 Federal Register / Vol. 88, No. 195 / Wednesday, October 11, 2023 / Rules and Regulations 

1This release refers to registered investment 

companies and BDCs collectively as ‘‘funds.’’ 

2See Investment Company Names, Investment 

Company Act Release No. 34593 (May 25, 2022) [87 

FR 36594 (June 17, 2022)] (‘‘Proposing Release’’ or 

the ‘‘2022 Proposal’’). The Commission voted to 

issue the Proposing Release on May 25, 2022. The 

release was posted on the Commission website that 

day, and comment letters were received beginning 

the following day. The comment period closed on 

August 16, 2022. We have considered all comments 

received since May 25, 2022. 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230, 232, 239, 270 and 

274 

[Release No. 33–11238; 34–98438; IC– 

35000; File No. S7–16–22] 

RIN 3235–AM72 

Investment Company Names 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is 

amending the rule under the Investment 

Company Act of 1940 (‘‘Investment 

Company Act’’ or ‘‘Act’’) that addresses 

certain broad categories of investment 

company names that are likely to 

mislead investors about an investment 

company’s investments and risks. The 

amendments to this rule are designed to 

increase investor protection by 

improving, and broadening the scope of, 

the requirement for certain funds to 

adopt a policy to invest at least 80 

percent of the value of their assets in 

accordance with the investment focus 

that the fund’s name suggests, updating 

the rule’s notice requirements, and 

establishing recordkeeping 

requirements. The Commission is also 

adopting enhanced prospectus 

disclosure requirements for terminology 

used in fund names, and additional 

requirements for funds to report 

information on Form N–PORT regarding 

compliance with the names-related 

regulatory requirements. 

DATES: This rule is effective December 

11, 2023. 

FOR FURTHER INFORMATION CONTACT: 

Blair Burnett, Mykaila DeLesDernier, 

Pamela Ellis, Senior Counsels; Bradley 

Gude, Branch Chief; Amanda Hollander 

Wagner, Senior Special Counsel, or 

Brian McLaughlin Johnson, Assistant 

Director, at (202) 551–6792, Investment 

Company Regulation Office, Division of 

Investment Management, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–8549. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting amendments to 

17 CFR 270.35d–1 (‘‘rule 35d–1’’) under 

the Investment Company Act; 

amendments to Form N–1A [referenced 

in 17 CFR 239.15A and 17 CFR 

274.11A], Form N–2 [referenced in 17 

CFR 239.14 and 17 CFR 274.11a–1], 

Form N–8B–2 [referenced in 17 CFR 

274.12], and Form S–6 [referenced in 17 

CFR 239.16] under the Investment 

Company Act and the Securities Act of 

1933 (‘‘Securities Act’’) [15 U.S.C. 77a et 

seq.]; amendments to Form N–PORT 

[referenced in 17 CFR 274.150] under 

the Investment Company Act; 

amendments to 17 CFR 232.11 (‘‘rule 11 

of Regulation S–T’’) and 17 CFR 232.405 

(‘‘rule 405 of Regulation S–T’’) under 

the Securities Exchange Act of 1934 

(‘‘Exchange Act’’) [15 U.S.C. 78a et seq.]; 

amendments to 17 CFR 230.485 (‘‘rule 

485’’) under the Securities Act; and 

amendments to 17 CFR 230.497 (‘‘rule 

497’’) under the Securities Act. 

Table of Contents 

I. Introduction and Background 

A. Regulatory Context 

B. Developments and Analysis Informing 

Final Rule Amendments 

C. Overview of the Final Rules 

1. Final Rules’ Principal Elements 

2. Other Aspects of the Proposal 

II. Discussion 

A. 80% Investment Policy Requirement 

1. Names Suggesting an Investment Focus 

2. Temporary Departures From the 80% 

Investment Requirement 

3. Considerations Regarding Derivatives in 

Assessing Names Rule Compliance 

4. Unlisted Registered Closed-End Funds 

and BDCs 

5. Effect of Compliance With an 80% 

Investment Policy 

B. Prospectus Disclosure Defining Terms 

Used in Fund Name 

C. Plain English/Established Industry Use 

Requirement 

D. Modernizing the Rule’s Notice 

Requirement 

E. Form N–PORT Reporting 

1. Investments To Be Included in a Fund’s 

80% Basket 

2. Investment Company Act Names Rule 

Investment Policy 

F. Recordkeeping 

G. Unit Investment Trusts 

H. Compliance Dates 

III. Other Matters 

IV. Economic Analysis 

A. Introduction 

B. Broad Economic Considerations 

C. Economic Baseline 

1. Fund Industry Overview 

2. Market Practice 

3. Current Regulatory Framework 

D. Benefits, Costs, and Effects on 

Efficiency, Competition and Capital 

Formation 

1. Benefits 

2. Costs 

3. Effects on Efficiency, Competition and 

Capital Formation 

E. Reasonable Alternatives Considered 

1. Disclosure-Based Framework 

2. Alternatives to 90-Day Temporary 

Departure Limit 

3. Permit But Not Require the Use of 

Derivatives’ Notional Values for 

Purposes of Names Rule Compliance 

4. Exclude Unit Investment Trusts From 

Requirements for Tagging Prospectus 

Disclosure 

V. Paperwork Reduction Act Analysis 

A. Introduction 

B. Rule 35d–1 

C. Prospectus Disclosure 

1. Form N–1A 

2. Form N–2 

3. Form N–8B–2 

4. Form S–6 

D. Form N–PORT Reporting Requirements 

E. Investment Company Interactive Data 

VI. Final Regulatory Flexibility Analysis 

A. Need for and Objectives of the Rule and 

Form Amendments 

B. Significant Issues Raised by Public 

Comments 

C. Small Entities Subject to Rule 

Amendments 

D. Projected Reporting, Recordkeeping, and 

Other Compliance Requirements 

1. 80% Investment Policy Requirements— 

Scope Expansion and Other 

Amendments 

2. Effect of Compliance With an 80% 

Investment Policy 

3. Recordkeeping Requirements 

4. Disclosure and Reporting Requirements 

5. Treatment of UITs 

E. Agency Action To Minimize Effect on 

Small Entities 

Statutory Authority 

I. Introduction and Background 

The Commission is adopting rule and 

form amendments that are designed to 

modernize and enhance the protections 

that rule 35d-1 under the Investment 

Company Act, the ‘‘names rule,’’ 

provides. This rule addresses the names 

of registered investment companies and 

business development companies 

(‘‘BDCs’’) that the Commission defines 

as materially misleading or deceptive.1

The amendments the Commission is 

adopting update the rule and other 

names-related regulatory requirements 

to improve the protections that the rule 

provides, and to address changes in the 

fund industry in the approximately 20 

years since the rule was adopted. 

In May 2022, the Commission 

proposed rule and form amendments 

that would update the regulatory 

requirements associated with funds’ 

names.2 The proposed amendments 

included an expansion of the names 

rule’s scope, improvements to the 

requirements for funds’ investment 

policies adopted under the names rule 

(including, among other things, specific 

requirements addressing temporary 

departures from these policies’ 

requirements), updated notice 

requirements, and new recordkeeping 

requirements. The proposed 

amendments also effectively would 


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Federal Register / Vol. 88, No. 195 / Wednesday, October 11, 2023 / Rules and Regulations 70437 

3The comment letters on the Proposing Release 

are available at https://www.sec.gov/comments/s7- 

16-22/s71622.htm. 

4See, e.g., Comment Letter of Better Markets 

(Aug. 16, 2022) (‘‘Better Markets Comment Letter’’); 

Comment Letter of the Consumer Federation of 

America (Aug. 16, 2022) (‘‘Consumer Federation of 

America Comment Letter’’) (each expressing 

support for the Commission’s efforts to modernize 

the names rule, stating, respectively, that the rule 

has not been revisited since 2001, and it is ‘‘well 

past time’’ for the Commission to revisit and update 

the names rule); see also Comment Letter of the 

CFA Institute (Aug. 22, 2022) (‘‘CFA Institute 

Comment Letter’’); Comment Letter of the Teachers 

Insurance and Annuity Association of American 

and Nuveen, LLC (Aug. 16, 2022) (‘‘TIAA-Nuveen 

Comment Letter’’). 

5See infra discussion at sections II.A.1–II.A.4. 

6See infra discussion at sections II.B and II.E. 

7 15 U.S.C. 80a–34(d); Public Law 104–290, 208, 

110 Stat. 3416, 3432 (1996).; see also S. Rep. No. 

293, 104th Cong., 2d Sess. 8–9 (1996). 

8See Investment Company Names, Investment 

Company Act Release No. 24828 (Jan. 17, 2001) [66 

FR 8509 (Feb. 1, 2001)] (‘‘2001 Names Rule 

Adopting Release’’) at nn.4–5 and accompanying 

text. 

9See, e.g., Comment Letter of Massachusetts 

Financial Services Company (Aug. 16, 2022) (‘‘MFS 

Comment Letter’’); Comment Letter of Capital 

Research and Management Company (Aug. 16, 

2022) (‘‘Capital Group Comment Letter’’); Comment 

Letter of the Cato Institute (Aug. 12, 2022) (‘‘Cato 

Institute Comment Letter’’). 

10See Comment Letter of the North American 

Securities Administrators Association, Inc. (Aug. 

16, 2022) (‘‘NASAA Comment Letter’’); see also 

Comment Letter of the Public Investors Advocate 

Bar Association (Aug. 15, 2022) (‘‘PIABA Comment 

Letter’’) (stating that retail investors frequently base 

their purchase of funds solely upon the name of the 

fund and ‘‘do little to investigate’’ the portfolio 

holdings or the specific strategy of a fund beyond 

relying on the fund’s name). 

11See Comment Letter of U.S. SIF: The Forum for 

Sustainable and Responsible Investment (Aug. 16, 

2022) (‘‘U.S. SIF Comment Letter’’). 

12See Proposing Release, supra footnote 2, at n.6; 

see also, e.g., Comment Letter of the Center for 

American Progress (Aug. 16, 2022) (‘‘Center for 

American Progress Comment Letter’’) (stating that 

the current investing environment creates strong 

incentives for investment companies to name funds 

in ways that will attract investors). But see 

Comment Letter of Benjamin Zycher, Senior Fellow, 

American Enterprise Institute (Nov. 1, 2022) 

(‘‘Zycher Comment Letter’’) (arguing that ‘‘the 

implicit argument that firms or funds have 

incentives to mislead or to adopt deceptive names 

is not correct’’ because funds’ reputations for 

honesty are in funds’ long-term interests). 

13 15 U.S.C. 80a–34(d). BDCs, which are not 

registered investment companies, are subject to the 

requirements of section 35(d) pursuant to section 59 

of the Act [15 U.S.C. 80a–58]. 

14See 2001 Names Rule Adopting Release, supra 

footnote 8. 

15The rule imposes a similar requirement for 

funds that have names suggesting that a fund’s 

distributions are exempt from federal income tax or 

from both federal and state income tax (‘‘tax-exempt 

funds’’). 

16Under the Act, a fund may not deviate from a 

fundamental policy unless it has been authorized 

by the vote of a majority of its outstanding 

shareholders. 15 U.S.C. 80a–13(a)(3). In this release, 

we refer to a policy that a fund must adopt under 

the names rule as an ‘‘80% investment policy’’ and 

the fund’s investments invested in accordance with 

this policy, the fund’s ‘‘80% basket.’’ We are 

adopting a parallel definition of ‘‘80% basket’’ in 

the final amendments to the names rule, and when 

referring to the final amendments, references to a 

fund’s ‘‘80% basket’’ refer to this definition. See 

final rule 35d–1(g) (defining ‘‘eighty percent (80%) 

basket’’); see also proposed rule 35d–1(g)(1) 

(defining ‘‘80% basket,’’ but otherwise identical to 

definition in final rule). 

have required that terms in a fund’s 

name be consistent with those terms’ 

plain English meaning or established 

industry use, and addressed materially 

deceptive and misleading use of 

environmental, social, or governance 

(‘‘ESG’’) terminology in fund names. 

Finally, the 2022 Proposal included 

amendments that would require a fund 

to define the terms used in its name in 

its prospectus, and amendments to 

Form N–PORT to add several new 

names-rule-related reporting items. 

The Commission received comment 

letters on the 2022 Proposal from a 

variety of commenters, including funds, 

law firms, investor advocacy groups, 

environmental advocacy groups, 

professional and trade associations, 

public policy research institutes, 

academics, and interested individuals.3

Many commenters expressed support 

for the names rule generally, and the 

overall goals of improving and clarifying 

the regulatory framework related to fund 

names, with some commenters 

recognizing that the names rule has not 

been revisited since its implementation 

in 2001.4 Comments on specific aspects 

of the proposed amendments, however, 

were mixed. While some commenters 

generally supported the proposed scope 

expansion, as well as the amendments 

addressing the operation of investment 

policies adopted under the names rule, 

many others expressed concerns with 

these aspects of the proposal or 

suggested certain modifications.5

Comments on the proposed prospectus 

disclosure requirements were generally 

supportive, but comments on the 

proposed new Form N–PORT reporting 

items were mixed, with some largely 

objecting to these requirements or 

suggesting modifications and others 

arguing that the proposed new reporting 

items would help promote transparency 

and accountability.6

After considering the comments on 

the 2022 Proposal and as discussed in 

more detail below, we are adopting 

amendments to the names rule, with 

some modifications based on the 

comments we received. 

A. Regulatory Context 

Congress provided the Commission 

with rulemaking authority to address 

materially deceptive or misleading fund 

names, recognizing the concern that 

investors may focus on a fund’s name to 

determine its investments and risks.7

The names rule, in turn, responds to 

this concern by helping to ensure that 

investors’ assets in funds are invested in 

accordance with investors’ reasonable 

expectations based on the fund’s name. 

The role of the names rule remains 

important and distinct from other 

disclosure requirements. A fund’s name 

is not meant to supplant other required 

fund disclosure, and a name cannot 

communicate everything about a fund’s 

investments, risks, and other features. 

The Commission has historically stated 

that investors should not rely on an 

investment company’s name as the sole 

source of information about a 

company’s investments and risks.8 We 

continue to encourage investors to look 

beyond a fund’s name to other 

information, such as disclosure 

included in a fund’s registration 

statement, to obtain a complete 

understanding of a fund’s investment 

objective, policies, strategies, and risks, 

as several commenters suggested.9 A 

fund’s name, however, is unique in 

several respects. It is typically the first 

piece of information that investors 

receive about a fund.10 Fund names 

offer important signaling for investors in 

assessing their investment options.11

Relatedly, incentives exist for asset 

managers to include terminology in 

fund names that is designed to attract 

investor assets.12

Section 35(d) of the Act prohibits a 

registered investment company from 

adopting as part of its name or title any 

word or words that the Commission 

finds are materially deceptive or 

misleading.13 This section of the Act 

further authorizes the Commission to 

define such names or titles as are 

materially deceptive or misleading. The 

Commission adopted the names rule in 

2001 in exercise of this authority.14

The current names rule generally 

requires that if a fund’s name suggests 

a focus in a particular type of 

investment, or in investments in a 

particular industry or geographic focus, 

the fund must adopt a policy to invest 

at least 80% of the value of its assets in 

the type of investment, or in 

investments in the industry, country, or 

geographic region suggested by its 

name.15 Under the current rule, a fund 

generally may elect to make its 80% 

investment policy a fundamental policy 

(i.e., a policy that may not be changed 

without shareholder approval) or 

instead provide shareholders notice at 

least 60 days prior to any change in the 

80% investment policy.16 An 80% 

investment policy relating to a taxVerDate Sep<11>2014 18:15 Oct 10, 2023 Jkt 262001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\11OCR2.SGM 11OCR2

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17See 2001 Names Rule Adopting Release, supra 

footnote 8, at paragraph accompanying n.16; see 

also Proposing Release, supra footnote 2, at nn.13– 

15 and accompanying text. 

18See Proposing Release, supra footnote 2, at n.14 

and accompanying text. 

19See id. at nn.16–17 and accompanying text 

(also addressing the requirement for fund 

compliance officers to discuss any material 

compliance matter involving the names rule in 

annual reports to the board on the operation of 

funds’ compliance policies and procedures). 

20See Request for Comments on Fund Names, 

Investment Company Act Release No. 33809 (Mar. 

2, 2020) [85 FR 13221 (Mar. 6, 2020)] (‘‘2020 

Request for Comment’’); see also Proposing Release, 

supra footnote 2, at section I.B (describing the input 

commenters provided in response to the 2020 

Request for Comment). 

21See, e.g., Comment Letter of the Asset 

Management Group of the Securities Industry and 

Financial Markets Association (Aug. 16, 2022) 

(‘‘SIFMA AMG Comment Letter’’); NASAA 

Comment Letter; Consumer Federation of America 

Comment Letter; Comment Letter of Wellington 

Management Company (Aug. 16, 2022) 

(‘‘Wellington Comment Letter’’); Comment Letter of 

Adriana Z. Robertson and Jill E. Fisch (Apr. 20, 

2023) (‘‘Robertson-Fisch Comment Letter’’); see also 

PIABA Comment Letter (asserting fund names are 

particularly important for 401(k) plan investments, 

which employers make available from a predetermined list of options and comprise the entirety 

of retirement savings for many Americans). 

22See, e.g., Consumer Federation of America 

Comment Letter; Center for American Progress 

Comment Letter; CFA Institute Comment Letter. 

23See Proposing Release, supra footnote 2, at n.20 

and accompanying text; see also, e.g., Comment 

Letter of Invesco Ltd. (Aug. 16, 2022) (‘‘Invesco 

Comment Letter’’) (‘‘Since its adoption in 2001, the 

Names Rule has provided an effective regulatory 

framework for ensuring that fund names are not 

materially deceptive or misleading and has served 

to help investors understand what they can expect 

when they invest in a fund.’’); Comment Letter of 

the Investment Company Institute (Aug. 16, 2022) 

(‘‘ICI Comment Letter I’’) The Investment Company 

Institute also submitted a separate comment letter 

dated December 6, 2022 (‘‘ICI Comment Letter II’’), 

a comment letter dated May 22, 2023 (‘‘ICI 

Comment Letter III’’), and a comment letter dated 

July 31, 2023 (‘‘ICI Comment Letter IV’’). Unless 

otherwise indicated, these letters are referred to 

collectively as if they were a single letter (‘‘ICI 

Comment Letter’’). 

24See, e.g., Comment Letter of T. Rowe Price 

(Aug. 16, 2022) (‘‘T. Rowe Comment Letter’’) 

(discussing effectiveness of current 80% investment 

policy requirement in aligning fund names with 

investor expectations); CFA Institute Comment 

Letter (stating that the terms used in fund names 

should reflect the fund’s ‘‘investment objective, 

strategies, and types of securities held’’ and that the 

current names rule ‘‘provide[s] a level of assurance 

to investors’’). 

25See Comment Letter of Amalgamated Financial 

Corp. (Aug. 16, 2022) (‘‘Amalgamated Comment 

Letter’’). 

26See, e.g., Consumer Federation of America 

Comment Letter (stating that ‘‘significant gaps and 

loopholes’’ exist in the current rule); Center for 

American Progress Comment Letter; see also infra 

section IV.D (estimating that approximately 62% of 

funds have names that implicate the current 80% 

investment policy requirement). 

27See, e.g., NASAA Comment Letter; Comment 

Letter of the Environmental Defense Fund (Aug. 16, 

2022) (‘‘Environmental Defense Fund Comment 

Letter’’). 

28See Proposing Release, supra footnote 2, at 

section I.B; see also, e.g., ICI Comment Letter; 

Comment Letter of J.P. Morgan Asset Management 

(Aug. 16, 2022) (‘‘J.P. Morgan Asset Management 

Comment Letter’’). 

29See Investment Company Institute, 2022 Fact 

Book (2022) (‘‘2022 ICI Fact Book’’), available at 

https://www.icifactbook.org/pdf/2022_factbook.pdf. 

In 2001, there were 8,860 registered open-end and 

closed-end management investment companies, 

representing approximately $7.15 trillion in assets 

under management. In 2021, there were 10,450 

exempt fund, however, must be a 

fundamental policy. 

Currently, a fund is required to invest 

in accordance with its 80% investment 

policy ‘‘under normal circumstances,’’ 

and a fund must apply its policy at the 

time the fund invests its assets. If, 

subsequent to an investment, the fund’s 

assets are no longer invested in 

accordance with the policy, the fund’s 

future investments must be made in a 

manner that will bring it into 

compliance. The current rule also 

includes certain requirements for the 

notices that funds must send prior to a 

change in an 80% investment policy 

that is not a fundamental policy. 

In adopting the names rule, the 

Commission made clear that it is not a 

safe harbor for materially deceptive or 

misleading names.17 The prohibitions of 

section 35(d) and the anti-fraud 

provisions of the Federal securities laws 

regarding disclosures to investors 

continue to apply to funds 

notwithstanding their compliance with 

the names rule.18 In addition, a fund 

must adopt and implement written 

compliance policies and procedures 

reasonably designed to prevent 

violations of the Federal securities laws 

generally, which—both currently, and 

following the Commission’s adoption of 

amendments to the names rule—would 

include section 35(d) and the names 

rule.19

B. Developments and Analysis 

Informing Final Rule Amendments 

The names rule has not been amended 

since its adoption in 2001. In past years, 

the Commission and staff have received 

input about the operation of the names 

rule, as well as areas for potential 

improvement, through a variety of 

venues. The Commission published a 

Request for Comment on Fund Names in 

March 2020.20 The 2020 Request for 

Comment sought public comment on 

the framework for addressing funds’ 

names, particularly in light of market 

and other developments since the rule’s 

adoption. The Commission received 

broad comments in response to the 2020 

Request for Comment and, as described 

above, in response to the 2022 Proposal. 

In addition, staff in the Commission’s 

Division of Investment Management, 

particularly the Division’s Disclosure 

Review and Accounting Office, receive 

input from funds on names rule 

compliance issues regularly, for 

example during the course of staff’s 

review of fund registration statements. 

Commenters generally recognized that 

investors view a fund’s name as an 

important piece of information that 

communicates the fund’s objectives.21

Several commenters expressed that asset 

managers have an incentive to create 

fund names that are designed to attract 

investors.22 Many commenters, 

including funds and others, expressed 

their general agreement that the names 

rule provides important investor 

protections and that the rule has been 

largely effective in addressing 

misleading and deceptive fund names.23

Commenters expressed support for a 

requirement, such as the rule’s 80% 

investment policy provision, that 

requires a fund’s underlying 

investments to correspond with the 

focus its name suggests in light of 

reasonable investor expectations.24 One, 

for example, with respect to funds’ use 

of ESG related terminology in their 

names, stated that a naming requirement 

where ‘‘the underlying strategy and data 

must significantly support the name’’ is 

a ‘‘basic consumer protection.’’ 25

Some commenters expressed that 

certain changes to the names rule would 

be beneficial to ensure that the rule 

continues to serve its investor 

protection purposes. Some of these 

commenters expressed the view that the 

current scope of the rule does not cover 

all instances in which fund names 

create the reasonable expectation that a 

fund will invest in a certain way.26

Some also expressed concern that the 

current rule’s ‘‘under normal 

circumstances’’ standard increases the 

risk that a fund’s investments will not 

be consistent with its name over an 

extended period and that investors will 

be misled.27 Commenters also suggested 

other, more technical updates to the 

names rule, such as addressing how 

funds that use derivatives calculate 

compliance with their 80% investment 

policies, and updating the rule’s notice 

provision to reflect technological 

changes over the past two decades.28

In considering updates to the names 

rule, both the Commission and 

commenters have taken into account 

developments in the fund industry since 

the rule was originally adopted. 

Registered investment companies 

manage considerably more assets today 

than they did in 2001 (with this amount 

nearly quadrupling), and the number of 

registered investment companies has 

also increased—by close to 20%—in the 

two decades following the names rule’s 

adoption.29 Similarly, over this time 


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registered open-end and closed-end management 

investment companies, representing approximately 

$28.2 trillion in assets under management. See also 

Fund Industry Overview at infra section IV.C.1 

(discussing fund industry statistics as of Dec. 2022). 

30See Federal Reserve Bulletin, Changes in U.S. 

Family Finances from 2016 to 2019: Evidence from 

the Survey of Consumer Finances (Sept. 2020), 

available at https://www.federalreserve.gov/ 

publications/files/scf20.pdf; Federal Reserve 

Bulletin, Recent Changes in U.S. Family Finances: 

Evidence from the 1998 and 2001 Survey of 

Consumer Finances, available at https://

www.federalreserve.gov/econres/files/2001_

bull0103.pdf. The percentage of U.S. families 

holding stocks and bonds directly decreased from 

24.9% in 1992 to 16.3% in 2019. The percentage 

of U.S. families holding pooled investment funds 

and retirement accounts (including individual 

retirement accounts, Keogh accounts, and certain 

employer-sponsored accounts such as 401(k) and 

403(b) accounts) increased from 33.3% in 1992 to 

59.5% in 2019. Mutual funds made up a significant 

portion of defined contribution plan assets (58%) 

and IRA assets (45%) at year-end 2021. In addition, 

the share of defined contribution plan assets held 

in mutual funds has grown over the past two 

decades, from 44% at year-end 2001 to 58% at yearend 2021. See 2022 ICI Fact Book. 

31See Proposing Release, supra footnote 2, at 

nn.21–22 at accompanying text. 

32See 2022 ICI Fact Book, supra footnote 29. In 

2001, there were 452 sector equity mutual funds 

and ETFs; in 2021, there were 757. 

33See Sonya Swink, Thematic Assets Have 

Surged—And Are Here to Stay, Ignites (Dec. 22, 

2022), available at https://www.ignites.com/c/ 

3870954/500734/thematic_assets_have_surged_

here_stay?referrer_module=issueHeadline&module_

order=1. These strategies are dominated by 

technology-related themes, such as internet, 

blockchain, cloud computing, and cybersecurity 

(based on staff analysis of data obtained from 

Morningstar Direct as of Dec. 15, 2022). 

34 Id. 

35See supra footnote 12; see also NASAA 

Comment Letter (discussing the application of the 

names rule to names suggesting a focus on ‘‘trendy 

‘thematic areas,’ . . . including cybersecurity, 

blockchain/digital assets, and artificial 

intelligence’’). 

36See Proposing Release, supra footnote 2, at 

n.120 and accompanying text. See also, e.g., Letter 

from Morningstar to Chair Gary Gensler (June 9, 

2021) attaching, Sustainable Funds U.S. Landscape 

Report—More funds, more flows, and impressive 

returns in 2020, Morningstar Manager Research 

(Feb. 10, 2021), available at https://www.sec.gov/ 

comments/climate-disclosure/cll12-8899329- 

241650.pdf; ESG in 2021 So Far: An Update, M. 

Gerber, G. Norman, and S. Toms, Harvard Law 

School Forum on Corporate Governance (Sept. 18, 

2021), available at http://corpgov.law.harvard.edu/ 

2021/09/18/esg-in-2021-so-far-an-update/; ESG 

assets may hit $53 trillion by 2025, a third of global 

AUM, Bloomberg Intelligence (Feb. 23, 2021), 

available at https://www.bloomberg.com/ 

professional/blog/esg-assets-may-hit-53-trillion-by2025-a-third-of-global-aum/; Amalgamated 

Comment Letter, NASAA Comment Letter, U.S. SIF 

Comment Letter, CFA Institute Comment Letter (all 

discussing investor interest in funds with ESG 

strategies and names). 

37 ‘‘Greenwashing’’ involves the risk that funds 

marketing ESG strategies may exaggerate their ESG 

practices or the extent to which their investment 

products take into account ESG factors. See, e.g., 

Comment Letter of Public Citizen (Aug. 15, 2022) 

(‘‘Public Citizen Comment Letter’’) (discussing 

evolving investor expectations around ESG terms). 

But see Robertson-Fisch Comment Letter 

(‘‘interrogating the concept of greenwashing’’ and 

comparing the portfolios of funds with ESG 

terminology in their names to the portfolios of 

‘‘sister funds’’—‘‘the non-ESG fund in the same 

fund family most comparable to the ESG fund’’— 

with the authors concluding that little evidence of 

greenwashing exists). 

38See 2001 Names Rule Adopting Release, supra 

footnote 8. 

39For example, the Commission has previously 

taken the position that fund names that incorporate 

terms such as ‘‘growth’’ and ‘‘value’’ connote an 

investment objective, strategy, or policy (i.e., 

‘‘investment strategies’’) and are therefore not 

within the scope of the 80% investment policy 

Continued 

period, it has become more likely that 

retail investors access the markets 

through registered investment 

companies than through direct 

ownership of stocks and bonds.30

Although the increase in the number of 

registered investment companies is 

modest compared to the increase in 

registered investment companies’ assets 

under management, the number of 

funds tells only part of the story about 

the breadth of fund investment options 

currently available. The range of fund 

investment strategies has become 

notably more diverse over the past two 

decades.31

For example, the number of equity 

mutual funds and exchange-traded 

funds (‘‘ETFs’’) that are sector funds 

(e.g., consumer, financial, utilities) 

increased by nearly 70% from 2001 to 

2021.32 Mutual fund and ETF assets in 

‘‘thematic’’ strategies have surged over 

the past three years, with data from 

Morningstar Direct identifying a record 

589 thematic mutual funds and ETFs 

debuting globally in 2021.33 As of 

December 2022, Morningstar data 

categorized 334 domestic funds 

(including mutual funds, ETFs, and 

registered closed-end funds) as thematic 

funds, comprising 4 ‘‘broad themes’’ 

(broad thematic, physical world, social, 

and technology), 27 ‘‘themes’’ (e.g., 

artificial intelligence and big data, food, 

space, and wellness), and 150 

‘‘subthemes’’ (e.g., health innovation, 

next gen auto, millennials and 

‘‘Generation Z,’’ cannabis, robotics, and 

travel/tourism).34 While fund managers 

and others understand certain of these 

thematic names to be included in the 

current scope of the names rule, there 

can be questions about whether certain 

thematic terms suggest a focus in a 

particular type of investment, or in 

investments in a particular industry or 

group of industries. As fund managers 

have incentives to include ‘‘buzzwords’’ 

in their names to attract assets, and the 

current market for funds includes a 

substantially broader variety of names 

suggesting a particular focus than two 

decades ago, a rule providing specific 

requirements to address deceptive and 

misleading fund names for any fund 

name that suggests a particular 

investment focus is even more relevant 

now than it was when it was adopted.35

Funds that consider ESG factors in 

their investment strategies comprise a 

thematic area that entails unique 

considerations, and that involves the 

use of terminology that may be 

especially powerful in fund names to 

attract investors. The use of ESG or 

similar terminology (such as 

‘‘sustainable,’’ ‘‘green,’’ or ‘‘socially 

responsible’’) in fund names may 

present particular investor protection 

concerns for several reasons. Investor 

interest in—and funds that offer—ESG 

strategies have rapidly increased in 

recent years.36 Asset managers have 

created and marketed funds that 

consider ESG factors in their selection 

process, and these funds can attract 

significant interest and stand out to 

investors by using ESG and related 

terms in their names. Approaches to 

ESG investing vary, however, and funds 

that consider ESG factors have strategies 

that vary in the extent to which ESG 

factors are considered versus other 

factors. The breadth of ESG-related 

terms, as well as evolving investor 

expectations around terms like 

‘‘sustainable’’ or ‘‘socially responsible,’’ 

compound the possibility of investor 

confusion and potential ‘‘greenwashing’’ 

in fund names.37

In consideration of the broad public 

input the Commission has received on 

fund names, our analysis of this input, 

the Commission and staff’s experience 

with the names rule over the past two 

decades, developments in the fund 

industry, and the growth of the fund 

industry and families’ investments in 

funds during this time period, we are 

adopting amendments to the names rule 

(and related disclosure and reporting 

requirements) to modernize the rule and 

to enhance the investor protections it 

currently provides. First, it is in 

investors’ interests to align the rule’s 

scope and requirements better with the 

policies and purposes underlying the 

rule. The Commission has stated that 

the 80% investment policy requirement 

‘‘will provide an investor greater 

assurance that a [fund’s] investments 

will be consistent with its name.’’ 38

This requirement addresses 

circumstances in which a fund’s name 

may be materially deceptive or 

misleading, in exercise of the 

Commission’s rulemaking authority 

under section 35(d). The amendments 

we are adopting address fund names 

that are not currently within the scope 

of the rule, or where the current scope 

of the rule has created interpretive 

issues.39 These names may entail a 


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requirement. This has resulted in some fund names 

being excluded from this requirement because the 

name contains a term suggesting an investment 

strategy, even if the name also suggests an 

investment focus to investors. See Proposing 

Release, supra footnote 2, at paragraph 

accompanying n.23; see also infra section II.A.1. 

40See In the Matter of the Private Investment 

Fund for Governmental Personnel, Inc., Investment 

Company Act Release No. 2474 (Jan. 18, 1957) (the 

Commission has historically expressed that, in 

considering whether a name is deceptive or 

misleading, ‘‘[a]ctual deception of investors need 

not be shown, it is sufficient if the name of the 

company is found to have a tendency or capacity 

to deceive or mislead’’). 

41See NASAA Comment Letter; see also CFA 

Institute Comment Letter. But see, e.g., infra 

footnote 75 and accompanying text. 

42See infra sections II.A.1 and II.B. 

43See, e.g., Consumer Federation of America 

Comment Letter (discussing the risk of funds 

changing their portfolios such that the portfolios are 

no longer accurately reflected by the funds’ names). 

44See, e.g., Center for American Progress 

Comment Letter (stating that investors’ expectations 

and investment practices often assume that 

investments in a fund will remain consistent with 

the name over the longer term, and investors who 

wish to change their own mix of investments 

typically do so by changing funds). 

45See, e.g., ICI Comment Letter; J.P. Morgan Asset 

Management Comment Letter; Comment Letter of 

Dimensional Fund Advisors LP (Aug. 16, 2022) 

(‘‘Dimensional Comment Letter’’); Comment Letter 

of Dechert LLP (Aug. 16, 2022) (‘‘Dechert Comment 

Letter’’); see also infra section II.A.2. 

46See, e.g., SIFMA AMG Comment Letter; T. 

Rowe Comment Letter. 

47 Investment Company Reporting Modernization, 

Investment Company Act Release No. 32314 (Oct. 

13, 2016) [81 FR 81870 (Nov. 18, 2016)] 

(‘‘Investment Company Reporting Modernization 

Adopting Release’’); see also Amendments to the 

Timing Requirements for Filing Reports on Form 

N–PORT, Investment Company Act Release No. 

33384 (Feb. 27, 2019) [84 FR 7980 (Mar. 6, 2019)]; 

Proposing Release, supra footnote 2, at n.115 and 

accompanying text (generally discussing rules 

requiring funds registering on Forms N–1A and N– 

2 to submit certain information using Inline XBRL 

format). 

capacity to deceive or mislead because 

they suggest a particular investment 

focus, which in turn offers an important 

signal, or entry point, to investors that 

are researching their investment 

options.40 For these names—like the 

names currently within the rule’s 

scope—the 80% investment policy 

requirement would provide investors 

greater assurance that these funds’ 

investments are consistent with the 

manner in which a fund defines the 

terms in its name, which must be 

consistent with plain English or 

established industry use and disclosed 

in its prospectus. We therefore 

anticipate that including these names in 

the names rule’s scope will bring more 

discipline to fund naming practices and 

more meaningful names that convey the 

funds’ investment focuses, while 

allowing funds the flexibility to ascribe 

reasonable definitions for the terms 

used in their names.41 That is, the 

decision to include terms in a fund’s 

name that suggest an investment focus, 

including a focus in investments that 

have or whose issuers have particular 

characteristics, will now require the 

fund to adopt an 80% investment policy 

and to define the terms used in its 

name.42

Similarly, these amendments are 

designed to promote greater specificity 

in the operation of funds’ 80% 

investment policies to enhance investor 

protection by helping to ensure that 

funds’ names are not misleading as their 

portfolios may shift over time—either 

because of inadvertent portfolio ‘‘drift’’ 

or intentional departures from the 80% 

requirement.43 When an investor 

chooses to invest in a fund, that person 

has made an intentional decision to 

invest in, for example, the type of asset 

class, industry, or sector in which the 

fund’s name suggests an investment 

focus. That investor has a reasonable 

expectation that the fund’s investments 

will generally remain focused in the 

area that the fund’s name indicates.44

We appreciate, however, that a naming 

rule that requires unwavering adherence 

to a particular investment threshold 

risks harming funds and investors.45

This rigidity ultimately could result in 

investor harm if portfolio managers 

were not permitted to depart from their 

80% investment policy for a limited 

time to manage their funds 

appropriately in response to changing 

circumstances.46 The amended rule 

enhances investor protection by 

requiring funds to conduct at least 

quarterly reviews of their portfolio 

investments for consistency with the 

80% investment policy requirement, 

and by adopting time frames to remedy 

departures from 80% that seek to 

balance investors’ reasonable 

expectations with appropriate flexibility 

for advisers, consistent with their 

fiduciary duty, to manage funds’ 

portfolios. 

Our disclosure and reporting 

framework can provide additional tools, 

in connection with technological 

developments over the past two 

decades, to augment investors’ and 

other market participants’ 

understanding of fund names and to 

increase transparency of how a fund’s 

investment portfolio reflects the 

investment focus that its name suggests. 

In the years since the names rule was 

adopted, the Commission has adopted 

requirements to modernize reporting 

requirements for registered investment 

companies, which build on significant 

advances in the technology that can be 

used to report and analyze 

information—namely, the use of 

structured data language.47 We 

recognize that there are many types of 

fund names for which understanding 

additional detail about how name terms 

are defined, and about the types of 

investments that the term describes, 

would provide greater clarity to an 

investor about the fund’s investment 

focus. This may be helpful if, for 

example, fund names that incorporate 

terms that may reflect new themes or 

technologies become more prevalent. 

The final rules’ enhanced prospectus 

disclosure and reporting provisions, 

which require information to be 

disclosed in structured data language, 

are designed to address this goal. 

Finally, we are incorporating certain 

updates to the names rule to address 

industry and technological 

developments over the past two 

decades, and to address names-rulerelated recordkeeping. 

C. Overview of the Final Rules 

1. Final Rules’ Principal Elements 

We are adopting amendments to the 

names rule, as well as related disclosure 

and reporting requirements, in 

consideration of the issues discussed 

above. 

• Expansion of Scope. We are 

adopting, substantially as proposed, 

amendments to the names rule that 

expand the rule’s 80% investment 

policy requirement beyond its current 

scope, to apply to any fund name with 

terms suggesting that the fund focuses 

in investments that have, or investments 

whose issuers have, particular 

characteristics. This coverage will 

include, for example, fund names with 

terms such as ‘‘growth’’ or ‘‘value,’’ or 

terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors. These names will be 

added to the names that are currently 

within the scope of the 80% investment 

policy requirement—that is, generally, 

fund names that suggest a focus in a 

particular type of investment, or 

investments in a particular industry or 

geographic focus, and fund names 

suggesting that a fund’s distributions are 

tax-exempt. 

• Temporary Departures from the 

80% Investment Requirement. In a 

change from the proposal, under which 

funds would have been permitted to 

depart from the fund’s 80% investment 

policy only under certain specified 

circumstances, the final amendments 

retain the names rule’s current 

requirements for a fund to invest in 

accordance with its 80% investment 

policy ‘‘under normal circumstances’’ 

(the ‘‘80% investment requirement’’), 

and for the 80% investment requirement 

to apply at the time a fund invests its 


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48See final rule 35d–1(g) (defining ‘‘80% basket’’ 

generally as investments that are invested in 

accordance with the investment focus that the 

fund’s name suggests). 

49See infra footnote 292 (discussing the use of net 

asset value in the event of a tender offer, as well 

as a repurchase offer). 

50Proposed rule 35d–1(d). 

51See Enhanced Disclosures by Certain 

Investment Advisers and Investment Companies 

about Environmental, Social, and Governance 

Investment Practices, Investment Company Act 

Release No. 34594 (May 25, 2022) [87 FR 36654 

(June 17, 2022)] (‘‘ESG Disclosure Proposal’’), at 

section II.A.1. 

52See Proposing Release, supra footnote 2, at 

section II.D. 

53See, e.g., Comment Letter of Ceres (Aug. 16, 

2022) (‘‘Ceres Comment Letter’’); Consumer 

Federation of America Comment Letter; Comment 

Letter of Evergreen Action (Aug. 15, 2022) 

(‘‘Evergreen Action Comment Letter’’). 

54See, e.g., Cato Institute Comment Letter; 

Comment Letter of Mutual Fund Directors Forum 

(Aug. 16, 2022) (‘‘MFDF Comment Letter’’) 

(suggesting that the marketplace has been dynamic 

in developing different approaches to bringing an 

ESG lens to various investment strategies, and that 

the proposed rule, as the commenter understood it 

to largely limit the use of ESG terms in fund names 

to funds that use inclusionary or exclusionary 

screens (as well as to funds that employ impact or 

proxy-voting strategies), risks hindering further 

innovation in the fund space as ESG strategies 

continue to evolve); Comment Letter of Minerva 

Analytics (Aug. 16, 2022) (‘‘Minerva Comment 

Letter’’). 

assets. Also, in a change from the 

proposal, the final amendments add a 

new provision that requires a fund to 

review its portfolio assets’ inclusion in 

its ‘‘80% basket’’ at least quarterly.48

Like the proposal, the final amendments 

include specific time frames—generally 

90 days, as opposed to 30 days as 

proposed—for getting back into 

compliance if a fund departs from the 

80% requirement as a result of drift or 

in other-than-normal circumstances. 

• Derivatives. Consistent with the 

proposal, the final amendments 

generally require funds to use a 

derivatives instrument’s notional 

amount to determine the fund’s 

compliance with its 80% investment 

policy, with certain adjustments. In a 

change from the proposal, the final 

amendments include a limited 

modification to this approach that 

would exclude certain currency hedges 

from the names rule compliance 

calculation. As proposed, we are also 

amending the names rule to address the 

derivatives instruments that a fund may 

include in its 80% basket. 

• Unlisted Registered Closed-End 

Funds and BDCs. Consistent with the 

proposal, the final amendments 

generally prohibit an unlisted registered 

closed-end fund or BDC that is required 

to adopt an 80% investment policy from 

changing that policy without a 

shareholder vote. In a modification from 

the proposal, the final amendments 

permit these funds to change their 80% 

investment policies without such a vote 

if: (1) the fund conducts a tender or 

repurchase offer with at least 60 days’ 

prior notice of the policy change, (2) 

that offer is not oversubscribed, and (3) 

the fund purchases shares at their net 

asset value.49

• Enhanced Prospectus Disclosure. 

Substantially as proposed, we are 

adopting amendments to funds’ 

prospectus disclosure requirements that 

will require a fund to define the terms 

used in its name, including the criteria 

the fund uses to select the investments 

that the term describes. 

• Plain English Requirements for 

Terms Used in Fund Names. The final 

amendments to the names rule, as 

proposed, effectively require that any 

terms used in the fund’s name that 

suggest either an investment focus, or 

that the fund’s distributions are taxexempt, must be consistent with those 

terms’ plain English meaning or 

established industry use. 

• Form N–PORT Reporting 

Requirements. Consistent with the 

proposal, we are adopting amendments 

to Form N–PORT for funds to report the 

value of the fund’s 80% basket, and 

whether an investment is included in 

the fund’s 80% basket. In a change from 

the proposal, the final amendments also 

include a new reporting item to include 

the definition(s) of terms used in the 

fund’s name. Funds will have to report 

this information for the third month of 

every quarter, instead of for each month 

as proposed. 

• Recordkeeping. Consistent with the 

proposal (but with conforming changes 

to address the final rules’ approach to 

temporary departures from the 80% 

investment requirement), the final rules 

include recordkeeping provisions 

related to a fund’s compliance with the 

rule’s requirements. The final rules do 

not, however, include the proposed 

requirement for funds that do not adopt 

an 80% investment policy to maintain 

a record of their analysis that such a 

policy is not required. 

2. Other Aspects of the Proposal 

We are not taking action on the 

proposed approach regarding the use of 

ESG terms in the names of ESG 

‘‘integration funds’’ at this time. Under 

the proposed approach, the names of 

ESG ‘‘integration funds’’ would have 

been defined as materially deceptive 

and misleading if the name includes 

terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors.50 Under the proposal, 

integration funds were described as 

funds that consider one or more ESG 

factors alongside other, non-ESG factors 

in the fund’s investment decisions, but 

those ESG factors are generally no more 

significant than other factors in the 

investment selection process, such that 

ESG factors may not be determinative in 

deciding to include or exclude any 

particular investment in the portfolio. 

Such funds may select investments 

because those investments would meet 

other criteria applied by the fund’s 

adviser (e.g., investments selected on 

the basis of macroeconomic trends or 

company-specific factors like price-toearnings ratio). This description of 

integration funds in the names rule 

proposal mirrored the definition of an 

integration fund in the Commission’s 

ESG Disclosure Proposal.51

The proposed approach to integration 

funds in the names rule was designed to 

target misleading fund names by making 

clear that it would be materially 

misleading for a fund for which ESG 

factors are generally no more significant 

than other factors in the investment 

selection process to include ESG 

terminology in its name. The proposed 

approach would have addressed the 

Commission’s concern that such funds 

have the potential to overstate the 

importance of ESG factors in the fund’s 

investment selection process.52

Commenters offered mixed feedback 

on the names rule’s proposed approach 

to integration fund names. Some 

commenters that supported the 

proposed approach stated that it would 

help prevent investors from believing 

that ESG factors play a more significant 

role than they actually do in the 

investment process—i.e., protect 

investors from greenwashing.53 Other 

commenters, however, questioned the 

Commission’s proposed approach, 

stating that the proposed approach 

could act as a disservice to investors 

because, for example, it could result in 

investors believing that integration 

funds do not consider ESG factors when 

they actually do, or that the proposed 

approach could hinder innovation.54

Because the proposed provision in the 

names rule mirrored the separate 

proposed definition of an integration 

fund in the ESG Disclosure Proposal, we 

are continuing to consider comments 

and are not adopting the proposed 

approach to integration fund names at 

this time. As discussed above, however, 

the final amendments’ expanded scope 

of the 80% investment policy 

requirement includes fund names with 

terms suggesting that the fund focuses 

in investments that have, or investments 

whose issuers have, particular 

characteristics—including terms 


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55See supra section I.C.1; see also final rule 35d– 

1(a)(2). 

56As used in this release, consistent with rule 

35d–1(a)(2), ‘‘investment focus’’ means a focus in a 

particular type of investment or investments, a 

particular industry or group of industries, particular 

countries or geographic regions, or investments that 

have, or whose issuers have, particular 

characteristics. 

57See Proposing Release, supra footnote 2, at n.5 

and accompanying text. 

58See, e.g., Consumer Federation of America 

Comment Letter; Center for American Progress 

Comment Letter; NASAA Comment Letter; see also 

Proposing Release, supra footnote 2, at n.23 and 

accompanying text (discussing that the Commission 

has historically taken the position that fund names 

that incorporate terms that connote an investment 

objective, strategy, or policy are not within the 

scope of the 80% investment policy requirement). 

59See, e.g., NASAA Comment Letter; Comment 

Letter of Principles for Responsible Investment 

(Aug. 16, 2022); (‘‘PRI Comment Letter’’); Comment 

Letter of Soundboard Governance (Aug. 16, 2022) 

(‘‘Soundboard Governance Comment Letter’’) 

(focusing particularly on the inclusion of ESGrelated terms in the proposed scope expansion). 

60See, e.g., Consumer Federation of America 

Comment Letter; Center for American Progress 

Comment Letter. 

61See NASAA Comment Letter; Better Markets 

Comment Letter; Consumer Federation of America 

Comment Letter. 

62See, e.g., Comment Letter of Sierra Club (Aug. 

16, 2022) (‘‘Sierra Club Comment Letter’’); Better 

Markets Comment Letter; Evergreen Action 

Comment Letter. 

63See NASAA Comment Letter (expressing that 

funds with names that suggest a focus on ‘‘trendy’’ 

thematic areas in particular should be required to 

adopt an 80% investment policy and stating that 

investors, funds, and regulators would ‘‘be well 

served by greater clarity’’ on whether the proposed 

expansion would thematic fund names); see also 

Comment Letter of Seward & Kissel LLP (Aug. 16, 

2022) (‘‘Seward & Kissel Comment Letter’’) (stating 

that that the tension between words suggesting a 

‘‘type of investment’’ versus those suggesting an 

‘‘investment strategy’’ has resulted in the [names 

rule] being inconsistently applied, especially with 

respect to funds using thematic strategies.’’). 

64See, e.g., Comment Letter of Stradley Ronon 

(Aug. 16, 2022) (‘‘Stradley Comment Letter’’); 

SIFMA AMG Comment Letter; TIAA-Nuveen 

Comment Letter; Comment Letter of Calamos 

Investments (Aug. 16, 2022) (‘‘Calamos Comment 

Letter’’). 

65See, e.g., Calamos Comment Letter; Invesco 

Comment Letter; Comment Letter of Federated 

Hermes, Inc. (Aug. 16, 2022) (‘‘Federated Hermes 

Comment Letter’’); MFS Comment Letter; Comment 

Letter of Nationwide Funds Group (Aug. 16, 2022) 

(‘‘Nationwide Comment Letter’’); Robertson-Fisch 

Comment Letter (discussing these points in the 

context of ESG funds); T. Rowe Comment Letter; see 

also PRI Comment Letter (supporting the proposed 

scope expansion, but requesting that the 

Commission provide a definition of 

‘‘characteristics’’ in the proposed language 

expanding the scope). 

66See, e.g., MFS Comment Letter; ICI Comment 

Letter; Capital Group Comment Letter; Cato 

Institute Comment Letter. 

67See SIFMA AMG Comment Letter; ICI 

Comment Letter (comparing the uniformity of an 

80% investment policy for funds with ‘‘equity’’ in 

their name to the potential inconsistency in 80% 

investment policies for funds with ‘‘growth’’ in 

their name). 

68See, e.g., MFS Comment Letter; Capital Group 

Comment Letter; Cato Institute Comment Letter. 

69See, e.g., Comment Letter of WisdomTree Asset 

Management (Aug. 16, 2022) (‘‘WisdomTree 

Comment Letter’’); SIFMA AMG Comment Letter; 

Invesco Comment Letter; Dechert Comment Letter. 

Commenters also pointed to the lack of enforcement 

cases charging rule 35d–1 or shareholder suits in 

indicating that the fund’s investment 

decisions incorporate one or more ESG 

factors.55

II. Discussion 

A. 80% Investment Policy Requirement 

1. Names Suggesting an Investment 

Focus 

Consistent with the proposal, we are 

adopting amendments that broaden the 

scope of the names rule’s 80% 

investment policy requirement to apply 

also to fund names that include terms 

suggesting that the fund focuses in 

investments that have, or whose issuers 

have, particular characteristics.56 These 

amendments will apply in addition to 

the existing 80% investment policy 

requirement for funds whose name 

suggests a focus in a particular type of 

investment, industry, country, or 

geographic region, or those whose name 

suggests certain tax treatment. The 

purpose of the names rule is to prevent 

fund names from misrepresenting the 

fund’s investments and risks.57 The 

expanded scope of the final 

amendments furthers this objective by 

ensuring that a fund’s investment 

activity is consistent with the 

investment focus its name 

communicates. 

a) General Discussion 

The Commission proposed to expand 

the 80% investment policy requirement 

to apply to fund names that include 

terms suggesting that the fund focuses 

in investments that have, or whose 

issuers have, particular characteristics, 

whether or not such terms connote an 

investment strategy. In response to the 

proposal, commenters expressed that 

the names rule, as currently constituted, 

fails to capture a large segment of funds 

because the rule makes a distinction 

between terms that reference a type of 

investment and an investment 

strategy.58 These commenters supported 

the proposed scope expansion, asserting 

that terms in fund names that reference 

an investment strategy often 

communicate to investors an investment 

focus, thus creating a reasonable 

expectation among investors that the 

fund will hold investments that support 

that focus.59 These commenters 

suggested that expanding the scope of 

the rule to include any term in a fund’s 

name that communicates an investment 

focus, whether or not that term 

references an investment strategy, is 

necessary to modernize the rule and is 

a logical step to help ensure that 

investment companies cannot 

circumvent the intent of the rule when 

naming funds.60 Some commenters also 

asserted that the proposed expansion of 

the scope would bring more ‘‘discipline 

and clarity’’ to fund naming practices 

and, in turn, help investors make more 

informed investment decisions.61 In 

particular, many commenters asserted 

that the expanded scope would improve 

the ability of investors to discern 

between funds in the ESG investment 

industry and better protect investors 

looking for exposure to ESG 

investments.62 In addition, one 

commenter suggested that the 

Commission provide more clarity on 

whether the expanded scope would 

cover names suggesting a focus on 

‘‘thematic’’ areas.’’ 63

In contrast, many commenters 

objected to the proposal because, in 

their view, the expansion of the 80% 

investment policy requirement would 

lead to interpretive challenges and 

added compliance costs for fund 

advisers without providing 

commensurate benefit to investors.64 In 

particular, they stated that the expanded 

scope incorporates a vague standard that 

is more subjective than the current 

scope of the names rule which, in 

contrast with the proposal, they 

believed applies a more objective and 

intuitive framework that sufficiently 

ensures that fund assets are invested in 

accordance with reasonable 

expectations based on a fund’s name.65

They questioned whether the names 

included in the expanded scope 

effectively communicate any real 

investment focus to investors, absent 

further information about a fund’s 

objectives.66 Because these names are 

vague, they asserted, investors would 

still need to review a fund’s disclosures 

to understand how the investment 

strategy is executed for these newly 

included terms, limiting the value of the 

rule.67 These commenters contended 

that the proposed expansion of the 80% 

investment policy requirement has 

limited investor protection benefits 

because it overemphasizes the 

importance of a fund’s name, and thus 

disincentivizes investors from looking 

beyond the name to review information 

in fund prospectuses and related 

disclosures.68 In addition, several 

commenters questioned whether the 

Commission adequately articulated how 

terms that would be included in the 

proposed scope have led to investor 

confusion, deception, or harm such that 

they should be subject to the rule.69


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this area as a reason to not expand the scope. See, 

e.g., Nationwide Comment Letter; Capital Group 

Comment Letter; ICI Comment Letter IV. 

70See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; Invesco Comment Letter; Dechert 

Comment Letter; Comment Letter of Fidelity 

Management & Research Company LLC (Aug. 16, 

2022) (‘‘Fidelity Comment Letter’’); Ceres Comment 

Letter. 

71See, e.g., ICI Comment Letter; T. Rowe 

Comment Letter; SIFMA AMG Comment Letter; 

Invesco Comment Letter. Scalable and automatic 

compliance monitoring systems typically rely on 

third-party data providers to tag investments but 

such providers could vary their classification of 

investments and may not use the same 

classification as the fund. See, e.g., Comment Letter 

of Freeman Capital Management (July 24, 2022) 

(‘‘Freeman Capital Management Comment Letter’’); 

Invesco Comment Letter; T. Rowe Comment Letter. 

72See, e.g., Dechert Comment Letter; Invesco 

Comment Letter; TIAA-Nuveen Comment Letter; 

J.P. Morgan Asset Management Comment Letter; T. 

Rowe Comment Letter; Wellington Comment Letter; 

ICI Comment Letter; Invesco Comment Letter; 

Freeman Capital Management Comment Letter. 

73See, e.g., SIFMA AMG Comment Letter; 

Fidelity Comment Letter; J.P. Morgan Asset 

Management Comment Letter; Stradley Comment 

Letter (stating that ‘‘‘equity’ and ‘fixed income’ 

investments do not change their categorization due 

to market declines, cycles or volatility, as compared 

to a value stock, that, if subjected to only objective 

criteria, can and does migrate from one category to 

another’’). 

74See, e.g., ICI Comment Letter; Federated 

Hermes Comment Letter; J.P. Morgan Asset 

Management Comment Letter. 

75See, e.g., Dechert Comment Letter; ICI 

Comment Letter (asserting that the proposed 

amendments could also incentivize longer, more 

complex fund names that seek to capture the full 

range of investments reflected in a fund’s 

investment strategy). 

76See, e.g., ICI Comment Letter; Dechert 

Comment Letter; T. Rowe Comment Letter. 

77See, e.g., Fidelity Comment Letter; Nationwide 

Comment Letter; Stradley Comment Letter. 

78See, e.g., Wellington Comment Letter; MFS 

Comment Letter; ICI Comment Letter. 

79See Stradley Comment Letter; SIFMA AMG 

Comment Letter. 

80See, e.g., Wellington Comment Letter; 

Nationwide Comment Letter; Stradley Comment 

Letter. 

81See, e.g., ICI Comment Letter; Invesco 

Comment Letter; Federated Hermes Comment 

Letter; Dechert Comment Letter; TIAA-Nuveen 

Comment Letter; see also Calamos Comment Letter 

(asserting that, if the expanded scope is adopted, 

the Commission should consider excluding existing 

funds from the rule’s requirements because 

compliance may be costly and have unanticipated 

effects for existing funds that are not currently 

subject to the rule). 

82SIFMA AMG Comment Letter; Invesco 

Comment Letter; Comment Letter of Calvert 

Research and Management (Aug. 16, 2022) (‘‘Calvert 

Comment Letter’’); CFA Institute Comment Letter 

(recommending that when a fund’s name suggests 

an investment focus, the investment focus must be 

consistent with the key factors in the principal 

investment strategies that are disclosed in the 

fund’s registration statement). See also ICI 

Comment Letter IV (asserting that the proposed 

amendments are unnecessary because existing 

prospectus disclosure requirements and other 

regulatory obligations, such as rules 482 and 156 

under the Securities Act of 1933 and FINRA Rule 

2210, provide a sufficient framework to ensure that 

fund communications are clear and not misleading). 

83See SIFMA AMG Comment Letter; Dechert 

Comment Letter; T. Rowe Comment Letter. 

84See, e.g., Stradley Comment Letter; TIAANuveen Comment Letter; Cato Institute Comment 

Letter. 

85See infra sections II.A.1.d) and II.D. 

Commenters also suggested that this 

vagueness would result in the costs of 

implementation of the proposed 

amendments being high relative to what 

they stated would be minimal value to 

investors. Commenters stated that 

interpretive issues relating to the 

proposed scope’s vagueness would 

result in a number of adverse 

consequences, including inconsistent 

application of the 80% investment 

policy requirement, uncertainty in 

determining whether a term suggests a 

particular investment focus, and, where 

a fund has adopted an 80% investment 

policy, whether a particular investment 

is consistent with that policy.70

Commenters also suggested that it 

would be challenging to establish 

automated compliance monitoring 

solutions for terms in fund names where 

subjective criteria are part of the 

decision-making process.71 As a result, 

commenters expressed that funds would 

need either to require portfolio 

managers to adhere to specific rigid 

criteria, stifling innovative investment 

strategies, or to engage in some level of 

manual review, significantly increasing 

the complexity and compliance burdens 

for funds.72 Commenters also raised 

concerns that, for funds that would be 

within the scope of the 80% investment 

policy requirement, a portfolio 

manager’s expectations with respect to 

investments that would qualify for 

inclusion in the 80% basket may 

ultimately prove wrong or change over 

time, which could make compliance 

with the names rule challenging.73

Relatedly, commenters expressed the 

concern that the expanded scope could 

lead to retroactive second-guessing of 

portfolio managers’ designations of 

investments by Commission staff.74 To 

avoid these implementation problems, 

commenters suggested funds may use 

broader, more generic names that 

convey less information to investors in 

order to avoid adopting an 80% 

investment policy.75

Many commenters expressed 

particular concern with the inclusion of 

the terms ‘‘growth’’ and ‘‘value’’ in the 

proposed scope.76 Commenters asserted 

that there are no precise definitions or 

standardized criteria used to classify 

these types of investments.77 Rather, 

commenters expressed that portfolio 

managers have unique qualitative and 

quantitative criteria that they evaluate 

when selecting growth or value 

investments, some of which rely on 

more subjective determinations that 

may vary among portfolio managers.78 A 

few commenters suggested that 

investors invest in certain growth or 

value funds because they believe in a 

manager’s unique analysis and 

conclusions for selecting investments.79

Some commenters expressed that 

requiring growth or value funds to 

define terms in their name and disclose 

the criteria used to select investments 

would lead to more rigidity in 

investment selection, resulting in less 

flexibility for managers to implement 

investment strategies that traditionally 

have been managed with more 

nuance.80

To avoid these interpretative 

challenges and compliance burdens, a 

number of commenters suggested 

narrowing the scope of the final rule to 

that of the current rule or to exclude 

terms that do not readily reduce to 

measurable characteristics, and for 

which evaluations, opinions, and views 

reasonably may vary.81 Separately, some 

commenters urged the Commission to 

require enhanced disclosure in a fund’s 

registration statement when its name 

indicates an investment strategy, rather 

than expanding the scope to mandate an 

80% investment policy for these 

funds.82 Several commenters expressed 

that investor access to disclosures and 

information about funds is widespread 

and easily accessible, making an 

investor’s need to rely on a fund name 

to evaluate the fund’s strategy less 

necessary than when the Commission 

adopted the names rule.83

After considering comments, we are 

adopting, substantially as proposed, 

amendments that expand the rule’s 80% 

investment policy requirement to apply 

to any fund with terms in its name that 

suggest that the fund focuses in 

investments that have, or investments 

whose issuers have, particular 

characteristics. We recognize that some 

commenters expressed concerns about 

perceived vagueness associated with the 

‘‘particular characteristics’’ language in 

the proposed rule.84 The amended rule 

provides, as proposed, an illustrative 

parenthetical that is designed to give 

non-exclusive examples of terms that 

suggest that the fund focuses in 

investments that have, or whose issuers 

have, particular characteristics. The 

parenthetical provides as examples the 

terms ‘‘growth’’ or ‘‘value,’’ or terms 

indicating that the fund’s investment 

decisions incorporate one or more ESG 

factors.85 We are not defining the term 

‘‘particular characteristics’’ in the rule, 

as suggested by a commenter, because 

we believe that this term will be 


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86See supra footnote 65. 

87See infra at footnote 494 and accompanying 

text (asserting that the lack of Commission 

enforcement actions citing section 35(d) of the Act 

is evidence that the general framework of the rule 

is effective, not that further enhancements to the 

rule are unnecessary). 

88For example, funds have increasingly chosen 

names that include terms that reference popular 

industry themes, business sectors, or investment 

strategies. See supra footnote 33 and accompanying 

text (discussing the increase in filings over the last 

few years by funds with names that reference 

popular industry themes and business sectors, 

providing some evidence that investors are attracted 

to these fund names). See also supra footnote 36 

(suggesting that ESG terminology in fund names is 

effective in attracting inflows). 

89See NASAA Comment Letter; Consumer 

Federation of America Comment Letter; PIABA 

Comment Letter. 

90See supra footnote 33 and accompanying text. 

91 In cases where certain terms that suggest a 

focus in a type of industry have been coupled with 

the word ‘‘strategy,’’ some funds have argued that 

the name suggests a focus in an investment strategy 

and not a type of investment, and therefore should 

not be within the scope of the 80% investment 

policy requirement. As discussed above, the 

expansion of the scope of the 80% investment 

policy requirement includes terms suggesting that 

the fund focuses in investments that have, or whose 

issuers have, particular characteristics, whether or 

not such terms connote an investment strategy. 

adequately understood to mean any 

feature, quality, or attribute.86 We are 

adopting this approach, rather than an 

approach that provides an enumerated 

list of terms included in the expanded 

scope, in light of the broad diversity of 

fund investment strategies and fund 

names, and to ensure that the rule 

remains evergreen. Based on our 

understanding of the fund industry and 

current practice, however, we anticipate 

that the primary types of names that the 

expanded scope will cover will be 

names that include the terms ‘‘growth’’ 

and ‘‘value,’’ terms with ESG- or 

sustainability-related characteristics, or 

terms that reference a thematic 

investment focus. 

We recognize that many commenters 

opposed expanding the scope of the 

rule, and the inclusion of terms such as 

‘‘growth’’ and ‘‘value’’ in particular. 

While we appreciate these commenters’ 

concerns, it is important to balance 

these concerns with the investor 

protection goals that underlie the names 

rule and section 35(d) of the Investment 

Company Act. Although there have been 

limited Commission enforcement cases 

citing section 35(d) of the Act, 

Commission and staff’s experience with 

the names rule over the past two 

decades and developments in the fund 

industry during this time period, 

including the increase in fund assets 

under management and the proliferation 

of diverse fund strategies, lead us to 

modernize and enhance the names rule 

to further the investor protection goals 

of section 35(d).87

We are adopting amendments that do 

not distinguish between a type of 

investment and an investment strategy 

because a fund name might connote a 

particular investment focus and result 

in reasonable investor expectations 

regardless of whether the fund’s name 

describes a strategy as opposed to a type 

of investment. We understand that 

funds typically include certain terms in 

their name to communicate an 

investment focus and to appeal to 

investors choosing among available 

investment options.88 As some 

commenters believed, the names 

included in the expanded scope can 

serve as the initial bases upon which 

investors make investment decisions 

and create reasonable expectations that 

funds that use those terms will focus on 

investments and issuers that have the 

specified characteristics that a fund’s 

name suggests.89 For example, terms 

like ‘‘growth’’ and ‘‘value’’ create 

reasonable expectations among 

investors that funds with those terms in 

their name will invest predominantly in 

companies that exhibit ‘‘growth’’ or 

‘‘value’’ characteristics. By expanding 

the scope of the 80% investment 

requirement to include these names, the 

final amendments will help ensure that 

these types of funds have portfolios that 

reflect the investment focus their name 

suggests. Further, the expanded scope in 

the final amendments will reduce the 

existing inconsistencies in the 

application of the rule by eliminating 

the need for fund managers to determine 

whether their name references a type of 

investment or an investment strategy. 

The Commission staff has observed an 

increase in filings by funds that use 

‘‘thematic’’ terms in their name.90 We 

understand that fund managers and 

others would consider certain of these 

thematic names to be included in the 

current scope of the names rule. For 

instance, certain terms may be viewed 

as clearly suggesting a focus in a type of 

industry or group of industries (e.g., 

terms suggesting a focus in 

cybersecurity, health and wellness, or 

travel and tourism).91 There could be 

reasonable questions, however, about 

whether other thematic terms suggest a 

focus in a particular type of investment, 

or in investments in a particular 

industry or group of industries. This 

could occur, for example, because a 

thematic term may be narrower or more 

expansive than an ‘‘industry’’ may be 

commonly understood (e.g., drones, 

‘‘smart cities,’’ metaverse, ‘‘big data’’). 

And there are certain thematic terms 

that we believe most practitioners 

would not consider to suggest a focus in 

a type of investment, or a focus in a 

particular industry or group of 

industries (e.g., terms suggesting 

demographic characteristics such as 

‘‘millennial’’ or ‘‘Gen Z,’’ or political, 

economic, or historical themes such as 

‘‘biothreat,’’ ‘‘gig economy,’’ ‘‘meme 

stocks,’’ or ‘‘post-Corona’’). The effect of 

the scope of the final amendments is 

that, to the extent a fund uses a term in 

its name that suggests an investment 

focus, including any term that 

references a thematic investment focus, 

the fund will be required to adopt an 

80% investment policy, which in turn 

will help ensure it will invest in 

accordance with the investment focus 

its name suggests. 

We understand that certain terms 

used in fund names may have more 

objective or standardized criteria than 

other terms. For instance the term 

‘‘equity’’ generally has a more 

standardized definition, whether based 

on plain English principles or 

established industry use, compared to 

terms like ‘‘growth’’ and ‘‘value.’’ 

However, not all names that fall within 

the scope of the current rule have 

precise definitions or standardized, 

objective criteria. For instance, for fund 

names that reference a particular region 

or country, it is often not immediately 

apparent based on the terms in a fund’s 

name whether the fund invests in 

issuers that are domiciled in the specific 

region, have a large presence in the 

region, or have some other nexus to the 

region. An investor may generally 

understand what constitutes ‘‘Latin 

America,’’ and seek out a ‘‘Latin 

American’’ fund, but different portfolio 

managers may apply different 

definitions of what specifically ‘‘Latin 

America’’ means in practice for their 

fund because definitions of ‘‘Latin 

America,’’ using plain English or 

industry use of the term, can reasonably 

differ. 

This variation is evident based on the 

principal investment strategies 

disclosed in fund prospectuses. For 

example, a ‘‘Latin America’’ fund 

offered by one adviser has an 80% 

investment policy to invest in securities 

of issuers that derive at least 50% of 

revenue from Latin American markets 

(defined to include Spanish-speaking 

islands in the Caribbean), without 

consideration of the issuers’ domicile, 

headquarters, or primary trading market. 

In contrast, another ‘‘Latin America’’ 

fund managed by a different adviser has 

a policy to invest at least 80% in 

securities of issuers that are domiciled 

in Latin America (defined to exclude 

Mexico and Caribbean islands), that 

derive significant revenues from Latin 

America, or the securities trade on 


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92See infra section II.C. This flexibility also 

means a fund would not be required to include 

proprietary information in its 80% investment 

policy. See Stradley Comment Letter (asserting that 

providing meaningful distinctions among funds 

may require over-disclosing the criteria used to 

select investments, which investment advisers may 

be hesitant to provide to avoid giving away 

proprietary information). 

93As a result of this flexibility, we disagree with 

commenters that asserted that the expanded scope 

would effectively penalize funds that invest in a 

security that initially displays particular 

characteristics but where those characteristics 

evolve over time. See supra footnote 73. However, 

to the extent that a fund identifies as part of the 

final rule’s quarterly review requirement that the 

characteristics of an existing investment in the 

fund’s portfolio are inconsistent with the fund’s 

80% investment policy as a result of, for example, 

market declines, cycles, or volatility, the fund must 

address this in accordance with the rule’s 

requirements for temporary departures from the 

80% investment requirement. See infra footnote 

185 and accompanying paragraph; see also section 

II.E.1. 

94See also infra paragraph accompanying 

footnotes 153–154; infra paragraph accompanying 

footnotes 357–358. 

95See infra sections IV and V. 

96See infra section II.A.2. 

97See infra section IV.D.2. 

98See infra section II.A.2.a) (discussing 

compliance monitoring and portfolio investment 

assessment and re-assessment requirements under 

the final amendments and how these requirements 

compare to current names rule requirements). 

99See infra sections II.B and II.E. 100See supra footnote 9. 101See supra footnote 7. 102See, e.g., ICI Comment Letter; Stradley 

Comment Letter; Seward & Kissel Comment Letter. 103 ICI Comment Letter I; see also ICI Comment 

Letter IV (asserting that ‘‘the Commission lacks 

authority to adopt the [proposed amendments] 

under [section 35(d)]’’ because the proposed 

amendments are ‘‘too vague and ambiguous,’’ and 

do not satisfy the ‘‘materiality’’ requirement in 

section 35(d)). 

exchanges located in Latin America. 

Each of these examples is consistent 

with the plain English or industry use 

of the term and demonstrates the 

flexibility the final amendments will 

provide to fund managers in developing 

definitions of the terms used in a fund’s 

name. Moreover, given the proliferation 

of the diversity of fund investment 

strategies and fund names since the rule 

was originally adopted, retaining the 

current rule’s scope or excluding terms 

that do not always neatly reduce to 

measurable characteristics, as suggested 

by commenters, would undermine the 

investor protection purposes of the rule. 

The final rule also is not as rigid as 

many commenters seem to contend 

when, for example, they suggested that 

a rule that requires pre-determined 

definitions of certain terms could lead 

to retroactive second-guessing by 

Commission staff and result in funds 

adopting more generic names or could 

create incentives for longer, more 

complex names. The amended rule 

provides fund managers with flexibility 

to ascribe reasonable definitions for the 

terms used in a fund’s name and 

flexibility to determine the specific 

criteria the fund uses to select the 

investments that the term describes.92

We understand that different funds and 

various third-party data providers may 

use different definitions for the same 

term in order to best reflect a particular 

investment strategy. The amended rule 

is designed for funds to retain 

reasonable discretion in establishing 

their 80% investment policies, which 

allows funds to implement nuanced and 

innovative investment strategies.93 We 

also appreciate, for many terms, there 

will be various reasonable means of 

implementing an 80% investment 

policy that incorporates a definition or 

understanding of terminology that 

differs from another fund whose name 

incorporates the same terminology. For 

example, different funds may have 

‘‘growth’’ in their name, and each of 

these funds may have portfolio 

managers who have different 

approaches to selecting investments that 

have growth characteristics. In such 

circumstances, two funds would 

naturally have different policies that 

reflect their portfolio managers’ distinct 

approaches to growth investing. In this 

example, each of these funds would 

describe to investors how it defines 

‘‘growth,’’ provided the definitions are 

consistent with the term’s plain English 

meaning or established industry use, 

and then invest 80% of their 

investments in accordance with their 

description.94

In addition, we understand that the 

expansion of the rule’s scope will 

involve operational costs for many 

funds, particularly those that are not 

currently subject to the rule.95 In a 

modification from the proposal, 

however, the amended rule will no 

longer require a fund to re-assess its 

portfolio investments continuously to 

determine compliance with its 80% 

investment policy, but will instead 

require reassessment of each portfolio 

investment on an at-least quarterly 

basis.96 This modification will address 

concerns commenters raised related to 

cost burdens associated with the 

proposed scope expansion, to the extent 

that those concerns largely related to the 

costs of continuous monitoring and 

assessment of a fund’s 80% investment 

policy.97 Moreover, considering that not 

all terms that fall within the scope of the 

current rule have standardized and 

objective definitions (e.g., ‘‘Latin 

America’’ funds as discussed above), 

existing compliance monitoring for 

these funds likely necessitates some 

form of manual review to ensure that 

investments are consistent with the 

manner in which the fund defines a 

given term. The assessment that funds 

would have to undertake to ensure that 

portfolio investments are consistent 

with their 80% investment policies 

under the final rules would entail this 

same aspect of current fund practices.98

The final amendments’ approach, 

which combines an expanded 80% 

investment policy requirement with 

additional disclosure and reporting 

requirements, reflects that certain terms 

used in a fund’s name can 

simultaneously communicate an 

investment focus while also reflecting 

nuance that should be further discerned 

after reviewing the fund’s prospectus 

disclosure.99 The Commission has 

historically encouraged investors to look 

beyond a fund’s name and to review a 

fund’s underlying disclosures to gather 

information about the fund’s investment 

activity and objectives, and we continue 

to encourage this.100 We understand 

that such disclosures are easily 

accessible for most investors and that 

the current regulatory framework is 

designed to help ensure that fund 

disclosures, marketing materials, and 

other communications are clear, 

informative, and not misleading. We 

agree, however, with commenters who 

stated that, despite this accessibility, 

fund names can play a critical role in 

investment decisions. Congress 

provided the Commission with 

rulemaking authority to address 

materially deceptive or misleading fund 

names, recognizing the concern that 

investors may focus on a fund’s name 

and what it communicates about the 

fund’s investments and risks despite the 

information included in fund 

prospectuses and related disclosures.101

Accordingly, the final amendments 

require funds that use terms that 

communicate an investment focus to 

adopt an 80% investment policy, in 

furtherance of the investor protection 

objectives of the names rule, to provide 

greater assurance that a fund’s 

investments will be consistent with its 

name. 

Separately, a few commenters 

questioned the Commission’s authority 

to adopt the proposed amendments 

under section 35(d) of the Investment 

Company Act.102 For instance, one 

commenter asserted that the 

Commission lacks authority to adopt the 

amendments, as ‘‘[t]here is a significant 

difference between a name based on 

investors’ reasonable expectations and a 

name that is materially deceptive or 

misleading.’’ 103 Another commenter 

suggested that neither the current rule 

nor the proposed amendments are 


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104Seward & Kissel Comment Letter (stating that 

‘‘[w]e think the appropriate reading of Section 35(d) 

is that . . . funds subject to the prohibitions of the 

statute (and any regulations adopted thereunder) 

could provide, through the notice and comment 

process, comments on the specific ‘‘word or words’’ 

proposed by the Commission to be deemed 

materially deceptive or misleading’’). 

105SIFMA AMG Comment Letter; see also 

Calamos Comment Letter. 

106 2001 Names Rule Adopting Release, supra 

footnote 8, at section I. 

107See id. at text proceeding footnote 3. 

108S. Rep. No. 293, 104th Cong., 2d Sess. 8–9 

(1996) (‘‘Enforcing the Act entails a cumbersome 

process—the Commission must first find, and 

declare by order, that a fund’s name is deceptive or 

misleading, and then bring an action in federal 

court to enjoin the use of the name’’). 

109 15 U.S.C. 80a–34(d). 

110 Id. (emphasis added); see also 80a–34(a) & (b) 

(making it unlawful for certain persons to 

‘‘represent or imply’’ that a security is guaranteed 

or approved by the U.S. government or a bank, but 

not listing every specific statement that would do 

so). 

111See id. 

112See supra section I.B; see also, e.g., 

Environmental Defense Fund Comment Letter; 

Comment Letter of Sierra Club (Aug. 16, 2022) 

(‘‘Sierra Club Comment Letter’’); Ceres Comment 

Letter (all discussing the proposed amendments as 

within the Commission’s authority to define 

materially deceptive and misleading names under 

section 35(d) of the Act). 

113See supra footnote 33 and accompanying text. 

114 ICI Comment Letter IV. 

115See supra footnote 92 and accompanying text. 

116For similar reasons, we disagree with the 

commenter who asserted that certain proposed 

reporting requirements on Form N–PORT violate 

the First Amendment. ICI Comment Letter IV. These 

requirements do not require reporting of ‘‘subjective 

information on which investment managers may 

appropriately disagree,’’ (id.) but instead provide 

important information to investors regarding 

whether and how a fund’s investments align with 

reasonable expectations created by the fund’s name 

and 80% investment policy. 

117See Proposing Release, supra footnote 2, at 

n.49 and accompanying text. 

118 Id. 

consistent with the authority that 

section 35(d) grants, as neither 

incorporates a finding by the 

Commission that a particular and 

identified word or words are materially 

deceptive or misleading.104 Lastly, one 

commenter asserted that the proposed 

amendments would have associated 

costs and burdens, and suggested that 

Congress did not intend for section 

35(d) to authorize the Commission to 

impose significant burdens that would 

have a material economic impact on 

funds and their investors.105

We disagree with the views expressed 

by these commenters. Congress, in 

enacting amended section 35(d) of the 

Act, reaffirmed its concern that 

investors may focus on a fund’s name to 

determine the fund’s investments and 

risks, and recognized that investor 

protection would be improved by giving 

the Commission rulemaking authority to 

define materially deceptive or 

misleading fund names.106 Before this 

amendment, the Commission was 

required to ‘‘declare by order that a 

particular name was misleading and, if 

necessary, obtain a federal court order 

prohibiting further use of the name.’’ 107

In light of this ‘‘cumbersome 

process,’’ 108 Congress gave the 

Commission the power to act by ‘‘rule, 

regulation, or order.’’ 109 Congress 

further gave the Commission the 

authority to ‘‘define such names or titles 

as are materially deceptive or 

misleading,’’ not ‘‘list’’ or another 

similar word, and whether any ‘‘word or 

words’’ are materially deceptive or 

misleading is a determination that 

necessarily is made with reference to 

additional facts and circumstances.110

Relying on this authority, the 

Commission in 2001 adopted the names 

rule to ‘‘address certain investment 

company names that are likely to 

mislead an investor about a company’s 

investment emphasis,’’ which would 

‘‘guard against the use of misleading 

investment company names,’’ ‘‘provide 

an investor greater assurance that the 

company’s investments will be 

consistent with its name,’’ and ‘‘reduce 

confusion.’’ 111 Similarly here, the 

Commission in adopting rule 

amendments is exercising its authority 

under section 35(d) to ‘‘define,’’ ‘‘by 

rule,’’ ‘‘such names or titles as are 

materially deceptive or misleading’’ and 

is doing so based on consideration of 

the broad public input the Commission 

has received on fund names, our 

analysis of this input, the Commission 

and staff’s experience with the names 

rule over the past two decades, and 

developments in the fund industry 

during this time period.112 In the years 

since the Commission has adopted the 

names rule, it has observed certain 

general trends—specifically as 

discussed above, a significant 

broadening of fund investment options 

currently available, the growth of fund 

assets in sector funds and thematic 

strategies, and a growth in investor 

interest in funds with ESG strategies— 

that have caused us to believe that 

targeted action in this area is 

necessary.113

Although we acknowledge that the 

final amendments may impose 

additional costs and burdens relative to 

the current rule, we have made changes 

to the proposed amendments that have 

the result of mitigating the burdens 

associated with the final amendments 

compared to the proposal. The costs and 

burdens associated with the final 

amendments are carefully considered by 

the Commission, and such costs and 

burdens are justified given the investor 

protection objectives that underlie 

section 35(d) and that would be 

achieved through the amendments. 

Further, another commenter asserted 

that application of the proposed 

amendments to terms that suggest 

investments with particular 

characteristics would violate the First 

Amendment, as this ‘‘operates as a 

restriction on funds’ ability to speak 

through their names.’’ 114 We disagree 

that this aspect of the amendments 

violates the First Amendment. As we 

have explained elsewhere in this 

release, as Congress recognized by 

adopting section 35(d), fund names can 

provide important information to 

investors regarding the nature of the 

fund and therefore the nature of their 

potential investment. And names that 

do not necessarily fall under the 

existing rule can create reasonable 

investor expectations by suggesting a 

particular investment focus. The 

amendments adopted today will help 

align fund names and investor 

expectations by applying the 80% 

requirement to all names that suggest a 

particular investment focus, reducing 

the extent to which funds can choose 

names that are materially misleading or 

deceptive. Rather than barring the use of 

any particular name, the amendment 

imposes certain requirements when the 

name a fund has selected communicates 

specific and important information 

about the fund. Further, the 

amendments allow funds the flexibility 

to ascribe reasonable definitions for the 

terms used in their names.115 The 

amendments are therefore appropriately 

tailored to serve Congress’s significant 

interest in preventing investors from 

being deceived or misled.116

b) Names That Do Not Suggest an 

Investment Focus 

The 2022 Proposal acknowledged that 

there would continue to be fund names 

that would not require the fund to adopt 

an 80% investment policy because the 

names would not connote an investment 

focus.117 In particular, the Commission 

stated that terms in a fund’s name that 

reference characteristics of the fund’s 

portfolio as a whole, such as a name 

indicating the fund seeks to achieve a 

certain portfolio ‘‘duration’’ or that the 

fund is ‘‘balanced,’’ would not require 

the fund to adopt an 80% investment 

policy.118 The Commission stated that 

in such cases a term may indicate a 

fund’s objectives without 

communicating to investors the specific 

type of investments, or the particular 

characteristics of investments, that the 


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119Regardless of whether a fund is required to 

adopt an 80% investment policy under the rule, a 

fund must, consistent with rule 38a-1, adopt and 

implement written policies and procedures 

reasonably designed to prevent violations of the 

Federal securities laws, which includes section 

35(d). Id. at n.50 and accompanying text. 

120See, e.g., J.P. Morgan Asset Management 

Comment Letter; Fidelity Comment Letter; ICI 

Comment Letter; SIFMA AMG Comment Letter. 

121See, e.g., TIAA-Nuveen Comment Letter; 

Calamos Comment Letter; T. Rowe Comment Letter; 

WisdomTree Comment Letter; ICI Comment Letter 

(stating that ‘‘[t]erms that could refer to either a 

particular investment or the portfolio as a whole are 

per se not misleading or deceptive because they do 

not create an affirmative impression in one way or 

another’’). 

122See Comment Letter of BlackRock, Inc. (Dec. 

19, 2022) (‘‘BlackRock Comment Letter’’); see also 

Robertson-Fisch Comment Letter (discussing ESG 

‘‘tilt’’ strategies). 

123See ICI Comment Letter; SIFMA AMG 

Comment Letter; Invesco Comment Letter. 

124See, e.g., Dechert Comment Letter; ICI 

Comment Letter; Invesco Comment Letter; Seward 

& Kissel Comment Letter. 

125See Dogwhistle Comment Letter; PIABA 

Comment Letter (also recommending that the rule 

prohibit the use of terms of well-known 

organizations, affinity groups, or the reference to a 

specific population of investors (e.g., ‘‘veterans’’ or 

‘‘municipal employees’’) in fund names). See also 

Consumer Federation of America Comment Letter 

(additionally recommending that the rule should 

prevent single-state tax exempt funds from 

investing substantially in securities issued by 

another municipality). The Commission did not 

propose amendments that addressed the scope of 

tax-exempt funds whose names require them to 

adopt an 80% investment policy, or the investments 

that would be included in a fund’s 80% basket 

under such policy, nor do the final amendments 

address these points. But see infra footnote 155. 

126See Better Markets Comment Letter. 

127A target date fund’s name communicates an 

investment approach to investors, but does not 

communicate the composition of the fund’s 

portfolio at any particular point in time, as the 

fund’s investments will change over time in 

accordance with the fund’s glide path. Similarly, 

‘‘sector rotation’’ funds seek to shift their portfolio 

in and out of sectors over time as the economy 

moves through the different phases of a business 

cycle. In each of these cases, an 80% investment 

policy would not be appropriate for the fund 

because the fund’s name connotes portfolio-wide 

asset allocation determinations that evolve 

continuously over time. 

128Similarly, funds that use terms in their name 

that indicate that the fund uses a negative or 

exclusionary screening process for investments 

(e.g., ‘‘fossil fuel-free’’) may not require an 80% 

investment policy because such terms generally 

provide insight into what is precluded from the 

fund’s portfolio, but these terms do not 

communicate to investors the particular investment 

focus of the fund’s portfolio. In any case, a fund 

with a name like ‘‘fossil fuel-free’’ that indicates the 

fund will not invest at all in fossil fuels in this 

example will be materially deceptive or misleading 

for purposes of section 35(d) if the fund invests in 

companies that are not fossil fuel-free as defined by 

the fund in its prospectus (e.g., issuers with fossil 

fuel reserves). 

129For instance, terms used in fund names that 

reference well-known organizations, affinity groups, 

or that reference a specific population of investors 

may not communicate the particular characteristics 

of investments composing the fund’s portfolio and 

therefore may not require an 80% investment policy 

under the amended rule. Such funds, however, will 

continue to be subject to section 35(d)’s prohibition 

on materially misleading or deceptive names. 

fund will acquire.119 Commenters 

generally agreed that such terms would 

not require an 80% investment policy 

under the proposal and that this 

treatment was appropriate.120

Many commenters, however, sought 

additional clarity on terms—such as 

‘‘growth’’ and ‘‘value’’—that 

commenters stated can reference either 

the characteristics of a fund’s 

investments or the intended result of a 

fund’s portfolio investments in the 

aggregate.121 One commenter focused in 

particular on ESG ‘‘uplift’’ funds, where 

the fund begins with a given universe of 

investments and does not add new 

investments to this universe but 

systematically over-or underweights 

investments within the given universe 

based on ESG criteria, with the objective 

of achieving a more favorable ESG 

profile at an aggregate fund level as 

compared to the benchmark or 

investment universe, within a specific 

tracking error target.122 The fund is 

investing on a relative basis at the 

portfolio level, rather than focusing its 

investment in companies that 

objectively exhibit strong ESG 

characteristics, and includes terms in 

the fund’s name intended to 

communicate this investment approach 

to investors (such as ESG ‘‘Aware’’). 

Commenters also expressed concern 

with the proposal’s discussion of 

maturity-related terms that describe 

certain bond funds’ holdings.123 These 

commenters agreed with the 

Commission that the term duration 

should not require an 80% investment 

policy because it refers to a portfoliowide analysis; however, they further 

asserted that terms like ‘‘intermediateterm (or similar) bond’’ are likewise 

used by funds and understood by 

investors similarly to refer to the 

portfolio’s duration (i.e., the portfolio’s 

sensitivity to interest rate changes). 

Commenters also suggested that terms 

like ‘‘global’’ and ‘‘international’’ should 

continue to be outside of the scope of 

the 80% investment policy requirement 

because these terms reference the 

portfolio as a whole.124

Conversely, several commenters urged 

that certain terms may not connote 

particular characteristics of a fund’s 

portfolio investments, but nonetheless 

should require an 80% investment 

policy when those terms clearly 

communicate that the fund is managed 

in a particular way (e.g., terms like 

‘‘balanced,’’ ‘‘hedged,’’ and ‘‘managed 

risk’’).125 Relatedly, one commenter 

suggested that the rule should explicitly 

subject funds with allocation 

designations in their name (e.g., 60/40 

Target Allocation Fund) to the 80% 

investment policy requirement.126

After considering comments, we 

continue to recognize that there are 

certain terms that do not communicate 

to investors the particular 

characteristics of investments that will 

make up the fund’s portfolio and for 

which an 80% investment policy will 

not be required. Such names include, 

for instance, names that suggest a 

portfolio-wide result to be achieved, 

such as ‘‘real return,’’ ‘‘balanced,’’ or 

‘‘managed risk,’’ names that reference a 

particular investment technique, such as 

‘‘long/short’’ or ‘‘hedged,’’ and names 

that reference asset allocation 

determinations that evolve over time, 

such as a retirement target date or 

‘‘sector rotation’’ funds.’’ 127 In each of 

these examples, the fund’s name 

communicates information to investors 

about the overall characteristics of the 

fund’s portfolio, rather than particular 

investments in the portfolio, and 

therefore will not necessitate an 80% 

investment policy under the amended 

rule. Likewise, terms like ‘‘intermediate 

term (or similar),’’ in describing a 

‘‘bond’’ fund, also will not require an 

80% investment policy under the final 

amendments in addition to the 80% 

investment policy that would be 

required due to the fund’s use of ‘‘bond’’ 

in its name in this example. We do not 

view these types of names as being 

distinct from names that describe 

portfolio-wide characteristics, such as 

names that describe portfolio duration. 

Additionally, names including the terms 

‘‘global’’ and ‘‘international,’’ without 

an additional term that suggests an 

investment focus such as ‘‘fixed 

income’’ or ‘‘growth,’’ will not require 

an 80% investment policy under the 

final rule. These terms describe a fund’s 

approach to constructing a portfolio, but 

do not communicate the composition of 

the fund’s portfolio with any 

particularity (unlike, say, ‘‘Japan’’ or 

‘‘Europe’’) and therefore on their own 

suggest no particular investment 

focus.128 Therefore, requiring such 

funds to adopt an 80% investment 

policy would produce fewer investor 

protection benefits relative to names 

that communicate to investors the 

particular characteristics of investments 

that will compose the fund’s portfolio. 

Names with terms that do not 

communicate the particular 

characteristics of investments 

composing the fund’s portfolio will 

continue to be subject to section 35(d)’s 

prohibition on materially misleading or 

deceptive names.129 Funds with these 

names likewise will continue to be 


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130 ICI Comment Letter. 

131BlackRock Comment Letter. 

132See generally for this discussion Proposing 

Release, supra footnote 2, at nn.51–52 and 

accompanying text. 

133See, e.g., SIFMA AMG Comment Letter; 

BlackRock Comment Letter; Seward & Kissel 

Comment Letter; WisdomTree Comment Letter. 

134See, e.g., ICI Comment Letter; Dechert 

Comment Letter; Minerva Comment Letter. 

135SIFMA AMG Comment Letter. 

136See SIFMA AMG Comment Letter; BlackRock 

Comment Letter. 

137See final rule 35d–1(a); see also infra section 

II.C. 

138The advent and growth of advanced 

technologies have made increasing use of natural 

language processing that can significantly enhance 

the scale and scope of text analytics. Funds may be 

able to use these types of technologies to aid a 

determination that a nexus exists between a given 

security and the focus that a fund’s name suggests 

that involves analysis going beyond the frequency 

with which a word or phrase appears in a 

document. 

subject to the anti-fraud provisions of 

the Federal securities laws regarding 

disclosures to investors. 

In response to commenters seeking 

additional clarity about the terms 

growth and value, we understand, based 

on staff review of fund disclosure, that 

it is not typical in current practice for 

growth and value funds to implement 

their strategies on a portfolio-wide basis, 

as opposed to a selection process based 

on the growth or value characteristics of 

the fund’s component portfolio 

investments. If terms in a fund’s name 

can reasonably be understood to 

reference either the characteristics of a 

fund’s individual investments or the 

intended result of a fund’s portfolio 

investments in the aggregate, the fund 

will be required to adopt an 80% 

investment policy, consistent with the 

proposal. We disagree with the 

commenter who asserted that such 

terms are per se not misleading.130 It 

would be confusing to investors if the 

same term in a fund’s name required an 

80% investment policy in some cases 

and not in others. In addition, the rule 

provides funds sufficient flexibility to 

design and implement an 80% 

investment policy in these 

circumstances. We do not agree that the 

ESG uplift strategies identified by one 

commenter require an 80% investment 

policy, however, because the particular 

strategies identified by the commenter 

are solely executed on a relative basis at 

the portfolio level, as described in more 

detail above, and include terms in the 

fund’s name associated with this 

investment strategy to signal this 

different approach to investors.131

c) Investments Included in a Fund’s 

80% Basket 

Regarding the application of the 

proposed amendments, the Commission 

stated in the 2022 Proposal that when 

determining whether a particular asset 

is invested in accordance with the 

investment focus that the fund’s name 

suggests (i.e., qualifies for inclusion in 

a fund’s 80% basket), there must be a 

meaningful nexus between the given 

investment and the investment focus 

suggested by the name.132 The 

Commission discussed that a fund may 

define the terms used in its name in a 

reasonable way, allowing for flexibility 

in determining whether a nexus exists 

between a given security and the focus 

the fund’s name suggests. For instance, 

the Commission stated it would be 

reasonable for a fund to determine a 

sufficient nexus between certain 

securities and a given industry if the 

securities are issued by companies that 

derive more than 50% of their revenue 

or income from, or own significant 

assets in, the industry. However, the 

Commission also explained that the use 

of text analytics to assign issuers to 

industries based on the frequency of 

particular terms in an issuer’s 

disclosures was not, in and of itself, 

sufficient to create a reasonable nexus. 

Commenters expressed that a 50% 

revenue test is not always the most 

appropriate way to determine whether a 

company is part of a given industry, 

particularly for new companies and 

nascent industries and business 

sectors.133 These commenters urged the 

Commission to clarify the 

reasonableness standard as it applies to 

designating investments in a fund’s 80% 

basket, urging that advisers need the 

flexibility to evaluate investments based 

on a totality of criteria beyond revenue 

tests. Some commenters asserted that 

funds with certain business or industryadjacent investment strategies face 

particular difficulties adopting an 80% 

investment policy because their 

investments often vary in terms of 

industries, capitalization ranges, 

revenue sources, asset classes, 

geographies, and other key 

characteristics, making it challenging to 

pinpoint confidently a reasonable nexus 

between the fund’s investments and the 

investment focus suggested by its 

name.134 Moreover, one commenter 

expressed particular concern with the 

proposal’s discussion of the processing 

of text analytics, suggesting that the tool 

is a useful method for facilitating 

forward-looking analysis of companies 

and industries.135 Separately, two 

commenters suggested that the 

Commission should permit fund 

managers to use forward-looking 

assessments or future-based 

methodologies to analyze investments 

when determining whether they fit in a 

given industry or sector, on the 

condition that such funds use a 

modifying indicator like ‘‘emergent’’ or 

‘‘future’’ in their names to signal to 

investors that their analysis of 

investments is not completely based on 

current characteristics of the issuer.136

We appreciate commenters’ concerns 

regarding potential challenges in 

determining whether a particular asset 

is invested in accordance with the 

investment focus that the fund’s name 

suggests, particularly with respect to 

thematic investment strategies. 

Consistent with the 2022 Proposal, the 

plain English and established industry 

use requirements in the final 

amendments are intended to provide 

flexibility for funds to determine what 

qualifies as a reasonable nexus between 

a security and a given investment 

focus.137 Similar to the Commission’s 

discussion in the Proposing Release 

regarding the application of the final 

amendments, it would generally be 

reasonable for a fund to determine that 

a sufficient nexus exists between certain 

securities and a given industry if the 

securities are issued by companies that 

derive more than 50% of their revenue 

or income from, or own significant 

assets in, the industry. There also may 

be instances where the percentage could 

be smaller, such as where a large 

company is a dominant firm in a given 

industry (e.g., the firm is an 

acknowledged leader in the industry). 

Further, the use of text analytics to 

assign issuers to industries based on the 

frequency of particular terms in an 

issuer’s disclosures is not, in and of 

itself, sufficient to create a reasonable 

nexus because it is not reasonable to 

conclude that an issuer is in a given 

industry solely because the issuer’s 

disclosure documents frequently 

include words associated with the 

industry.138 These examples are not 

meant to serve as an exhaustive list of 

acceptable methods of qualification in a 

fund’s 80% basket. Given the breadth of 

fund names and strategies, it is not 

possible to provide an enumerated list 

of circumstances in which a nexus 

exists between a security and an 

industry or a particular investment 

focus. 

Further, as raised by commenters, 

advisers may offer funds with strategies 

that seek exposure to long-term 

investment opportunities or that seek to 

identify issuers that are likely to 

generate significant amounts of revenue 

from certain industries or business 

sectors in the future. As commenters 

expressed, it may be challenging for 

these types of funds to find a reasonable 


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139See Proposing Release, supra footnote 2, at 

nn.50–51 and accompanying text; see also final rule 

35d–1(a)(2) (this provision reflects that a fund’s 

name may include multiple ‘‘terms’’ suggesting that 

the fund focuses its investments in a particular 

way). 

140Fidelity Comment Letter; CFA Institute 

Comment Letter; Seward & Kissel Comment Letter. 

141An acquiring fund is not required to 

continuously monitor the investments of the 

underlying fund for purposes of compliance with 

the amended names rule. For example, the XYZ 

Industrials Fund may rely on the ABC Automotive 

Fund to comply with the ABC Automotive Fund’s 

80% policy. 

142See final rule 35d–1(a)(2). 

143See, e.g., U.S. SIF Comment Letter; SIFMA 

AMG Comment Letter; Sierra Club Comment Letter; 

Public Citizen Comment Letter; Comment Letter of 

Bonwood Social Investment (Aug. 16, 2022) 

(‘‘Bonwood Comment Letter’’). 

144See NASAA Comment Letter; J.P. Morgan 

Asset Management Comment Letter; U.S. SIF 

Comment Letter; Comment Letter of LTSE Services, 

Inc. (Aug. 16, 2022) (‘‘LTSE Comment Letter’’); CFA 

Institute Comment Letter. 

145 Id. 

146See, e.g., ICI Comment Letter; Calvert 

Comment Letter; Cato Institute Comment Letter; 

Invesco Comment Letter; Robertson-Fisch Comment 

Letter. 

147See, e.g., TIAA-Nuveen Comment Letter; 

Calvert Comment Letter; ICI Comment Letter, 

Robertson-Fisch Comment Letter. See generally 

supra section II.A.1.a) (responding to concerns from 

commenters related to interpretive challenges and 

compliance costs connected to the proposed 

expansion of the 80% investment policy). 

nexus between their investments and a 

given investment focus based on current 

characteristics of the issuer. In these 

circumstances, funds may signal to 

investors, through the use of 

‘‘emergent,’’ ‘‘future,’’ or some other 

similar term in the fund’s name, that the 

fund considers some future-based 

methodology when assessing whether a 

nexus exists between a given security 

and the investment focus suggested by 

the fund’s name (e.g., ‘‘XYZ Emergent 

3D Printing Technology Fund’’). More 

generally, we recognize that overall 

context is important in how an investor 

interprets a fund’s name. For instance, 

descriptive terms such as ‘‘aggressive,’’ 

‘‘conservative,’’ or ‘‘strategic,’’ when 

paired with another term that is covered 

by the scope of the rule can modify an 

investor’s expectations with respect to 

the fund’s investment focus. The rule is 

designed to give fund managers 

reasonable discretion to define terms in 

a fund’s name, and to allocate 

investments reasonably into the 80% 

basket in accordance with the 

investment focus the name conveys, 

which can be dependent on the context 

of the terms in a name. In particular, the 

final amended rule requires that terms 

within a fund’s name must be consistent 

with the plain English meaning or 

established industry use. We are 

including these provisions in the final 

amended rule to provide fund managers 

with sufficient flexibility. 

Separately, as discussed in the 2022 

Proposal, when a fund’s name includes 

terms suggesting an investment focus 

that has multiple elements, the fund’s 

80% investment policy must address all 

of the elements in the name (as all of the 

elements would be reflected in the 

investment focus that the fund’s name 

suggests).139 The Commission noted, 

however, that a fund can take a 

reasonable approach in specifying how 

the fund’s investments will incorporate 

each element. Commenters expressed 

broad support for the Commission’s 

approach, asserting that it retains the 

appropriate level of flexibility for 

advisers to determine how best to 

allocate investments under an 80% 

investment policy.140 Where a fund’s 

name suggests an investment focus that 

has multiple elements, the fund’s 80% 

investment policy must address each of 

those elements. For instance, a fund 

with a name that references two or more 

distinct investment focuses (e.g., ‘‘XYZ 

Technology and Growth Fund’’) could 

have an investment policy that provides 

that each security included in the 80% 

basket must be in both the technology 

sector and meet the fund’s growth 

criteria. Alternatively, such a fund 

could instead have an investment policy 

that provides that 80% of the value of 

the fund’s assets will be invested in a 

mix of technology investments and 

growth investments, with some 

technology investments, some growth 

investments, and some investments in 

both of these categories, with no 

minimum or maximum investment 

requirements specified for either 

category. In addition, any fund that has 

a name that suggests an investment 

focus would be required to adopt an 

80% investment policy even if the 

fund’s name also contains a term that 

does not suggest an investment focus. 

For example, the ‘‘XYZ Technology and 

Real Return Fund’’ would be required to 

adopt an 80% investment policy to 

invest 80% of the value of its assets in 

the technology sector despite the phrase 

‘‘real return’’ also appearing in the 

name. 

Moreover, it would generally be 

reasonable for a fund of funds or other 

acquiring fund to include the entire 

value of its investment in an appropriate 

acquired fund when calculating 

compliance with the 80% investment 

requirement without looking through to 

the acquired fund’s underlying 

investments. For example, a fund of 

funds with the name ‘‘XYZ Industrials 

Fund’’ with an 80% investment policy 

to invest in the industrials sector could 

count the entire value of its investments 

in the ‘‘ABC Automotive Fund’’ when 

calculating compliance with the 80% 

investment requirement, provided that 

the ABC Automotive Fund has an 80% 

investment policy to invest in its 

subsection of the industrials sector. It 

would not be reasonable, however, for 

an acquiring fund in these 

circumstances to ignore situations 

where the acquiring fund knows that an 

underlying fund is not investing 

consistent with the acquiring fund’s 

investment focus.141 In such cases, the 

acquiring fund should take actions to 

address this departure as it otherwise 

would to resolve a temporary departure 

from the 80% requirement under the 

final amendments. 

d) ESG-Related Terms 

Consistent with the proposal, the final 

amendments will apply the requirement 

to adopt an 80% investment policy to 

fund names that suggest an investment 

focus, including names with terms 

indicating that the fund’s investment 

decisions incorporate one or more ESG 

factors.142 Many commenters supported 

the inclusion of ESG terms in the 

expanded scope.143 Some of these 

commenters expressed concerns related 

to ‘‘greenwashing’’ among funds that 

have, or purport to have, ESG- or 

sustainability-related characteristics.144

Many of these commenters asserted that 

given the developing market interest in, 

and regulatory and public scrutiny of, 

funds that incorporate ESG factors in 

their investment objectives, to the extent 

a fund uses an ESG-related term in its 

name, the fund should be required to 

adopt an 80% investment policy that 

ensures it will invest in accordance with 

the investment focus its name 

suggests.145

Conversely, several commenters 

opposed including names with ESG 

terms in the expanded scope of the 80% 

investment policy requirement.146 Many 

of these commenters expressed similar 

concerns to those discussed above 

opposing the expanded scope in 

general, including potential interpretive 

issues resulting from the perceived 

subjectivity of certain ESG-related 

terms, and potential increased 

compliance burdens.147 Some 

commenters also articulated concerns 

that are unique to funds that use ESG 

terms. For instance, several commenters 

expressed that the Commission’s ESG 

Disclosure Proposal would be better 

suited to address investor 

understanding of ESG considerations 

than the proposed names rule scope 


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148See ICI Comment Letter; TIAA-Nuveen 

Comment Letter. 

149See ICI Comment Letter; Dechert Comment 

Letter. 

150See Robertson-Fisch Comment Letter (arguing 

that because ESG is a ‘‘big tent’’ term, the use of 

ESG terminology in fund names ‘‘does not convey 

very much information’’ to investors). 

151See supra footnote 37 and accompanying 

discussion. 

152See Center for American Progress Comment 

Letter (stating that ‘‘[t]here is more variability in 

investors’ understanding of what many ESG terms 

mean than with terms like ‘‘growth’’ or ‘‘global’’ 

because the use of ESG terms is relatively new and 

their use often is not tied to specific information 

about their meaning.’’). 

153See Robertson-Fisch Comment Letter 

(discussing different hypothetical ESG-related 

funds that could deliver very different results to 

investors, but could be presumably sold under the 

same name). 

154See also supra footnote 94 and accompanying 

text; supra paragraph accompanying footnote 132. 

155The amendments to the temporary departure 

provision are applicable not only to funds whose 

name suggest a particular investment focus, but also 

to tax-exempt funds that are required to invest their 

assets in accordance with the provisions of rule 

35d–1(a)(3). 

156See final rule 35d–1(b). 

157Final rule 35d–1(b)(1)(i). 

158Final rule 35d–1(b)(1)(ii). 

159Final rule 35d–1(b)(1)(iii); see also rule 35d– 

1(g) (defining ‘‘launch’’ as a period, not to exceed 

180 consecutive days, starting from the date the 

fund commences operations). 

160Temporary departures under the proposed 

amendments would have been permitted only: (1) 

as a result of market fluctuations, or other 

circumstances, where the temporary departure is 

not caused by the fund’s purchase or sale of a 

security or the fund’s entering into or exiting an 

investment; (2) to address unusually large cash 

inflows or unusually large redemptions; (3) to take 

a position in cash and cash equivalents or 

government securities to avoid a loss in response 

to adverse market, economic, political, or other 

conditions; or (4) to reposition or liquidate a fund’s 

assets in connection with a reorganization, to 

launch the fund, or when notice of a change in the 

fund’s 80% investment policy has been provided to 

fund shareholders at least 60 days before the change 

pursuant to the rule. 

expansion.148 These commenters 

generally expressed more support for a 

disclosure-based framework rather than 

a mandated 80% investment policy for 

fund names that communicate an ESG 

focus. In addition, a few commenters 

expressed that certain terms, depending 

on the context, may not be solely used 

for ESG investment strategies (e.g., 

‘‘sustainable’’ or ‘‘impact’’), or when 

read together may provide a different 

meaning than when presented 

individually (e.g., ‘‘XYZ Sustainable 

Growth Fund’’).149

We recognize that ‘‘ESG’’ and similar 

terms are expansive, incorporating three 

broad categories of interest 

(environmental, social, and governance 

issues) for investors and asset managers, 

with differing levels of focus on each 

particular issue, and different 

perspectives on what attributes of an 

issuer or investment fit within this 

terminology.150 The breadth of ESGrelated terms, as well as evolving 

investor expectations around terms like 

‘‘sustainable’’ or ‘‘socially responsible,’’ 

compound the possibility of investor 

confusion and potential ‘‘greenwashing’’ 

in fund names.151 Moreover, concerns 

regarding materially deceptive and 

misleading fund names are particularly 

important for funds that incorporate 

ESG factors in their investment 

decisions because, unlike many other 

non-ESG investment strategies, some 

ESG-related strategies are not wellestablished or commonly understood to 

the investing public.152 ESG terms in 

fund names communicate to investors 

that the fund will invest in issuers that 

have particular characteristics, like 

other terms that are covered by the 

expanded scope. Accordingly, there is 

not a principled basis to treat ESG terms 

differently than other terms that have 

the potential to be materially deceptive 

and misleading, as suggested by a few 

commenters that requested a purely 

disclosure-based framework for funds 

that use ESG terms in their name. The 

final amendments thus require funds 

that use ESG terms in their name to 

adopt an 80% investment policy. 

We recognize, as with fund names 

that do not include ESG terms, that the 

general context of a name with 

terminology that could connote an ESG 

focus is critical in how an investor 

interprets such a name.153 For instance, 

a name such as ‘‘XYZ Sustainable 

Growth Fund’’ could reasonably be 

interpreted as a fund that employs a 

strategy that seeks growth that is 

sustainable over time (i.e., growth that 

will be maintained at a certain level), or 

a fund that incorporates ESG factors into 

its decision making. In this example, the 

fund would require an 80% investment 

policy regardless, but the fund manager 

has discretion to reasonably define the 

terms in the fund’s name, and to 

allocate investments into the 80% 

basket in accordance with the 

investment focus the name suggests.154

2. Temporary Departures From the 80% 

Investment Requirement 

The final rules we are adopting permit 

temporary departures from the 80% 

investment requirement by allowing a 

fund temporarily to invest less than the 

required 80% of the value of the fund’s 

assets in accordance with the 

investment focus or tax treatment its 

name suggests.155 Under the final 

amendments, we are retaining the 

current rule’s requirement that a fund 

must determine at the time that it 

invests whether the investment is in the 

fund’s 80% basket (‘‘time-of-investment 

test’’).156 We are adopting a new 

requirement that, at least quarterly, 

funds subject to the 80% investment 

requirement must review the fund’s 

portfolio investments to determine 

whether the fund’s investments 

continue to be consistent with the 

fund’s 80% investment policy.157 Funds 

must comply with the 80% investment 

requirement ‘‘under normal 

circumstances,’’ leaving to funds the 

determination of what constitutes 

something other than a normal 

circumstance. If, subsequent to an 

investment, the 80% investment 

requirement is no longer met, the fund’s 

future investments (that is, any portfolio 

assets it acquires) must be made in a 

manner that will bring the fund into 

compliance with that requirement 

within the time period specified in the 

rule. 

A fund may, in other-than-normal 

circumstances, choose to invest in a 

manner that is not consistent with the 

fund’s 80% investment requirement for 

a limited period of time.158 The final 

amendments include specific time 

frames—generally 90 consecutive days, 

as opposed to 30 days as proposed—for 

getting back into compliance if a fund 

departs from the 80% requirement, 

either intentionally in other-thannormal circumstances, or as identified 

by the fund as a part of its quarterly 

review or otherwise. Funds are 

permitted under the final rules to 

temporarily depart from the 80% 

investment requirement in connection 

with a reorganization (for which the 

final rule does not specify a required 

time frame for accompanying temporary 

departures) or a fund launch (departure 

not to exceed the period of 180 

consecutive days) or when a notice of a 

change in a fund’s policy in certain 

circumstances has been provided to 

fund shareholders.159

Under the proposed amendments, 

funds would have been permitted to 

depart from the fund’s 80% investment 

policy only under certain specified 

circumstances.160 When a fund departed 

under the specified circumstances, the 

proposed amendments would have 

required funds to come back into 

compliance with the 80% investment 

requirement within 30 consecutive days 

after the initial departure. Departures 

from names rule compliance for fund 

launches would not have been 

permitted to exceed a period of 180 

consecutive days. The proposed 

amendments did not specify a required 

time frame for temporary departures 

that were the result of reorganizations or 


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161See, e.g., NASAA Comment Letter; PRI 

Comment Letter; Consumer Federation of America 

Comment Letter; Environmental Defense Fund 

Comment Letter. 

162See, e.g., Consumer Federation of America 

Comment Letter; Center for American Progress 

Comment Letter; NASAA Comment Letter. 

163See Proposing Release, supra footnote 2, at 

paragraph following n.35. 

164See final rule 35d–1(b). 165See 2001 Names Rule Adopting Release, supra 

footnote 8, at n.32 and accompanying text; see also 

Investment Company Names, Investment Company 

Act Release No. 22530 (Feb. 27, 1997) [62 FR 10955 

(Mar. 10, 1997)], at n.28 and accompanying text. 

166See, e.g., ICI Comment Letter; Calamos 

Comment Letter; Seward & Kissel Comment Letter; 

Fidelity Comment Letter; Dechert Comment Letter; 

T. Rowe Comment Letter; Nationwide Comment 

Letter; Cato Institute Comment Letter; Stradley 

Comment Letter; Dimensional Comment Letter; 

WisdomTree Comment Letter; MFS Comment 

Letter; Invesco Comment Letter; Capital Group 

Comment Letter. 

167For example, commenters pointed to time of 

acquisition tests in the 1940 Act, including, section 

5 the anti-pyramiding provisions of section 12(d)(1) 

[15 U.S.C. 80a–12(d)(1)] and the limitations on 

investments in securities-related issuers in section 

12(d)(3) [15 U.S.C. 80a–12(d)(3)]. See, e.g., ICI 

Comment Letter; Dechert Comment Letter; Seward 

& Kissel Comment Letter; Fidelity Comment Letter; 

Calamos Comment Letter; Nationwide Comment 

Letter. 

where the 60-day notice has been 

provided to shareholders. In all cases, 

the proposed amendments would have 

required that a fund would have to 

come back into compliance as soon as 

reasonably practicable. 

We received comment letters both 

supporting and opposing the 

Commission’s proposed approach for 

temporary departures. Among the 

primary reasons commenters supported 

the proposal was their belief that the 

proposed amendments brought more 

certainty to the current rule’s approach 

to temporary departures from 80% and 

would require funds to be more vigilant 

with respect to their names rule 

compliance.161 In particular, several 

commenters supported the goal of 

bringing the rule in line with investors’ 

expectations by ensuring that the 

investments made by the fund remain 

consistent with the fund’s name and the 

investor’s investment preferences over 

the long-term life of the fund.162

The Commission, however, did 

receive many comments requesting that 

we reconsider the proposed approach to 

temporary departures. The Proposing 

Release sought to permit appropriate 

flexibility to depart temporarily from 

the 80% investment requirement in 

particular, time-limited circumstances 

when doing so would be beneficial to 

the fund and its shareholders, while 

providing additional parameters 

designed to prevent a fund from 

investing inconsistently with its 80% 

investment policy for an extended 

period of time.163 Commenters, as 

discussed in the next section, raised 

concerns that the proposed amendments 

were overly prescriptive, lacked 

flexibility, and were too limited in the 

amount of time funds would have to 

bring their investments back into 

compliance. In response to comments 

received, we are adopting an approach 

that modifies the proposed 

amendments, which seeks to balance 

the concerns raised by commenters and 

the goals of the proposal. 

a) Time-of-Investment Test and 

Quarterly Review 

Under the final amendments, as under 

the current names rule, a fund is 

required to determine at the time it 

invests whether the security is 

appropriately included in the fund’s 

80% basket.164 This ‘‘time-ofinvestment test’’ was originally adopted 

to avoid requiring a fund to rebalance its 

investments if the fund’s portfolio were 

no longer invested in accordance with 

the fund’s 80% investment policy as a 

result of, for example, market 

movements or an influx of cash from 

new investors (‘‘drift’’).165 The proposal 

would have removed the time-ofinvestment test and instead would have 

required that a fund remedy drift within 

30 days of the initial departure. In 

effect, the proposed rule would have 

required that funds engage in continual 

compliance testing to reassess the 

characteristics of investments in the 

fund’s 80% basket—or even daily 

testing and reassessment for those funds 

making investments each trading day— 

to ensure that they observe and correct 

any drift quickly in order to comply 

with the proposed requirement that the 

fund come back into compliance with 

the names rule within 30 days. 

In response to comments we received, 

and as discussed in more detail below, 

we are not adopting a requirement for 

continual or daily monitoring to 

reassess the characteristics of the 

investments in the fund’s 80% basket 

and are instead maintaining a time-ofinvestment test in the names rule. 

Under the final amendments, funds will 

instead be required to reassess their 

portfolio assets’ inclusion in the fund’s 

80% basket at least quarterly. This 

change means that portfolio investments 

that are included in the 80% basket at 

the time of investment will continue to 

be considered to be consistent with the 

fund’s 80% investment policy unless 

the fund identifies otherwise as part of 

its required quarterly reassessments, or 

outside of its required quarterly 

reassessments identifies that these 

investments’ characteristics are 

inconsistent with the fund’s 80% 

investment policy. This approach to 

assessing the characteristics of portfolio 

investments in the 80% basket, 

however, does not change the 

requirement for funds to maintain at 

least 80% of the value of their assets in 

80% basket assets (as determined at the 

time of investment), unless the fund 

departs temporarily from 80% in 

accordance with the final amendments. 

As an example, when a fund acquires 

Investment A, the fund must assess the 

characteristics of that investment when 

the purchase is made to determine 

whether it should be included in the 

80% basket. When a fund acquires a 

new investment, Investment B, the fund 

must assess the characteristics of 

Investment B when it invests to 

determine whether it should be 

included in the 80% basket. When 

determining whether 80% of the fund’s 

assets are invested in the 80% basket 

when Investment B is made, the fund 

must consider the value of Investment 

A, but would not have to re-assess the 

characteristics of Investment A. Each 

quarter, the fund must re-assess the 

characteristics of Investments A and B 

for consistency with the fund’s 80% 

investment policy. 

We received many comments 

supporting the retention of the time-ofinvestment test and urging the 

Commission not to adopt an approach 

that would require continual 

compliance monitoring.166 Several 

commenters stated that the time-ofinvestment test is a standard that is used 

in other portfolio compliance tests 

under the Investment Company Act and 

that consistency with how fund 

holdings are measured across 

Investment Company Act rules would 

therefore be a preferable approach in the 

context of the names rule.167 The 

proposed approach, which would have 

removed the time-of-investment test, 

would instead have effectively required 

that fund managers reassess portfolio 

investments’ characteristics for 

consistency with the fund’s 80% 

investment policy every time the fund 

makes a new investment, and to take 

corrective action almost immediately 

upon identifying any departure from 

80%. The time-of-investment test 

affords some flexibility to fund 

managers by focusing on whether an 

asset is consistent with the fund’s 80% 

investment policy at the time of 

investment, rather than requiring 

ongoing reassessments. In addition, 

commenters expressed concern that 

limitations on fund manager discretion 

prevent investors from having access to 

actively-managed funds that are subject 


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168See Dechert Comment Letter; ICI Comment 

Letter. 169See, e.g., Stradley Comment Letter; ICI 

Comment Letter; Dechert Comment Letter; Seward 

& Kissel Comment Letter; Fidelity Comment Letter; 

Calamos Comment Letter; Nationwide Comment 

Letter. 170See, e.g., ICI Comment Letter; Dechert 

Comment Letter. 

171See, e.g., ICI Comment Letter; Dechert 

Comment Letter; Seward & Kissel Comment Letter; 

WisdomTree Comment Letter. 

172See, e.g., Seward & Kissel Comment Letter, 

Nationwide Comment Letter; Fidelity Comment 

Letter. But see Dogwhistle Comment letter 

(suggesting an annual compliance testing 

requirement and that daily compliance testing is too 

frequent, but a time-of-investment test is not 

appropriate). 

173See, e.g., SIFMA AMG Comment Letter; J.P. 

Morgan Asset Management Comment Letter; ICI 

Comment Letter; Dechert Comment Letter; 

Wellington Comment Letter. 

174See, e.g., ICI Comment Letter; Wellington 

Comment Letter; Capital Group Comment Letter; 

SIFMA AMG Comment Letter. 175See, e.g., ICI Comment Letter; Wellington 

Comment Letter; Capital Group Comment Letter; 

SIFMA Comment Letter. 176See id. 177See, e.g., ICI Comment Letter; Seward & Kissel 

Comment Letter; WisdomTree Comment Letter. 178See, e.g., ICI Comment Letter; Dechert 

Comment Letter; Seward & Kissel Comment Letter; 

WisdomTree Comment Letter. 

179See, e.g., SIFMA Comment Letter; J.P. Morgan 

Asset Management Comment Letter. 

180See Dogwhistle Comment Letter. 

181See infra section II.E. 

to the names rule.168 Commenters also 

supported retaining the time-ofinvestment test so that in the event that 

a fund’s portfolio inadvertently drifts 

out of compliance with the 80% 

investment requirement because the 

characteristics of portfolio investments 

change, the fund would not be forced to 

sell a security that was originally 

purchased in compliance with the 

names rule in order to come back into 

compliance within a specific time frame 

(as proposed, generally 30 days).169

Commenters were concerned the 

proposed approach would potentially 

force sales or purchases of portfolio 

assets at inopportune times with the 

potential to intensify the market 

conditions that prompted these 

transactions in the first place.170

Commenters also stated that there 

would be substantial burden on funds, 

their sponsors, and their administrators 

to implement a continual or daily 

program for re-assessing portfolio 

investments for names rules compliance 

purposes.171 Commenters argued that 

the burden of implementing a continual 

monitoring program is not warranted 

given the asserted lack of identified 

significant harm to investors from 

portfolio drift and the burden of creating 

and maintaining such a program.172

These commenters stated that the 

burdens associated with a continual 

monitoring program would be 

particularly high because assessing 

portfolio investments’ consistency with 

a fund’s 80% investment policy is not 

necessarily straightforward, particularly 

given the expanded scope of the names 

rule, which would include terms that 

are not readily quantifiable.173 For 

example, commenters stated that some 

of the information that a fund would 

need to monitor whether a particular 

investment should be included in a 

fund’s 80% basket may include metrics 

measured over a period of time that may 

be longer than the period of a single 

day.174 Some funds, for instance, may 

adopt investment strategies that involve 

a multi-year concept that commenters 

stated cannot be assessed on a single 

day.175 Commenters therefore urged the 

Commission to adopt a rule that would 

provide some discretion to determine 

whether a particular investment, 

evaluated over a period of time, is 

consistent with the fund’s 80% 

policy.176 Similarly, commenters raised 

concerns about continually monitoring 

compliance with respect to certain 

securities, such as growth or value 

investments, where the name 

characteristics could change 

frequently.177 For example, securities 

may be bought that have characteristics 

meeting a particular fund’s standards for 

inclusion in the fund’s 80% basket at 

the time of purchase, but these 

characteristics may change from day to 

day. Commenters stated that assessing 

these securities’ characteristics 

continually would require operational 

and compliance build-outs that would 

be substantial.178

After considering comments, we are 

retaining the current rule’s time-ofinvestment test that requires a fund to 

determine, for purposes of names rule 

compliance, whether an investment is 

within the fund’s 80% basket at the time 

of investment. While the time-ofinvestment test must be conducted only 

at the time that the investment is made, 

the final rule incorporates a process for 

periodic reassessment of fund 

investments in order to ensure that that 

the fund is invested consistent with the 

focus the fund’s name suggests. Rather 

than adopting a rule that effectively 

would require daily or continual 

compliance monitoring, the final rule 

requires that a fund review its portfolio 

investments on an at-least quarterly 

basis to determine whether it continues 

to comply with the 80% investment 

requirement. 

The time-of-investment standard 

affords to the portfolio manager more 

flexibility than the proposed 

amendments, as we acknowledge that 

there may be certain fluctuations in a 

fund’s portfolio and within the 80% 

basket that naturally occur over time, 

and that may not be outside of investors’ 

reasonable expectations. For example, a 

mid-cap equity fund may hold securities 

that at the time of investment qualified 

under the fund’s 80% investment policy 

as mid-cap, but that may temporarily 

move into the large-cap category and 

back again. We understand that this 

type of drift is a natural fluctuation in 

a portfolio, as certain characteristics of 

securities’ may not be static. We also 

appreciate that, for certain funds that 

are subject to the 80% investment 

requirement, this drift may occur 

relatively frequently, and so a standard 

that would require daily or continual 

compliance monitoring could be 

particularly burdensome and require 

very frequent portfolio re-balancing.179

While we recognize that drift may occur 

and that portfolio managers should have 

discretion in managing their portfolio in 

the best interest of the fund, we are 

adopting a quarterly review requirement 

to help ensure portfolio adjustments so 

that drift does not go unchecked. This 

quarterly time frame will require a fund 

to address drift more quickly, which in 

turn will help ensure greater 

consistency between the fund’s 

investments and the focus its name 

suggests, as compared to a review 

period based on a longer periodic time 

frame (for example, an annual testing 

requirement as one commenter 

suggested).180

The combination of a time-ofinvestment test with a minimum 

quarterly review requirement balances 

the dynamic nature of funds’ portfolio 

securities with compliance with the 

fund’s 80% investment policy. The 

required time frame for review is 

consistent with the final rules’ quarterly 

Form N–PORT reporting requirement, 

which requires funds (except in the case 

of money-market funds and BDCs) to 

report on Form N–PORT the value of the 

fund’s 80% basket as well as each 

investment that is included in the 

fund’s 80% basket.181 The required 

minimum quarterly review helps ensure 

that funds are reviewing their portfolios 

for names rule compliance on a periodic 

basis so that instances of drift can be 

identified without the burden of 

assessing each investment’s inclusion in 

the 80% basket every day. The final 

amendments are designed to balance the 

costs associated with monitoring fund 

investments’ inclusion in the 80% 

basket with the harm to investors that 

could result if a fund were permitted a 

longer time frame for reviewing its 


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182See infra section IV.D.2. 

183 ICI Comment Letter III. The commenter also 

suggested that tax-exempt funds using an income 

test be permitted to count taxable market discount 

toward their 80% baskets. The treatment of such 

taxable market discount is outside the scope of this 

rulemaking, as it was not addressed in the proposal, 

and, therefore, not addressed in the final 

amendments. 

184The names rule currently allows, and the final 

amendments will continue to allow, a fund with 

‘‘tax-exempt’’ in its name to adopt either an asset 

test or an income test to satisfy its 80% investment 

policy requirement. The income test requires that 

a fund invest its assets so that at least 80% of the 

income that it distributes will be exempt from 

federal income tax or from both federal and state 

income tax. See final rule 35d–1(a)(3)(i)(B). 

185Under the proposed rule, temporary 

departures would have been permitted only: (1) as 

a result of market fluctuations, or other 

circumstances where the temporary departure is not 

caused by the fund’s purchase or sale of a security 

or the fund’s entering into or exiting an investment; 

(2) to address unusually large cash inflows or 

unusually large redemptions; (3) to take a position 

in cash and cash equivalents or government 

securities to avoid losses in response to adverse 

market, economic, political, or other conditions; or 

(4) to reposition or liquidate a fund’s assets in 

connection with a reorganization, to launch the 

fund, or when notice of a change in the fund’s 80% 

investment policy has been provided to fund 

shareholders at least 60 days before the change 

pursuant to the rule. See proposed rule 35d–1(b). 

186See supra footnote 160. 

187See, e.g., NASAA Comment Letter; 

Environmental Defense Fund Comment Letter. 

188See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; CFA Institute Comment Letter; 

Comment Letter of U.S. Chamber of Commerce 

Center for Capital Markets Competitiveness (Aug. 

12, 2022) (‘‘USCOC Comment Letter’’); Dimensional 

Comment Letter; WisdomTree Comment Letter; 

Calamos Comment Letter; MFDF Comment Letter; 

MFS Comment Letter; Capital Group Comment 

letter; Seward & Kissel Comment Letter; Fidelity 

Comment Letter; Comment Letter of Nasdaq, Inc. 

(Aug. 16, 2022) (‘‘Nasdaq Comment Letter’’); 

Dechert Comment Letter; T. Rowe Comment Letter; 

Nationwide Comment Letter; Cato Institute 

Comment Letter. 

189See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Dimensional Comment Letter; 

MFS Comment Letter; Capital Group Comment 

letter; Fidelity Comment Letter; Dechert Comment 

Letter; T. Rowe Comment Letter; Calamos Comment 

Letter; Nationwide Comment Letter. 

190See Cato Institute Comment Letter. 

191See, e.g., SIFMA AMG Comment Letter; 

Dechert Comment Letter; Fidelity Comment Letter. 

192See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; Dechert Comment Letter; CFA 

Institute Comment Letter; Stradley Comment Letter; 

USCOC Comment Letter; Cato Institute Comment 

Letter; Dimensional Comment Letter; Federated 

Comment Letter; T. Rowe Comment Letter; 

WisdomTree Comment Letter. 

portfolio.182 The time-of-investment test 

coupled with a quarterly portfolio 

review is designed to ensure that a 

fund’s name more accurately 

communicates to investors important 

information about the fund’s 

investments while providing funds with 

appropriate flexibility within a timelimited period. 

One commenter also articulated 

concerns that are unique to funds that 

use the term ‘‘tax-exempt’’ in their 

name.183 This commenter requested 

clarification on how tax-exempt funds 

that apply the income test under the 

names rule should measure compliance 

with the 80% investment policy 

requirement under the proposed 

amendments.184 Specifically, this 

commenter urged the Commission to 

confirm that compliance with the 

income test would be based solely on 

income that the fund distributes. The 

final rule requires that a fund review its 

portfolio at least quarterly to determine 

whether it continues to comply with the 

80% investment requirement. 

Accordingly, a tax-exempt fund 

applying the income test will be 

required to assess its portfolio on an atleast quarterly basis to determine 

whether the fund’s assets are invested 

so that at least 80% of the income that 

it distributes will be exempt from 

federal income tax or from both federal 

and state income tax. 

b) Investing Consistent With 80% 

Investment Policy ‘‘Under Normal 

Circumstances’’ 

The final amendments, like the 

current names rule, require a fund to 

invest in accordance with its 80% 

investments policy ‘‘under normal 

circumstances.’’ That is, under the final 

amendments, a fund’s 80% policy 

applies under normal circumstances, 

but funds may depart from the fund’s 

investment policy in other-than-normal 

circumstances. The proposed rule 

would have, in place of the rule’s 

current standard that a fund’s 80% 

investment policy apply ‘‘under normal 

circumstances,’’ included specific 

exceptions that address circumstances 

where departures would be 

permitted.185 Unlike the proposal, funds 

have flexibility under the final 

amendments to determine what 

constitutes other-than-normal 

circumstances where the fund could 

depart intentionally from the 80% 

requirement (for example, the reasons 

for departures that the proposed 

amendments included, or other 

circumstances where market conditions 

or fund operations are other-thannormal).186 Under the final 

amendments, departure from the fund’s 

80% policy in other-than-normal 

circumstances is time-limited to 90 

consecutive days from the initial 

departure, whereas the proposal would 

have required a fund to be back in 

compliance generally within 30 days. 

The Commission received some 

comments supporting the proposed 

approach to change the current rule’s 

‘‘under normal circumstances’’ standard 

in favor of a more prescriptive 

approach. Commenters stated that the 

current standard has led to more 

uncertainty and less consistency in how 

fund investments correspond to a fund’s 

name than the proposed approach 

would over extended periods of time.187

Conversely, the Commission also 

received many comment letters 

opposing the proposed approach of 

permitting departure from the 80% 

investment requirement only under the 

circumstances that the proposed 

amendments specified.188 Commenters 

stated that the proposed approach was 

overly prescriptive and would 

unnecessarily curb the ability of a 

fund’s portfolio manager to act in the 

best interest of the fund.189 For 

example, in an effort to bring a fund 

back into compliance within the 

proposed 30-day period, fund managers 

may feel compelled either to divest or 

purchase an investment that may not be 

strategically in the best interest of the 

fund. In addition, a commenter argued 

that the Proposing Release did not cite 

evidence that the ‘‘under normal 

circumstances standard’’ has been 

abused or has resulted in the use of 

materially deceptive or misleading 

names.190 Commenters also argued that 

while the proposed amendments would 

permit departures from the 80% 

requirement only in the circumstances 

that the amendments specified, 

unforeseeable circumstances that the 

amendments did not contemplate—and 

that any enumerated list of 

circumstances could not contemplate in 

an evergreen way—may present reasons 

for departing that could be appropriate 

in the interests of the fund and 

consistent with the goals of the names 

rule.191

Fund managers are fiduciaries to the 

funds they manage. Commenters 

advocated that, as such, portfolio 

managers should have discretion in 

determining when a fund needs to 

depart from its 80% investment policy. 

Some commenters supported retaining 

the current rule’s ‘‘under normal 

circumstances’’ standard in order to give 

portfolio managers flexibility to act in 

the best interest of the fund and its 

shareholders, which can include 

temporarily departing from the fund’s 

80% investment policy.192 In addition, 

some commenters stated that they 

believe that some investors may prefer 

investing in funds where the portfolio 

manager has discretion to depart from 

the investment focus denoted by the 

fund’s name when the portfolio manager 


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193See, e.g., SIFMA AMG Comment Letter; 

Dechert Comment Letter; Nationwide Comment 

Letter; T. Rowe Comment Letter; MFS Comment 

Letter; JP Morgan Asset Management Comment 

Letter. 

194See, e.g., ICI Comment Letter; Dechert 

Comment Letter; SIFMA AMG Comment Letter. 

195See, e.g., Capital Group Comment Letter; 

Nationwide Comment Letter. 

196See, e.g., ICI Comment Letter and SIFMA AMG 

Comment Letter. 

197Prolonged drift could result in fund names 

that have a tendency or capacity or deceive or 

mislead, regardless of whether such drift has 

resulted in actual deception of investors. See, e.g., 

Cato Institute Comment Letter; see also supra 

footnote 40. 

198See 2001 Names Rule Adopting Release, supra 

footnote 8, at nn.37–40 and accompanying text. 

199See 2001 Names Rule Adopting Release, supra 

footnote 8, at text preceding footnote 39 (‘‘[The 

‘‘under normal circumstances’’ standard] will 

permit investment companies to take ‘‘temporary 

defensive positions’’ to avoid losses in response to 

adverse market, economic, political, or other 

conditions.’’). 

200See infra section II.A.5 text accompanying 

footnotes 318–321. 

201See infra section II.F (discussing the 

requirement under the final amendments for funds 

to maintain records documenting the reasons for 

each departure). 

202Final rule 35d–1(b). 

203 Id. Although the temporal limits in the final 

amendments start from the time that a departure is 

identified, a fund may not avoid coming into timely 

compliance, if the fund failed to identify departures 

because the fund did not perform the required 

quarterly review, or if the fund failed to perform 

quarterly reviews that are reasonably designed to 

identify departures. 

204See, e.g., PRI Comment Letter. 

205See, e.g., SIFMA AMG Comment Letter; ICI 

Comment Letter; CFA Institute Comment Letter; 

Dechert Comment Letter; Cato Institute Comment 

Letter; WisdomTree Comment Letter; NASAA 

Comment Letter; MFDF Comment Letter; MFS 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Seward & Kissel Comment Letter; 

believes the departure is in the best 

interest of the fund.193

Commenters suggested alternatives to 

the proposed approach, stating that if 

the Commission adopts a prescriptive 

list of permissible circumstances under 

which a fund may depart from the 80% 

policy, the list should be expanded, for 

example to permit departure for 

repositioning fund assets in connection 

with changes of sub-advisers and/or 

portfolio managers, and in periods 

leading up to material strategy 

changes.194 These commenters 

suggested the inclusion of a ‘‘catch-all’’ 

provision, as well, permitting any 

departures the portfolio manager 

believes are reasonable. Commenters 

also provided alternatives that would 

permit additional drift beyond the 

circumstances that the proposed 

amendments specified, so long as the 

fund provided additional disclosure for 

the reasons why the fund may drift.195

Another suggested an alternative 

included allowing funds that use the 

term ‘‘managed’’ in their name to have 

greater flexibility to depart from the 

fund’s 80% investment policy.196

After considering comments, we are 

adopting amendments that retain the 

current ‘‘under normal circumstances’’ 

provision. While we are retaining the 

current ‘‘under normal circumstances’’ 

standard, we are also adopting new 

limitations on how long a fund may 

depart from 80% under this provision, 

discussed below, which addresses the 

concerns raised by commenters that the 

current standard allows for investments 

not consistent with the fund’s name 

over extended periods of time.197

Retaining the current ‘‘under normal 

circumstances’’ provision is designed to 

provide fund managers with flexibility 

to manage their portfolios while 

requiring that funds normally invest 

80% of their assets consistent with their 

80% investment policy.198

We acknowledge that there could be 

circumstances when it is in the best 

interest of the fund and its investors for 

the portfolio manager to have discretion 

to depart from the fund’s 80% 

investment policy. This interest must be 

balanced, however, with the need for a 

fund’s name to convey accurately to 

investors the underlying investments 

that correspond with the focus the 

fund’s name suggests. Rather than 

require additional disclosure that 

acknowledges drift or to provide a 

separate standard for funds that include 

the term ‘‘managed’’ in their name, we 

are adopting a requirement to invest in 

accordance with the 80% requirement 

‘‘under normal circumstances,’’ 

combined with a set time frame to come 

back to 80%, to balance these concerns. 

We are adopting, therefore, a limit on 

the length of time that a fund may 

depart in other-than-normal 

circumstances to 90 consecutive days 

after the initial departure. 

Although we are not adopting the 

proposed approach of delineating the 

circumstances in which a fund may 

depart intentionally from the 80% 

requirement, an intentional departure 

must be in other than ‘‘normal’’ 

circumstances, which could include but 

is not limited to the circumstances 

included in the proposed approach. 

These circumstances could include 

temporary departures that occur as a 

result of market fluctuations, index 

rebalancing, cash flows/inflows, or 

temporary defensive positions, among 

others.199 These circumstances do not, 

however, represent the extent of events 

or circumstances where a fund, in 

considering its obligations under the 

names rule and the prohibitions of 

section 35(d), may determine that otherthan-normal circumstances exist, 

warranting a departure from 80%. The 

final rules’ approach provides flexibility 

to depart under circumstances that may 

not have been included in the 

proposal’s delineated reasons for 

departures. Although the question of 

whether circumstances are ‘‘normal’’ is 

based on the facts and circumstances, if 

a fund were to deviate in purportedly 

other-than-normal circumstances 

serially or frequently, this may suggest 

that in fact those circumstances are 

‘‘normal’’ and otherwise raise questions 

about the appropriateness of the fund’s 

name under section 35(d) if the fund’s 

portfolio is not invested consistent with 

its name for prolonged periods of 

time.200 When a fund deviates from the 

80% investment requirement due to 

other-than-normal circumstances, as we 

discuss below, the fund is required to 

maintain a record documenting the date 

of the departure and the reason for the 

departure.201

c) Time to Come Back Into Compliance 

The final amendments require that 

funds come back into compliance with 

the 80% investment requirement as 

soon as reasonably practicable in the 

case of drift (i.e., where the fund 

identifies that its investments are not 

consistent with this requirement under 

the names rule, for example, as a result 

of inadvertent drift identified as part of 

the fund’s quarterly review).202 In all 

circumstances, a fund must come back 

into compliance within 90 consecutive 

days, as measured from the time that the 

fund identifies a departure from the 

80% investment policy (as part of its 

quarterly review or otherwise), or the 

time the fund initially departs, in otherthan-normal circumstances, from the 

80% investment policy.203 Under the 

final amendments, consistent with the 

current rule, where a fund identifies 

that the 80% requirement is no longer 

met, the fund must make all future 

investments in a manner that will bring 

the fund into compliance with the 

fund’s 80% investment policy. The 

Commission proposed to require funds 

to come back into compliance with the 

80% investment policy within 30 days 

from the initial departure from 80%. We 

are modifying the proposed approach to 

respond to concerns raised by 

commenters. 

The Commission received some 

support for the proposed period for 

funds to come back into compliance.204

The Commission received many 

comments, however, arguing that a 30- 

day period was not an appropriate time 

limit on departures.205 While some 


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Fidelity Comment Letter; Nationwide Comment 

Letter; Dimensional Comment Letter; Wellington 

Comment Letter; Capital Group Comment Letter. 

206See, e.g., ICI Comment Letter; Dechert 

Comment Letter; Stradley Comment Letter; T. Rowe 

Comment Letter; MFDF Comment Letter; MFS 

Comment Letter; Invesco Comment Letter; SIFMA 

AMG Comment Letter; WisdomTree Comment 

Letter; Dimensional Comment Letter. 

207See J.P. Morgan Asset Management Comment 

Letter. 

208See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Dechert Comment Letter; Stradley 

Comment Letter; T. Rowe Comment Letter; USCOC 

Comment Letter; Cato Institute Comment Letter; 

Dimensional Comment Letter; Capital Group 

Comment Letter. Certain of these commenters stated 

that the 2001 Names Rule Adopting Release stated 

that funds should not be required to ‘‘sell portfolio 

holdings that have increased in value’’ in order to 

reattain compliance with their 80% policy. See, 

e.g., Dechert Comment Letter; ICI Comment Letter. 

209These circumstances would arise only where, 

in the given example, the security grew sufficiently 

to become a mid-cap security, the fund manager 

preferred to continue to hold the security, and the 

fund manager had already made similar 

determinations with respect to other securities 

which collectively made up 20% of the value of the 

fund’s assets. 

210See, e.g., Dechert Comment Letter; Stradley 

Comment Letter; Nationwide Comment Letter; ICI 

Comment Letter; SIFMA AMG Comment Letter; T. 

Rowe Comment Letter; Dimensional Comment 

Letter; Nationwide Comment Letter; Fidelity 

Comment Letter; WidsomTree Comment Letter; 

Wellington Comment Letter. 

211See, e.g., Calamos Comment Letter; 

Nationwide Comment Letter. 

212See, e.g., Fidelity Comment Letter. 

213See, e.g., ICI Comment Letter; Dechert 

Comment Letter; Stradley Comment Letter; 

Dimensional Comment Letter; SIFMA AMG 

Comment Letter; MDFS Comment Letter; MFS 

Comment Letter; Invesco Comment Letter. 

214See ICI Comment Letter; SIFMA AMG 

Comment Letter; Dechert Comment Letter; MFS 

Comment Letter; see also Investment Company 

Liquidity Risk Management Programs, Investment 

Company Act Release No. 32315 (Oct. 13, 2016) [81 

FR 82142 (Nov. 18, 2016)] (‘‘Liquidity Adopting 

Release’’) and Use of Derivatives by Registered 

Investment Companies and Business Development 

Companies, Investment Company Act Release No. 

34084 (Nov. 2, 2020) [85 FR 83162 (Dec. 21, 2020)] 

(‘‘Derivatives Adopting Release’’). 

215See, e.g., Dimensional Comment Letter; 

SIFMA AMG Comment Letter; ICI Comment Letter. 

216Proposing Release, supra footnote 2, at n.61 

and accompanying text. As another example, 

consistency in investment companies’ investments 

with their names and investors’ reasonable 

expectations may be particularly important to 

retirement plan and other investors who place great 

emphasis on allocating their investment company 

holdings in well-defined types of investments, such 

as stocks, bonds, and money market instruments. 

See id.; see also 2001 Names Rule Adopting 

Release, supra footnote 8, at n.8 and accompanying 

text. 

commenters stated that a 30-day period 

may be appropriate for some asset 

classes or in certain market conditions, 

these commenters contended that a 30- 

day period may be too short in certain 

market conditions or in unanticipated 

extenuating circumstances.206 For 

example, one commenter stated that 

while a fund may be able to remedy a 

departure from the 80% investment 

policy that is the result of unusually 

large flows within 30 days, a portfolio 

manager may need more time when 

divesting securities to accommodate 

when an index rebalances or where a 

strategy may need to be reconsidered 

given exogenous events.207

Commenters stated that the proposed 

30-day time period may require a fund 

to make forced purchases and sales at 

potentially undesirable prices or at 

inappropriate times.208 For example, if 

a small-cap security becomes a mid-cap 

security and therefore can no longer be 

included in the small-cap fund’s 80% 

basket, the fund may be required to sell 

the holding within the proposed 30-day 

period, even though the portfolio 

manager believes that it is in the best 

interest of the fund to hold the security 

for a longer period.209 Commenters 

stated that forced purchases or sales 

could lead to additional adverse 

consequences for a fund, including the 

risks of front running from other market 

participants, unwanted capital gains or 

assorted tax efficiency implications, 

increased transaction costs, reduced 

diversification, fire sales, 

homogenization across funds with 

similar names, and an overall negative 

impact on fund performance, as well as 

market liquidity and market stability 

more largely.210

The current names rule effectively 

requires that funds make all future 

investments consistent with the fund’s 

80% policy once the fund identifies that 

its portfolio is out of compliance with 

the 80% investment requirement. Some 

commenters urged the Commission to 

reconsider the proposed 30-day period 

and instead maintain the current 

standard.211 Additionally, commenters 

suggested alternative time periods to 

require funds to come back into 

compliance with the 80% investment 

policy, e.g., 180 days.212

Several commenters suggested an 

alternative approach that would require 

funds to notify their board of directors 

if the fund falls out of compliance with 

the 80% investment policy for more 

than a specified period of time (e.g., 30, 

60, or 90 days etc.).213 Some 

commenters suggested that after a 

certain period of time following a 

departure from 80%, a fund must 

provide a report to the board detailing 

how the fund will come back into 

compliance. Commenters stated that 

other rules under the Investment 

Company Act have similar board 

reporting requirements, which recognize 

the value of a board’s oversight of fund 

management and the best interest of 

fund shareholders, and that the names 

rule may benefit from such a 

requirement.214 Under this alternative, 

commenters stated that they believed 

that funds would have more flexibility 

than under the proposed approach and 

that the board would be in the best 

position to judge whether a departure is 

reasonable.215

The amendments we are adopting are 

designed to help ensure that a fund will 

not stray from the investment focus its 

name suggests for a protracted period of 

time, regardless of external events or 

other circumstances that could affect the 

fund’s portfolio investments. Investors’ 

expectations for funds’ investment 

focuses may not depend on whether 

market events negatively affect the 

investments in a fund’s portfolio. For 

example, investments in passivelymanaged funds, such as index-based 

mutual funds and ETFs, have increased 

substantially in the past two decades, 

indicating that investors seek 

investment products that permit them to 

obtain specific types of investment 

exposure for their portfolios.216

Although investors may have different 

expectations regarding how long a fund 

may drift from the fund’s investment 

focus, a prolonged period of drift would 

be inconsistent with the investor 

protection concerns that underlie the 

names rule and section 35(d) of the 

Investment Company Act. 

Taking these concerns into account, 

while considering comments received, 

we are extending the proposed time 

period that funds have to come back 

into compliance with the names rule 

from 30 to 90 consecutive days after the 

fund either identifies a departure or, in 

other-than-normal circumstances, 

departs from the 80% investment 

requirement. We recognize, as certain 

commenters raised, that some investors 

may prefer allowing a fund to depart 

from its investment focus for longer 

than 30 days to avoid any losses that the 

fund may incur to come back into 

compliance within that time period. The 

final amendments provide funds with 

more flexibility and time both to 

recognize when a fund has drifted out 

of compliance and to correct the 

departure. This 90-day review period is 

also consistent with the quarterly Form 

N–PORT reporting requirement 

discussed below. The final amendments 

require a fund to assess whether the 

fund’s portfolio is in compliance at least 

quarterly and provide the fund with an 

additional quarter to rectify any 

departure from the 80% investment 

requirement. At some point, however, 

departures may begin to change the 

nature of the fund fundamentally, 

which would undermine investor 


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217See Investment Company Act section 6(c) 

(providing the Commission with authority to 

conditionally or unconditionally exempt persons, 

securities or transactions from any provision of the 

Act if and to the extent that such exemption is 

necessary or appropriate in the public interest and 

consistent with the protection of investors and the 

purposes fairly intended by the policy and 

provisions of the Act). 

218See also, e.g., J.P. Morgan Asset Management 

Comment Letter (‘‘Although temporary noncompliance in the ordinary course, such as due to 

unusually large flows, should be readily fixable in 

less than 30 days, there are also circumstances in 

which more flexibility is warranted.’’); MFDF 

Comment Letter (‘‘While we agree that in most 

circumstances, a fund should be able to return to 

compliance within 30 days, it is difficult to 

anticipate every type of market volatility or other 

extenuating circumstance that might make this 

difficult to do while still protecting the interests of 

the fund’s shareholders.’’). 

219See final rule 35d–1(a)(2)(ii), (b)(1)(iii), (d). 

220See proposed rule 35d–1(b)(iv); final rule 35d– 

1(b)(1)(iii). 

221Final rule 35d–1(b)(1)(iii); see also final rule 

35d–1(g) (defining the term ‘‘launch’’). 

222Final rule 35d–1(g). 

223See, e.g., SIFMA AMG Comment Letter; 

USCOC Comment Letter; Invesco Comment Letter. 

224See, e.g., SIFMA AMG Comment Letter; 

USCOC Comment Letter. 

225See, e.g., SIFMA AMG Comment Letter. 

226See, e.g., USCOC Comment Letter. 

227See Fidelity Comment Letter. 

expectations created by the fund’s 

name. The time limits we are adopting 

are designed to prevent such a 

fundamental change without investor 

notification. 

We are not adopting, as suggested by 

some commenters, a board reporting 

obligation that would effectively 

provide additional time to resolve 

departures from the 80% requirement. 

Rather, the final approach directly 

provides funds with additional time, 

compared to the proposal, both to 

identify drift in their portfolios and to 

rectify departures from 80%. The 

increased flexibility for temporary 

departures that the final amendments 

afford to funds, compared to the 

proposed approach, addresses many of 

the concerns raised by commenters 

recommending that we adopt a board 

reporting obligation instead of setting 

specified time periods for funds to come 

back into compliance with the names 

rule. These comments were generally 

framed in terms of providing additional 

flexibility, as opposed to suggesting that 

a fund’s board should have a specific 

oversight role when a fund departs from 

80% for an extended period. The 

requirement that funds review their 

portfolios for names rule compliance 

quarterly in addition to a 90-day period 

to come back into compliance increases 

the flexibility of funds to accommodate 

instances of fund drift and intentional 

departures. This requirement also still 

includes a time certain for funds to 

resolve these departures in recognition 

of investors’ reasonable expectation that 

a fund’s investments will generally 

remain focused in the area that the 

fund’s name indicates. In addition, a 

fund can seek exemptive relief from the 

Commission if the fund believes it 

would be appropriate and consistent 

with the protection of investors for the 

fund to depart for a limited additional 

period past 90 days. Any request for an 

exemptive order will be evaluated based 

on its particular facts and circumstances 

and must meet the standard under 

section 6(c) of the Investment Company 

Act, including that the exemption is 

necessary or appropriate in the public 

interest and consistent with the 

protection of investors.217 One example 

of an instance in which a fund might 

consider seeking relief would be where 

the fund anticipates resolving the 

departure, but cannot do so within 90 

days and seeks to avoid changing the 

fund’s name only to change it again in 

a short period of time. 

In instances where the fund identifies 

that its investments are not consistent 

with this requirement under the names 

rule (for example, as a result of 

inadvertent drift identified as part of the 

fund’s quarterly review), we are 

retaining the requirement that a fund 

must make all future investments in a 

manner that will bring the fund back 

into compliance with the 80% 

investment policy. We are also 

adopting, as proposed, the requirement 

that a fund must come back into 

compliance ‘‘as soon as reasonably 

practicable’’ (with a 90-day outer limit) 

because we anticipate that most 

temporary departures caused by 

portfolio drift could be remedied in 

substantially less than 90 days, though 

this could depend on the specific facts 

and circumstances.218

We recognize that there are certain 

circumstances under which a fund may 

be unable to bring its portfolio back into 

compliance with the fund’s 80% 

investment policy within the required 

90-day period. As commenters stated, 

there may be events that preclude the 

ability of a fund to make investments or 

sell assets that would not be in the best 

interest of the fund but that may be 

required to come back into compliance 

with the names rule. If such an event 

occurred, the fund would need to 

change its name to better reflect the 

realities of its portfolio and the fund 

must provide shareholders with a notice 

of that change, which would provide 

information that would allow investors 

to understand the nature of the fund’s 

portfolio.219 The final amendments, 

consistent with the proposal, effectively 

toll the time for a fund to get back into 

compliance following a departure from 

80% that the rule otherwise would 

require, if a notice of a change in a 

fund’s policy has been provided to fund 

shareholders.220 Once such a notice has 

been provided to shareholders, 

shareholders have a period of 60 days to 

determine whether they would like to 

redeem their shares before the change in 

policy takes effect. 

(d) Fund Launches and Reorganizations 

We are adopting final rule 

amendments that permit funds to invest 

less than 80% of their assets in the 80% 

basket temporarily in order to reposition 

or liquidate assets in connection with a 

reorganization or to launch a fund.221

We are adopting these amendments 

substantially as proposed. For fund 

launches, the final amendments provide 

funds with a temporary period to depart 

from the 80% investment requirement 

that is not to exceed 180 consecutive 

days starting from the day the fund 

commences operations.222 The final rule 

amendments do not limit the time of 

departures associated with fund 

reorganizations. 

The Commission received comments 

requesting that we extend the proposed 

period of time permitted for fund 

launches from 180 days to a longer 

period.223 Commenters stated that 

certain funds, for example ‘‘alts funds’’ 

or certain illiquid funds, may have a 

longer ramp-up period that can extend 

beyond 180 days.224 One commenter 

stated that investors in these types of 

less-liquid funds will understand the 

nature of the fund they are investing in 

and understand that coming into 

compliance with the names rule within 

180 days may not be in the interest of 

the fund.225 Another commenter stated 

that it is in the best interest of the fund 

manager to invest the assets of the fund 

and to establish the fund as quickly as 

possible and that a fund manager may 

reasonably need more than 180 days to 

come into compliance with the names 

rule.226 The Commission received one 

comment supporting the proposed 

approach to reorganizations and did not 

receive comments opposing this aspect 

of the proposal.227

We understand that there may be 

variability in how long is needed to 

launch a new fund depending on the 

types of investments in which the fund 

seeks to invest. In some instances, it 

may be in shareholders’ interest for 

funds to take additional time beyond the 

otherwise-required 90-day temporary 

departures period to invest in a manner 

consistent with the fund’s 80% 

investment policy, for example to avoid 


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228See 2001 Names Rule Adopting Release, supra 

footnote 8, at n.39 and accompanying text. 

229See also, e.g., PRI Comment Letter (supporting 

all of the proposed time frames for getting back into 

compliance). 

230For example, when the board of an open-end 

fund determines to approve a reorganization, the 

fund would supplement its prospectus. 

231See, e.g., Proposing Release, supra footnote 2, 

at nn.76–78 and accompanying text. 

232See proposed rule 35d–1(g). 

233See proposed rule 35d–1(b)(2). 

234See final rule 35d–1(g) (definitions of ‘‘assets’’ 

and ‘‘derivatives instrument’’). The final 

amendments’ approach, like the proposed 

approach, does not distinguish between derivatives 

instruments that are assets and derivatives that are 

liabilities of the fund. See Proposing Release, supra 

footnote 2, at n.83. 

235See Proposing Release, supra footnote 2, at 

paragraph accompanying nn.77–78; see also 15 

U.S.C. 80a–2(a)(41)(B) (defining ‘‘value,’’ in part, as 

the market value of securities for which market 

quotations are readily available and, for all other 

investments, as fair value as determined in good 

faith by the board of directors). 

236A total return swap, for example, can provide 

a return that is the economic equivalent of a direct 

investment in the derivative’s reference asset. 

237A fund’s name may be materially deceptive or 

misleading under section 35(d) of the Investment 

Company Act, however, even if it complies with the 

80% investment policy requirement (and uses 

notional amounts as the final amendments require 

Continued 

the potential for adverse impacts on the 

price of a targeted investment, to scale 

up an investment, or to find a better 

investment that corresponds to the 

investment focus relative to what is 

currently available. Nonetheless, we are 

adopting the requirement that, 

consistent with current guidance, such 

a period should not exceed 180 

consecutive days.228 We understand, 

based on staff knowledge of industry 

practice, that this time frame is 

generally sufficient for funds to invest 

fully, consistent with their 80% 

investment policy, after the fund 

commences operations.229 Further, the 

final amendments generally require 

funds to be invested consistent with 

their 80% investment policy ‘‘as soon as 

reasonably practicable,’’ which may be 

a shorter time than 180 days. The 

amendments therefore do not permit 

any fund to exceed 180 consecutive 

days to invest its assets consistent with 

its 80% investment policy when 

launching a fund. 

We recognize the likelihood that it 

can take longer for funds to find 

investments during their start-up, 

particularly for funds that invest in 

securities whose supply is limited. Both 

reorganizations and launches may result 

in a fund holding assets in a way that 

is inconsistent with its 80% investment 

policy in connection with these fund 

life-cycle events. For example, at startup it may take time for a new fund to 

find and purchase available investments 

consistent with the fund’s investment 

focus, and the fund may hold cash in 

the interim. While we anticipate that, 

for most funds, codifying a required 

180-day period for a fund to be fully 

invested consistent with its 80% 

investment policy will not result in 

significant operational changes, we 

acknowledge that may not be the case 

for all funds. 

Planned reorganizations may take 

longer to complete than 30 days or even 

180 days. Moreover, such a planned 

action will be disclosed, and the 

reorganization is likely to be a 

permanent change to the nature of the 

investor’s investment.230 Similarly, a 

change to a fund’s 80% investment 

policy will result in a permanent change 

to the fund’s investments, about which 

funds notify investors pursuant to the 

provisions of the names rule. Thus, we 

do not believe that changes in the fund’s 

investment portfolio to support an 

upcoming reorganization would 

generally be inconsistent with investors’ 

reasonable expectations. As a result, we 

do not believe that an express time limit 

is necessary for departures from the 

80% investment requirement made in 

connection with these actions. Such 

departures would still be required to be 

resolved as soon as reasonably 

practicable, consistent with any 

temporary departure under the rule. 

3. Considerations Regarding Derivatives 

in Assessing Names Rule Compliance 

Consistent with the proposal, we are 

adopting amendments that address the 

valuation of derivatives instruments for 

purposes of determining compliance 

with a fund’s 80% investment policy, as 

well as the derivatives that a fund may 

include in its 80% basket. These 

amendments are designed to reflect the 

investment exposure derivatives 

investments create and to increase 

comparability, as some funds currently 

value derivatives instruments using 

their notional amounts for purposes of 

determining their compliance with the 

80% test while other funds use market 

values.231 The amendments are 

designed both to allow funds to use 

names that may more effectively 

communicate their investments and 

risks to investors, and to reduce the risk 

that a fund may use derivatives to invest 

in a manner inconsistent with the 

investment focus suggested by the 

fund’s name. 

The proposed amendments included 

the requirement for funds to use a 

derivatives instrument’s notional 

amount, rather than its market value, for 

the purpose of determining compliance 

with a fund’s 80% investment policy.232

The proposal also included 

amendments to address the derivatives 

instruments that a fund may include in 

its 80% basket.233 As discussed below, 

commenters generally agreed that the 

names rule should specifically address 

funds’ use of derivatives, although some 

commenters suggested modifications to 

the proposed approach. 

We are adopting the proposed 

amendments with certain changes in 

response to comments. We discuss each 

element of the final amendments’ 

provisions addressing derivatives 

below. 

Use of Derivatives’ Notional Amounts, 

With Currency Hedging Exclusion 

The final amendments generally 

require a fund to use notional amounts 

to value derivatives in assessing 

whether it has invested 80% of the 

value of its assets in accordance with 

the investment focus that the fund’s 

name suggests.234 In a change from the 

proposal, however, the final 

amendments also require a fund to 

exclude from the calculation certain 

derivatives that hedge the currency risk 

associated with a fund’s foreigncurrency denominated investments. 

These derivatives therefore will not be 

included in the calculation of the fund’s 

assets or the fund’s 80% basket when 

determining if the fund is complying 

with its 80% investment policy. A fund 

must exclude a currency derivative if it: 

(1) is entered into and maintained by 

the fund for hedging purposes, and (2) 

the notional amounts of the derivatives 

do not exceed the value of the hedged 

investments (or the par value thereof, in 

the case of fixed-income investments) 

by more than 10 percent. 

The final amendments’ approach of 

using notional amounts better reflects 

the investment exposure that derivatives 

investments create than the use of 

market values (as the Act would 

generally otherwise require by operation 

of its definition of the term ‘‘value’’), 

because a derivative instrument’s 

market value may bear no relation to the 

investment exposure that the derivatives 

instrument creates.235 For most types of 

derivatives instruments, the notional 

amount generally serves as a measure of 

a fund’s investment exposure to the 

underlying reference asset or metric.236

The use of notional amounts furthers 

the goal of helping to ensure that a 

fund’s investment activity is consistent 

with the investment focus its name 

communicates.237 Notably, using a 


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in performing its compliance calculations). See 

infra section II.A.5. 

238See Proposing Release, supra footnote 2, at 

paragraphs following n.78. 

239See Consumer Federation of America 

Comment Letter; Capital Group Comment Letter; 

J.P. Morgan Asset Management Comment Letter; 

Ceres Comment Letter; Environmental Defense 

Fund Comment Letter; Comment Letter of 

Americans for Financial Reform Education Fund 

(Aug. 15, 2022) (‘‘AFREF Comment Letter’’); see 

also Comment Letter of Chris Barnard (June 8, 2022) 

(‘‘Barnard Comment Letter’’) (expressing support for 

‘‘an economic consideration that would look 

through the notional value of assets held in order 

to determine the economic impact of the fund 

exposures’’). 

240See Center for American Progress Comment 

Letter; see also SIFMA AMG Comment Letter 

(stating that, while not all SIFMA AMG members 

agree that notional value is the most appropriate 

valuation for every derivatives instrument in all 

cases, many funds ‘‘recognize the benefit of 

eliminating disparate valuation practices among 

funds with an 80% investment policy’’). 

241See, e.g., Capital Group Comment Letter; 

Fidelity Comment Letter; T. Rowe Comment Letter; 

Dechert Comment Letter; ICI Comment Letter. 

242See Dechert Comment Letter; ICI Comment 

Letter; see also Capital Group Comment Letter. 

243T. Rowe Comment Letter. 

244See Dechert Comment Letter; ICI Comment 

Letter; T. Rowe Comment Letter. 

245 If the fund in this example had invested $80 

in U.S. equity securities and $20 in non-U.S. 

securities, and then hedged risks associated with 

the non-U.S. securities with derivatives with a 

notional amount of $20, the fund would no longer 

satisfy its 80% investment policy. The fund’s $80 

in U.S. equity securities would represent 67% of 

the fund’s $120 in assets. See also Proposing 

Release, supra note 2, at nn.75–76 and 

accompanying text. 

246Consumer Federation of America Comment 

Letter. 

247But see infra footnote 259. We believe that the 

term ‘‘notional amount,’’ which is also used in 17 

CFR 270.18f–4 (‘‘rule 18f–4’’), is understood by 

market participants and used as a means to reflect 

the market exposure a derivatives creates— 

meaning, for example, that if a derivative provides 

a return based on the leveraged performance of a 

reference asset, the notional amount must reflect 

the application of the leverage factor. See 

Derivatives Adopting Release, supra footnote 214, 

at text following n.496. 

248See T. Rowe Comment Letter. 

249See id. 

derivatives instrument’s market value 

for purposes of assessing names rule 

compliance could prevent a fund from 

using a name that effectively 

communicates its investments, or could 

result in a fund being in compliance 

with its 80% investment policy despite 

having significant exposure to 

investments that are not suggested by 

the fund’s name.238

Comments on the proposed 

mandatory approach to using notional 

amounts were mixed. Some commenters 

supported the proposed approach, 

stating that notional amounts are a more 

accurate reflection of funds’ economic 

exposure, as compared to market values, 

and that exposure is likely what 

investors assume a fund name 

reflects.239 One commenter also 

expressed appreciation that the proposal 

attempts to provide a clear rule while 

also adjusting for accuracy in reflecting 

exposure.240 Other commenters 

generally supported the use of notional 

amounts but suggested changes to the 

proposed approach that would permit 

the use of market values under certain 

circumstances.241 For example, some 

commenters suggested that the rule 

should permit a fund to value each 

derivatives instrument consistent with a 

‘‘reasonable exposure metric’’ and a 

method that best measures the economic 

exposure the derivatives instrument 

obtains synthetically, so long as the 

fund consistently applies the relevant 

metric and method.242 One commenter 

suggested an alternative approach that 

would require the use of notional 

amounts for derivatives that are 

included in a fund’s 80% basket, but 

that would permit the use of market 

values for derivatives that are not 

included in the 80% basket, depending 

on the nature of the particular 

derivative.243

Commenters suggesting these 

alternative approaches expressed 

particular concern about using notional 

amounts for derivatives transactions 

entered into to protect against risks 

posed by investments not suggested by 

a fund’s name (i.e., investments not 

included in the 80% basket).244 For 

example, a fund with ‘‘U.S. equities’’ in 

its name might invest a limited 

percentage of its assets in non-U.S. 

securities and then enter into 

derivatives to hedge risks associated 

with those securities. To comply with 

the fund’s 80% investment policy, the 

value of the fund’s U.S. equity 

investments in the fund’s 80% basket 

must represent at least 80% of the value 

of the fund’s ‘‘assets’’ as defined in the 

rule. If the derivatives intended to hedge 

risks associated with the non-U.S. 

equity securities in this example were 

valued using notional amounts, 

however, this would increase the value 

of the fund’s ‘‘assets’’ and therefore 

could have a potentially large impact on 

the denominator for purposes of names 

rule compliance, causing the fund to 

drop below the required 80% 

threshold.245 These commenters argued 

that this, in turn, could dissuade funds 

from entering into certain derivatives 

transactions that funds use for hedging 

or risk management purposes, whose 

impact on fund performance might be 

insignificant. One commenter, on the 

other hand, argued against an 

alternative approach that uses different 

valuation approaches for different 

derivatives because this would be less 

consistent and more complex than the 

proposed approach, which would likely 

result in inconsistencies in treatment, 

would complicate funds’ compliance, 

and would raise examination 

challenges.246

After analyzing comments, we 

continue to believe that notional 

amounts are generally an appropriate 

measure of derivatives instruments’ 

economic exposure.247 This approach is 

designed to provide a clear and 

consistent approach to derivatives 

valuation that will simplify names rule 

compliance because all funds will have 

a specific standard to follow when 

valuing derivatives for names rule 

purposes. This approach also promotes 

names that effectively communicate a 

fund’s investments and risks because all 

funds will be using the same calculation 

methodology. The final amendments’ 

requirement for funds to use notional 

amounts to value derivatives, in the 

context of names rule compliance, 

reflects these goals. 

However, we are adopting a 

modification to this approach in 

consideration of commenters’ concerns 

that the proposed approach could limit 

the use of derivatives for hedging 

purposes. Take the example discussed 

above, where a U.S. equity fund may 

invest up to 20% of its assets in stocks 

of companies domiciled outside of the 

United States, consistent with the 

names rule. The fund in this example 

would not include the foreign stocks in 

its 80% basket, and therefore these 

foreign stocks would be in the 

denominator in the calculation that the 

fund would use to determine 

compliance with its 80% investment 

policy.248 Any related currency 

derivative that the fund holds for 

hedging purposes, therefore, also would 

be in the denominator. This currency 

derivative could have a high notional 

amount, even though it would be 

reducing, not increasing, the fund’s 

exposure to risks associated with the 

fund’s foreign securities. Holding the 

currency derivative therefore could 

significantly limit the extent to which 

the fund could invest outside of its 80% 

basket. One commenter stated that this 

approach could result in funds adopting 

more generic names, which would 

permit them to use derivatives with 

fewer constraints.249 A fund also could 

decide to leave its foreign-currencydenominated investments unhedged in 

lieu of breaching its 80% investment 

policy, increasing risks to the fund and 

its shareholders. 

While we appreciate these concerns, 

we continue to believe the names rule’s 


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250See Derivatives Adopting Release, supra 

footnote 214, at paragraph accompanying n.522. 

While the Commission’s discussion in the 

Derivatives Adopting Release also characterized 

interest rate derivatives in this way, in addressing 

derivatives that may be excluded when calculating 

derivative exposure to determine eligibility for the 

limited derivatives user exception in rule 18f–4, the 

policy considerations for interest rate derivatives in 

the context of the names rule are unique as 

discussed below. 

251See id. at paragraphs accompanying and 

following nn.523–526. 

252See Dechert Comment Letter; ICI Comment 

Letter; T. Rowe Comment Letter (discussing 

currency derivatives, as well as interest rate 

derivatives). 

253While the market value of a derivative almost 

never will exceed its notional amount, as typically 

defined, a derivative can equal it, for example in the 

case of deep in-the-money options. 

254See final rule 35d–1(g). 255See Proposing Release, supra footnote 2, at 

n.80 and accompanying text; see also Derivatives 

Adopting Release, supra footnote 214, at section 

II.E.1; AFREF Comment Letter (providing numeric 

examples of the utility of the proposed 

adjustments). 256See Derivatives Adopting Release, supra 

footnote 214, at n.500. 

257See AFREF Comment Letter; Center for 

American Progress Comment Letter; see also 

Consumer Federation of America Comment Letter 

(stating that it makes sense, for efficiency’s sake, for 

the names rule to apply the same approach with 

regards to derivatives measurement that rule 18f– 

4 under the Act requires for purposes of considering 

funds’ derivatives exposure in the context of the 

rule’s limited derivatives user provision). 

258See Dechert Comment Letter; ICI Comment 

Letter; SIFMA AMG Comment Letter; Fidelity 

Comment Letter. 

259See SIFMA AMG Comment Letter; Fidelity 

Comment Letter. 

approach to derivatives must be clear 

and consistently applied, and therefore 

we are not adopting a principles-based 

approach that, as some commenters 

suggested, would permit a fund to use 

any appropriate exposure metric when 

valuing derivatives in the context of 

names rule compliance. Instead, the 

final amendments require a fund, in 

calculating its assets for purposes of 

assessing names rule compliance, to 

exclude certain currency derivatives 

instruments that hedge currency risks 

associated with one or more specific 

foreign-currency-denominated equity or 

fixed-income investments held by the 

fund. A fund must exclude a currency 

derivative if it: (1) is entered into and 

maintained by the fund for hedging 

purposes, and (2) the notional amounts 

of the derivatives do not exceed the 

value of the hedged investments (or the 

par value thereof, in the case of fixedincome investments) by more than 10 

percent. 

Excluding these derivatives from the 

names rule compliance calculation 

addresses concerns that including 

certain derivatives at their notional 

amounts in this calculation could limit 

the use of derivatives for hedging 

purposes. Limiting this exclusion to 

currency derivatives is designed to 

ensure that the exclusion will not result 

in the names rule calculation excluding 

instruments that create economic 

exposures that should be considered in 

assessing whether a fund’s name is 

materially deceptive and misleading in 

light of its portfolio. The Commission 

has previously distinguished currency 

derivatives, when directly matched to 

particular investments held by the fund, 

as instruments that ‘‘predictably and 

mechanically provide the anticipated 

hedging exposure.’’ 250 The provision in 

the final rule requiring that these 

derivatives must be entered into and 

maintained for hedging purposes, and 

that the notional amounts of these 

derivatives must not exceed the value of 

the hedged investments by more than 10 

percent, similarly reflects an approach 

the Commission has taken in the past to 

define currency derivatives that qualify 

as hedges.251 These instruments 

therefore would not generally create 

economic exposures that could cause a 

fund’s name to be materially deceptive 

or misleading. 

On the other hand, other types of 

hedging transactions executed through 

derivatives are difficult to distinguish 

from transactions that create exposures 

that contribute to (or detract from) the 

investment focus that a fund’s name 

suggests. For example, while a fund can 

use derivatives to hedge the interest rate 

risk that exists in interest-bearing assets, 

similar derivatives instruments can be 

used to supplement a portfolio whose 

strategy reflects a particular conviction 

about the movement of interest rates. It 

therefore would not be appropriate to 

adopt an approach that requires 

exclusion of interest rate derivatives in 

this example, as opposed to currency 

derivatives whose hedging purpose 

under the final amendments is more 

straightforward to determine. While no 

commenter suggested the specific 

approach to currency derivatives that 

the final amendments include, this 

approach addresses commenters’ 

concerns about ways in which the 

proposal could limit hedging activities, 

with one commenter specifically 

discussing hedging involving currency 

derivatives.252

We acknowledge that commenters 

suggesting alternative approaches 

generally favored the use of market 

values for certain derivatives, as 

opposed to excluding these derivatives 

from the names rule calculation. While 

derivatives’ market values can often be 

quite low, such that the use of their 

market values would be functionally 

equivalent to excluding these 

derivatives from a names rule 

compliance calculation, there are 

circumstances where the market value 

of a derivative could be large.253 The 

use of market values under these 

circumstances, as well as an approach 

that permits but does not require the 

exclusion of currency derivatives used 

for hedging purposes, could therefore 

lead to inconsistent compliance 

calculation outcomes. 

Calculating Notional Amounts for 

Purposes of Names Rule Compliance 

In calculating notional amounts, the 

final amendments, as proposed, will 

require a fund to convert interest rate 

derivatives to their 10-year bond 

equivalents and to delta adjust the 

notional amounts of options 

contracts.254 A simple way to convert an 

interest rate derivative to its ten-year 

bond equivalent is to multiply the 

derivative’s unadjusted notional amount 

by the ratio of the derivative’s duration 

and the duration of the reference 

security. The requirement to convert 

interest rate derivatives to 10-year bond 

equivalents is designed to result in 

adjusted notional amounts that better 

represent a fund’s exposure to interest 

rate changes.255 Absent this adjustment, 

short-term interest rate derivatives can 

produce large unadjusted notional 

amounts that may not correspond to 

large exposures to interest rate changes. 

Similarly, a fund will delta adjust an 

option by multiplying the option’s 

unadjusted notional amount by the 

option’s delta (i.e., the ratio of change in 

the value of the option to the change in 

value of the asset into which the option 

is convertible).256 The requirement to 

delta adjust options is designed to 

provide for a more tailored notional 

amount that better reflects the exposure 

that an option creates to the underlying 

reference asset. 

Some commenters supported the 

proposed mandatory notional amount 

adjustments, arguing that these 

adjustments are standardized practices 

that will properly account for 

derivatives instruments’ true 

exposures.257 Other commenters argued 

that the names rule should permit, but 

not require, the proposed 

adjustments.258 These commenters 

stated that rule 18f–4 permits the 

adjustments but does not require them, 

and therefore the names rule’s approach 

would permit funds to benefit from 

compliance and operational 

efficiencies.259 One commenter also 

argued that there is no policy reason for 

different treatment between the names 

rule and rule 18f–4 because the 

permissive adjustments in rule 18f–4 


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260SIFMA AMG Comment Letter. 

261Fidelity Comment Letter. 

262A fund’s use of derivatives that results in a 

substantial portion of the fund’s risks or returns 

being materially different from those which an 

investor reasonably would expect based on the 

fund’s name, regardless of the fund’s compliance 

with the requirements of the names rule (including 

the use of derivatives’ notional amounts and the 

required tailoring adjustments) could render a 

fund’s name to be materially deceptive or 

misleading. See infra section II.A.5. 

263Final rule 35d–1(g). The Commission has 

stated that items commonly considered to be cash 

equivalents include certain Treasury bills, agency 

securities, bank deposits, commercial paper, and 

shares of money market funds. See Proposing 

Release, supra footnote 2, at n.86. U.S. Generally 

Accepted Accounting Principles (‘‘U.S. GAAP’’) 

define cash equivalents as short-term, highly liquid 

investments that are readily convertible to known 

amounts of cash and that are so near their maturity 

that they present insignificant risk of changes in 

value because of changes in interest rates. 

Generally, only investments with original 

maturities of three months or less qualify under that 

definition. See FASB Accounting Standards 

Codification Master Glossary, available at https://

asc.fasb.org/glossary. 

264See Proposing Release, supra footnote 2, at 

paragraphs accompanying nn.84–86. 

265See Dechert Comment Letter; ICI Comment 

Letter; Dimensional Comment Letter. 

266See Dechert Comment Letter; ICI Comment 

Letter. 267SIFMA AMG Comment Letter (stating that 

funds may employ investment strategies that seek 

exposure to the U.S. government through derivative 

instruments, as well as cash and cash equivalents, 

and it would be appropriate to permit cash and cash 

equivalents to be included in both the numerator 

and denominator of a fund’s 80% investment policy 

calculation when such investments provide market 

exposure); T. Rowe Comment Letter (stating that if 

the Commission were to adopt the commenter’s 

suggested alternative approach to the mandatory 

use of notional amounts, discussed in supra 

footnote 243 and accompanying text, this approach 

would not require the deduction of cash and cash 

equivalents to address potential double-counting of 

a fund’s exposure, but if the Commission did not 

adopt the alternative approach, the deduction of 

cash and cash equivalents should be permissive and 

not mandatory). 

‘‘generate an accurate measure of the 

exposure created by a particular 

derivatives transaction.’’ 260 Another 

stated that requiring the proposed 

adjustments would prevent funds from 

‘‘taking a more conservative approach’’ 

by deciding not to scale down the 

notional value of derivatives to their 10- 

year bond equivalents.261

After considering comments, we are 

adopting the proposed mandatory 

adjustments. We continue to believe 

that requiring these tailoring 

adjustments is appropriate for purposes 

of the names rule in order for a fund’s 

80% investment policy to best reflect 

the fund’s investment exposure, which 

in turn would help ensure that the 

investment focus a fund’s name 

communicates is not materially 

deceptive or misleading.262 For 

example, a deep out-of-the money 

option can have a large unadjusted 

notional amount, but will provide 

limited investment exposure to the 

underlying reference asset. It would not 

be consistent with the goal of requiring 

notional amounts when assessing names 

rule compliance to permit the fund in 

this example to use such an option’s 

unadjusted notional amount to satisfy 

its 80% investment policy because, even 

if the option’s unadjusted notional 

amount equaled or exceeded 80% of the 

value of the fund’s assets, it is not 

providing a commensurate degree of 

investment exposure at that time. While 

permitting the adjustments rather than 

requiring them could allow a fund to 

take a ‘‘more conservative’’ approach in 

certain specific cases as one commenter 

suggested, it also could permit a fund to 

account for derivatives in its names rule 

compliance in a way that could be 

inconsistent with investors’ 

expectations based on the fund’s name. 

Requiring these adjustments would 

prevent a fund, for example, from 

including a deep out-of-the money 

option in its 80% basket to comply with 

its 80% investment policy. In that case, 

the option’s unadjusted notional 

amount would not represent the 

exposure that the option creates to the 

underlying reference asset at that time. 

This potential gaming consideration is 

not applicable in the context of rule 

18f–4, because including high 

unadjusted notional amounts in a fund’s 

calculation of derivatives exposure for 

rule 18f–4 purposes could result in the 

possibility only of increased regulatory 

burden (for a fund not qualifying as a 

limited derivatives user under the rule). 

Reducing the Value of a Fund’s Assets 

by Deducting Cash And Cash 

Equivalents and Certain U.S. Treasury 

Securities 

The final amendments will permit a 

fund, in determining compliance with 

its 80% investment policy, to deduct 

cash and cash equivalents and U.S. 

Treasury securities with remaining 

maturities of one year or less from assets 

(i.e., the denominator in the 80% 

calculation), up to the notional amounts 

of the fund’s derivatives instruments.263

This represents a change from the 

proposal, which would have limited the 

deduction to cash and cash equivalents 

and would have required, not permitted, 

this deduction. 

The Commission stated in the 

Proposing Release that funds that use 

derivatives instruments to gain exposure 

to the markets in which they invest may 

maintain portions of their assets in cash 

and cash equivalents, which may not 

themselves provide market exposure. 

Rather, such cash and cash equivalents 

may effectively function as low-risk 

collateral for those derivatives 

instruments. Because the notional 

amount of the derivatives instruments 

for which the cash and cash equivalents 

effectively function as collateral is 

already included in the denominator of 

the 80% investment test, including the 

cash and cash equivalents held as such 

collateral could effectively ‘‘doublecount’’ the fund’s exposure.264

Commenters that addressed this 

aspect of the proposal generally 

supported it and encouraged the 

Commission to expand the types of 

assets that funds may deduct beyond 

cash and cash equivalents.265 Some 

commenters stated that the Commission 

should extend the proposed approach to 

allow funds to exclude any assets that 

they have posted as collateral under 

derivatives instruments and certain 

other asset types.266 These commenters 

provided examples of what this 

recommended broader approach would 

encompass, including other U.S. 

government securities such as U.S. 

Treasury securities with under five 

years to maturity, investment-grade 

corporate bonds with under three years 

to maturity, short-term bond fund 

shares, interests in other short-term 

investment funds, and repurchase 

agreements on cash equivalents or any 

of the foregoing types of instruments. 

One commenter discussed 

circumstances in which cash and cash 

equivalents provide investment 

exposure and therefore should not be 

deducted in a fund’s 80% investment 

policy calculation, and another 

commenter suggested that the deduction 

of cash and cash equivalents be 

permissive instead of mandatory as 

proposed.267

We agree that the deduction of cash 

and cash equivalents should be 

permissive and not mandatory. For 

funds that do not employ investment 

strategies that seek exposure through 

investments in cash and cash 

equivalents, the decision not to deduct 

cash and cash equivalents in a fund’s 

80% investment policy calculation 

always would be more conservative for 

purposes of meeting the required 80% 

threshold. That is, the denominator in 

the calculation (the fund’s assets as 

defined in the names rule) for a fund 

that chooses not to deduct cash and 

cash equivalents would always be larger 

compared to an equivalent fund that 

chooses to deduct cash and cash 

equivalents from its assets. Choosing not 

to deduct cash and cash equivalents 

therefore would require proportionately 

more assets in the fund’s 80% basket 

compared to an equivalent fund that 

chooses to deduct cash and cash 


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268See supra footnote 263. 

269See ISDA, Initial Margin Non-Cleared Margin 

Rules/Eligible Collateral Comparison by Jurisdiction 

(Jan. 5, 2023), available at https://www.isda.org/a/ 

EqxgE/Eligible-Collateral-Comparison-010523.pdf 

(haircuts on U.S. debt securities with under 1 year 

residual maturity are substantially less than 

haircuts on U.S. debt securities with longer 

maturities). 

270Final rule 35d–1(g). 

271See Proposing Release, supra footnote 2, at 

Request for Comment #33. 

272See Dechert Comment Letter; ICI Comment 

Letter; T. Rowe Comment Letter; see also SIFMA 

AMG Comment Letter. 

273See rule 18f–4(a). 

274See Derivatives Adopting Release, supra 

footnote 214, at section II.E. 

275 Dechert Comment Letter; see also supra 

footnote 270. 

276 Dechert Comment Letter (suggesting that 

under the proposed approach, ‘‘a fund might be 

compelled to transact with the counterparty with 

which it entered in the original derivatives 

transaction on less favorable terms, including 

pricing, or which poses more credit risk to the fund, 

than a different counterparty with which it could 

enter into an offsetting position at the time it needs 

to eliminate its exposure under the first 

transaction’’). 

equivalents. Moreover, permitting a 

fund to choose not to deduct cash and 

cash equivalents reflects that there are 

circumstances in which cash and cash 

equivalents provide investment 

exposure that is consistent with the 

fund’s name. 

We also agree that expanding the 

permissible deduction to encompass all 

U.S. Treasury securities with remaining 

maturities of one year or less (as 

opposed to those with original 

maturities of three months or less, 

which would qualify as ‘‘cash 

equivalents’’ for purposes of U.S. 

GAAP) would permit funds to exclude 

certain additional assets that effectively 

function as low-risk collateral for 

derivatives instruments but that do not 

introduce unexpected investment 

exposure or risk to the portfolio.268 U.S. 

Treasury securities with remaining 

maturities of one year or less have a 

significantly lower likelihood of a shortterm price change (and the magnitude of 

any price change is likely significantly 

lower) than U.S. government securities 

with longer original and/or remaining 

maturities.269

We decline, however, to expand the 

permissible deduction beyond cash and 

cash equivalents and U.S. Treasury 

securities with remaining maturities of 

one year or less. We are concerned that 

this approach could result in funds 

deducting investments from the names 

rule calculation that could introduce 

unexpected investment exposure or risk 

to the portfolio. For instance, if a fund 

with a name that suggests a focus in 

bonds with very short-term maturities 

were to use derivatives as part of its 

strategy, and held corporate bonds with 

longer maturities than its name suggests, 

deducting those bonds from the names 

rule calculation would result in 

deducting instruments that may be 

riskier than the assets in which the 

fund’s name suggests a focus. The same 

consideration applies for Treasury 

securities with relatively long original 

and/or remaining maturities, as these 

securities similarly can introduce risk to 

a portfolio, in particular when interest 

rates rise. The deduction of these types 

of assets could result in the fund’s 

investments providing investment 

exposure that is inconsistent with the 

fund’s name, but is not reflected in 

names rule compliance assessments, 

which could mislead investors. The 

breadth of funds that could be subject to 

the 80% investment policy requirement 

makes it challenging to draw clear and 

consistent lines about what types of 

collateral—other than cash and cash 

equivalents and U.S. Treasury securities 

with remaining maturities of one year or 

less—would not result in potentially 

misleading names if deducted from the 

names rule calculation. 

Deduction of Closed-Out Derivatives 

Positions 

In a change from the proposal, the 

final amendments provide that a fund is 

permitted to exclude any closed-out 

derivatives positions when calculating 

assets for purposes of determining 

compliance with its 80% investment 

policy, if those positions result in no 

credit or market exposure to the fund.270

The proposed amendments did not 

address closed-out derivatives positions 

directly. However, the 2022 Proposal 

included a request for comment asking 

whether it is sufficiently clear that 

funds would eliminate from the names 

rule calculation closed-out derivatives 

positions, that is, derivatives that were 

closed out with the same counterparty 

and result in no credit or market 

exposure to the fund, or instead whether 

the rule should address these 

positions.271

Several commenters discussed this 

request for comment and stated that the 

Commission should exclude closed-out 

derivatives positions from the names 

rule calculation, but should not limit 

the exclusion of closed-out positions to 

those with the same counterparty.272

These commenters contrasted their 

suggested treatment with the treatment 

of closed-out positions in rule 18f–4 

under the Act.273 Commenters 

recognized that rule 18f–4 does not 

permit funds to exclude offsetting 

positions across different counterparties 

in calculating derivatives exposure for 

purposes of determining whether a fund 

qualifies as a limited derivatives user.274

Commenters argued that the concerns 

underlying the approach in rule 18f–4, 

however, do not apply for purposes of 

the names rule, which is focused 

‘‘primarily on addressing the alignment 

between the investment exposures 

suggested by a fund’s name and those 

resulting from the fund’s investments 

and preventing the use of misleading 

fund names.’’ 275 One commenter argued 

that limiting excluded closed-out 

derivatives positions to those with the 

same counterparty would lead to 

economic inefficiencies and could be 

detrimental to a fund’s returns.276

The final amendments permit funds 

to exclude closed-out derivatives 

positions from the names rule 

calculation if those positions result in 

no market exposure to the fund because 

these closed-out positions will not affect 

the fund’s risks or returns. We agree that 

the concerns underlying rule 18f–4’s 

provision on closed-out derivatives 

positions are not the same concerns 

underlying the names rule. Rule 18f–4 

does not permit a fund to offset 

derivatives transactions with different 

counterparties for purposes of 

determining whether a fund qualifies as 

a limited derivatives user under that 

rule because netting these derivatives 

transactions could result in a fund 

having a large volume of open 

derivatives positions subject to their 

own margin and other requirements 

with various counterparties. This, in 

turn, could involve a scale of derivatives 

positions and related operational and 

counterparty risks that the Commission 

has stated it believes funds should 

manage as part of a derivatives risk 

management program. The goals of the 

names rule, on the other hand, address 

whether the exposures that a fund’s 

portfolio creates align with the focus 

that the fund’s name suggests. Reflecting 

these exposures for purposes of 

calculating names rule compliance does 

not depend on requiring offset positions 

to have the same counterparties. The 

final amendments, therefore, do not 

require that closed-out positions to be 

closed out with the same counterparty 

in order for a fund to exclude them from 

the calculation of its assets. 

Derivatives Instruments Included in the 

80% Basket 

The final amendments, substantially 

as proposed, permit a fund to include in 

its 80% basket a derivatives instrument 

that provides investment exposure to 

one or more of the market risk factors 

associated with the investment focus 


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277Rule 35d–1(b)(2). 

278See Proposing Release, supra footnote 2, at 

paragraphs following paragraph accompanying 

n.86. For example, if ABC Bond Fund invested $100 

in bonds, $100 in interest rate swaps, and held no 

other assets, the fund would not satisfy its 80% 

investment policy if the interest rate swaps were 

not included in the fund’s 80% basket ($100 in 

bonds/$100 in bonds + $100 in swaps = 50%). 

279See SIFMA AMG Comment Letter; Dechert 

Comment Letter; Fidelity Comment Letter; ICI 

Comment Letter. 

280See ICI Comment Letter; see also SIFMA AMG 

Comment Letter; Dechert Comment Letter; see also 

Proposing Release, supra footnote 2, at section 

II.A.3 (discussing funds’ use of derivatives to obtain 

exposure to market risk factors associated with the 

fund’s investments, for example interest rate risk, 

credit spread risk, and foreign currency risk). 

281Fidelity Comment Letter. 

282See Derivatives Adopting Release, supra 

footnote 194, at n.530 and accompanying text. 

283 Including derivatives in the 80% basket to the 

extent that they negate the primary market risk 

factor associated with the assets in which the fund’s 

name suggests an investment focus similarly could 

result in a fund’s name being materially deceptive 

and misleading, notwithstanding the fund’s 

adoption of an 80% investment policy and 

compliance with the requirements of the names 

rule. See supra footnote 262. For example, investors 

may reasonably expect the investments in which 

the ‘‘XYZ Corporate Bond Fund’’ focuses to reflect 

exposure to certain risks, such as credit risk. If this 

fund were to purchase credit default swaps or any 

other derivatives instruments that resulted in the 

elimination of all credit risk in its portfolio for an 

extended period of time, and were to include these 

derivatives in the fund’s 80% basket, the fund’s 

name could be materially deceptive and misleading 

because the fund would have eliminated the 

primary market risk factor associated with the 

assets in which the fund’s name suggests a focus. 

284See Good Faith Determinations of Fair Value, 

Investment Company Act Release No. 34128 (Dec. 

3, 2020) [86 FR 748 (Jan. 6, 2021)] (for a general 

discussion of valuation practices with respect to the 

fair value of a registered investment company or 

business development company). 

285Final rule 35d–1(g). 

suggested by the fund’s name.277 This 

approach recognizes that, in addition to 

using derivatives as direct substitutes 

for cash market investments, some 

funds use derivatives instruments to 

hedge exposures or to obtain exposure 

to market risk factors associated with 

the fund’s investments (for example, 

interest rate risk and credit spread risk). 

Those instruments may have very high 

notional amounts, and if the rule did 

not allow funds to treat the notional 

amounts of those derivatives 

instruments as investments that reflect 

the fund’s investment focus, the 

notional amounts of those derivatives 

instruments could cause a fund to fall 

out of compliance with its 80% 

investment policy.278

Commenters expressed support for 

the proposed approach, as it recognizes 

that funds often use derivatives 

instruments to provide complementary 

investment exposure to the investments 

suggested by a fund’s name, including 

exposure to the market risk factors 

associated with such investments.279

Some commenters requested that the 

Commission acknowledge that funds 

may consider all derivatives that 

provide exposure to market risk factors 

associated with investments suggested 

by a fund name when testing names rule 

compliance, not just those enumerated 

risk factors discussed in the Proposing 

Release.280 Another commenter 

requested that the Commission expand 

the types of derivatives hedging 

instruments that may be included in a 

fund’s 80% investment policy by 

allowing derivatives transactions that 

hedge the risks associated with one or 

more securities held by a fund, 

notwithstanding whether they are 

intended to hedge market risk factors 

associated with the investments 

suggested by the fund’s name.281 This 

commenter provided as an example 

funds that invest in mortgage passthrough securities, which commonly 

use U.S. Treasury futures and options to 

hedge against the impact of mortgage 

prepayments on the fund’s duration 

(stating that using derivatives to manage 

duration in this manner may not align 

with the investments suggested in a 

fund’s name or provide investment 

exposure to a market risk factor 

associated with an investment suggested 

by a fund’s name). 

After considering comments, the final 

amendments do not expand the 

derivatives that may be included in a 

fund’s 80% basket beyond the proposed 

approach. Under the proposed 

approach, the derivatives instruments 

included in a fund’s 80% basket would 

either be functioning as a substitute for 

direct investments in the securities 

suggested by the fund’s name or (in the 

case of, for example, interest rate 

derivatives) used to facilitate the fund’s 

investment in those securities by 

increasing or decreasing the fund’s 

exposure to risk factors associated with 

those securities. On the other hand, 

derivatives used to manage the risks of 

the fund’s portfolio as a whole can 

involve more complex hedging activities 

than transactions that provide 

investment exposure to one or more of 

the market risk factors associated with 

investments suggested by the fund’s 

name.282 This, in turn, could create 

exposures that could be inconsistent 

with investors’ reasonable expectations 

of the fund’s investment activity.283

We acknowledge that there may be 

transactions other than the ones that the 

Commission specifically addressed in 

the Proposing Release that provide 

investment exposure to one or more of 

the market risk factors associated with 

investments suggested by the fund’s 

name, and the examples the 

Commission provided are not intended 

to be limiting. To help determine 

whether a derivatives instrument 

provides investment exposure to one or 

more of the market risk factors 

associated with a fund’s name assets, 

the fund generally should consider 

whether the derivative provides 

investment exposure to any explicit 

input that the fund uses to value its 

name assets, where a change in that 

input would change the value of the 

security.284 For example, prepayment is 

an explicit risk factor in the price of a 

mortgage security, and therefore, in 

contrast to the concern that a 

commenter expressed, it would 

generally be appropriate for a fund 

whose name indicates a focus in 

mortgage securities to include 

derivatives in its 80% basket that 

manage the prepayment risk of these 

securities. 

Treatment of Short Positions 

Under the final amendments and as 

proposed, if a fund were to use 

derivatives instruments to obtain 

exposure to short positions in one or 

more reference assets, the fund would 

have to use these derivatives 

instruments’ notional amounts for 

purposes of determining compliance 

with its 80% investment policy. That is, 

these investments would be valued at 

their notional amounts in the 

denominator in all cases, and at their 

notional amounts in the numerator 

where the fund includes investments 

that provide short exposure in the 

numerator. The final amendments, in a 

change from the proposal, also specify 

that a fund must value each physical 

short position using the value of the 

asset sold short.285 For example, if a 

fund sold short one share of a security 

for $100, the market value of the 

position would be $0 at that time 

because the fund has $100 in short sale 

proceeds but also a liability in the form 

of the obligation to return a share worth 

$100. If the fund had obtained the same 

short exposure via a swap, the notional 

amount would be $100. Valuing the 

physical short position at $100 for 

purposes of the names rule—the value 

of the asset sold short—provides 

comparable values for names rule 

purposes for the swap and physical 

short sale in this example. 

The 2022 Proposal included a request 

for comment asking about funds’ current 

practices with respect to including short 

positions in their 80% baskets, and also 

whether the Commission should 

address the valuation of physical short 

sales for purposes of assessing names 


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286See ICI Comment Letter; SIFMA AMG 

Comment Letter; Dechert Comment Letter. 287 ICI Comment Letter; Dechert Comment Letter. 288 ICI Comment Letter. 289 ICI Comment Letter; Dechert Comment Letter; 

see also SIFMA AMG Comment Letter (stating that, 

with respect to short positions, whether 

accomplished through the use of derivatives 

instruments or the physical short sale of a security 

or other asset, the Commission should require that 

funds use the notional value of such positions for 

purposes of determining names rule compliance). 

290This approach is consistent with the valuation 

of physical short positions in rule 18f–4 under the 

Act. See definition of ‘‘derivatives exposure’’ in rule 

18f–4(a). 

291Final rule 35d–1(f). This approach has the 

same practical effect as the proposed approach, 

which would have required these funds to adopt 

their 80% investment policies as fundamental 

policies (policies that funds cannot change unless 

authorized by a vote of a majority of its outstanding 

voting securities). See proposed rule 35d–1(a)(2)(ii); 

see also 15 U.S.C. 80a–13(a)(3). 

292Final rule 35d–1(f)(4) (specifying that, in the 

event of a tender offer, the fund purchases shares 

at their net asset value). This provision in final rule 

35d–1 addresses tender offers but does not 

specifically address the price at which repurchase 

offers must be conducted for a fund to be eligible 

for this exception because the Investment Company 

Act rules already address the price (net asset value) 

at which closed-end funds and business 

development companies conducting periodic 

repurchase offers are required to repurchase shares. 

See 17 CFR 270.23c–3 (‘‘rule 23c–3’’), 

293Better Markets Comment Letter; NASAA 

Comment Letter. 

294See, e.g., ICI Comment Letter; Dechert 

Comment Letter; SIFMA AMG Comment Letter; 

Comment Letter of Simpson Thacher and Bartlett, 

LLP (Aug. 30, 2022) (‘‘Simpson Thacher Comment 

Letter’’). 

295SIFMA AMG Comment Letter; Invesco 

Comment Letter. 

296SIFMA AMG Comment Letter; Simpson 

Thacher Comment Letter. 

297Stradley Comment Letter; Dechert Comment 

Letter. 

rule compliance. Commenters who 

discussed these points advocated for the 

Commission explicitly to permit funds 

to include short positions in derivatives 

and physical short sales in their 80% 

baskets and to address the valuation of 

physical short sales.286 They stated that 

the Commission should adopt an 

approach that permits, but does not 

require, funds to include in their 80% 

baskets short positions in derivatives 

and physical short sales, where each of 

these provides short exposure to the 

investments suggested by the fund’s 

name or to the market risk factors 

associated with those investments in 

their 80% baskets, regardless of whether 

the fund’s name specifically suggests 

the use of short sales or short positions. 

Commenters stated that many funds 

currently take this approach when 

assessing names rule compliance.287

One commenter stated that funds use 

both long and short positions to obtain 

exposures suggested by a fund’s name, 

and this commenter argued that the 

suggested approach would be consistent 

with the proposed approach of 

including derivatives instruments that 

provide investment exposure to a 

market risk factor associated with a 

fund’s name.288 In addressing the 

valuation of physical short positions, 

commenters suggested that the 

Commission should permit funds to use 

the absolute notional amount or the 

absolute market value of the asset sold 

short under a physical short sale for 

purposes of valuing such transaction for 

names rule compliance.289 In addition, 

they also suggested a fund should be 

permitted to look through to the 

components of its open short sale 

positions to offset their investment 

exposure (i.e., the fund should be able 

to close out all or part of a short sale 

position) for purposes of compliance 

with its 80% investment policy. 

We agree that short positions, under 

certain circumstances, may qualify as 

investments that a fund may include in 

its 80% basket. For example, if a fund’s 

name indicates that its investment focus 

includes short exposure to a particular 

type of investment, this inclusion would 

be appropriate. In other circumstances, 

however, the inclusion of short 

positions would not be appropriate 

where this would result in the fund’s 

economic exposure departing 

significantly from investors’ reasonable 

expectations based on the fund’s name. 

For example, if a fund were named the 

‘‘XYZ Equity Fund,’’ and half of the 

value of its 80% basket were invested in 

long equity positions, and the other half 

were invested in short equity positions, 

the portfolio’s net exposure would 

likely not be consistent with investors’ 

expectations based on the fund’s name. 

We agree that, to better reflect the 

exposures that physical short sales 

provide, the rule should address the 

valuation of physical short sales and use 

an approach where their valuation is 

consistent with the valuation of short 

positions obtained through a fund’s use 

of derivatives. We are therefore adopting 

a change to the proposed definition of 

‘‘assets’’ in the names rule, which 

specifies that a fund must value each 

physical short position using the value 

of the asset sold short.290 A fund would 

be able to reduce the value of its assets 

by excluding any cash and cash 

equivalents, and U.S. Treasury 

securities with remaining maturities of 

one year or less, up to the notional 

amount of the value of asset(s) sold 

short, just as a fund could exclude any 

cash and cash equivalents and such U.S. 

Treasury securities up to the notional 

amount of the fund’s derivatives 

instruments, as discussed above. 

4. Unlisted Registered Closed-End 

Funds and BDCs 

The final rule will prohibit a 

registered closed-end fund or BDC 

whose shares are not listed on a national 

securities exchange, and that is required 

to adopt an 80% investment policy, 

from changing that policy unless 

authorized by a vote of the majority of 

the outstanding voting securities of the 

fund.291 However, in a modification 

from the proposal, under the final 

amendments such funds will be 

permitted to make changes to their 80% 

investment policies without this vote if 

the fund conducts a tender or 

repurchase offer in advance of the 

change, the fund provides at least 60 

days’ prior notice of any change in the 

policy in advance of that offer, that offer 

is not oversubscribed, and the fund 

purchases shares at their net asset 

value.292

Some commenters voiced general 

support for this element of the proposal, 

stating that it was an improvement from 

the current rule, whereby investors in 

these products generally have limited or 

no ready recourse if a fund were to 

change its investment policy, and that it 

would empower investors.293

Conversely, other commenters raised 

concerns regarding the proposed 

requirement, arguing that it would 

impede the ability of funds to change 

their investment strategies without 

conducting costly special shareholder 

votes.294 This, according to commenters, 

could place these funds at a competitive 

disadvantage relative to other funds.295

Furthermore, some commenters 

expressed that the requirement was 

unnecessary because it did not seem to 

address any identified harm to investors 

in these funds, stating that many closedend funds and BDCs currently offer 

tender offer and repurchase programs as 

periodic sources of liquidity, and that 

investors in these products are already 

on notice through existing disclosures of 

any potential liquidity constraints.296

Some commenters also suggested that a 

blanket requirement on BDCs to adopt a 

fundamental policy was contrary to the 

congressional intent behind exempting 

BDCs from Investment Company Act 

provisions that otherwise require funds 

to disclose and have a shareholder vote 

on changes in fundamental policies.297

Some commenters suggested alternative 

approaches to address these concerns 

but also achieve the goals of the 

proposed amendments. For example, 

commenters suggested that the 

Commission require a vote only when 

all shareholders are not given an 

opportunity to sell or tender their shares 

back to the issuer after notice of a 


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298See Dechert Comment Letter; Simpson 

Thacher Comment Letter. 

299 2001 Names Rule Adopting Release, supra 

footnote 8, at n.19 and accompanying text. 

300See also Proposing Release, supra footnote 2, 

at n.99. For example, many of the tender offer and 

repurchase programs currently offered by unlisted 

registered closed-end funds and BDCs are periodic 

and limited, and are therefore unlikely to provide 

recourse where a large percentage of a fund’s 

investors disapprove of a change. 

301See, e.g., Invesco Comment Letter; ICI 

Comment Letter. But see NASAA Comment Letter 

(stating that a longer notice period would be 

insufficient as it would not provide investors a 

voice in these decisions). 

302The final amendments do not frame the 

requirement to obtain shareholder approval under 

certain circumstances as the requirement to adopt 

a ‘‘fundamental policy.’’ See supra footnote 297 and 

accompanying text (discussing commenters’ 

concerns about the proposed approach that would 

require BDCs to adopt fundamental policies). While 

the final amendments do retain the requirement to 

obtain a shareholder vote under certain 

circumstances, which the proposed approach 

effectively would have required, we believe that 

this is an appropriate use of the Commission’s 

authority under section 35(d), and in light of the 

fact that the requirement to seek a shareholder vote 

under the final amendments is triggered only where 

a fund chooses a name that conveys a particular 

investment focus. We also believe this is 

appropriate in the context of unique investor 

protection concerns for investors in unlisted funds 

including BDCs resulting from the general lack of 

readily available liquidity. 

303 ‘‘Oversubscribed’’ in this case means 

shareholders have tendered or requested repurchase 

of a greater number of shares than the fund has 

offered to purchase (or ultimately purchases) in 

accordance with applicable Commission rules 

including rule 13e–4 under the Exchange Act and 

rule 23c–3 under the Investment Company Act. See 

final rule 35d–1(g). 

304Final rule 35d–1(c). In addition, the anti-fraud 

provisions of the Federal securities laws regarding 

disclosures to investors continue to apply to funds 

notwithstanding their compliance with the names 

rule. 

305See Proposing Release, supra footnote 2, at 

n.101. 

306See, e.g., Better Markets Comment Letter; CFA 

Institute Comment Letter; Sierra Club Comment 

Letter; Fidelity Comment Letter; U.S. SIF Comment 

Letter. 

307See, e.g., PRI Comment Letter; Comment Letter 

of As You Sow (Aug. 15, 2022) (‘‘As You Sow 

Comment Letter’’); Comment Letter of Blue Haven 

Initiative (Aug. 16, 2022) (‘‘Blue Haven Comment 

Letter’’); Comment Letter of Building a Sustainable 

Investment Community Comment Letter (Aug. 15, 

2022) (‘‘Building a Sustainable Investment 

Community Comment Letter’’). 

change in the 80% investment policy, or 

require a shareholder vote only in the 

event that the next tender offer or 

repurchase program after such notice is 

oversubscribed.298

As an alternative to the requirement 

to make their 80% policies fundamental 

policies, the current names rule permits 

funds other than tax-exempt funds to 

provide shareholders with 60 days’ 

prior notice of such changes. The 

Commission permitted funds to provide 

shareholders advance notice, in lieu of 

adopting a fundamental policy, because 

the advance notice would provide 

shareholders with sufficient time to 

decide whether to redeem their shares 

in the event that a fund decides to 

pursue a strategy involving a different 

investment focus.299 Unlike other funds 

subject to the rule, however, unlisted 

registered closed-end funds and BDCs 

do not issue redeemable shares or list 

their shares on a national securities 

exchange. As a result, shareholders in 

the affected funds generally have no 

ready recourse, such as the ability to 

redeem shares, if a fund were to change 

its investment policy and the 

investment focus that the fund’s name 

indicates.300 In light of these investors’ 

limited options to sell their shares 

readily, the proposed fundamental 

policy requirement for unlisted 

registered closed-end funds and BDCs 

aimed to ensure that investors in these 

funds would be able to vote on any 

changes to a fund’s investment policy. 

After considering comments, we do 

not agree that extending the notice 

period, as some commenters suggested, 

is a sufficient substitute to respond to 

the concerns that the proposed 

approach was designed to address.301

We recognize, however, that there could 

be alternative approaches to the 

proposed requirement that could 

address the Commission’s concerns 

while decreasing the operational 

burdens that would accompany a 

requirement to conduct a shareholder 

vote for every instance in which a fund 

changes its 80% investment policy. We 

also recognize that where a fund does in 

fact give its investors the opportunity to 

sell their shares in connection with a 

fund’s change of its 80% investment 

policy, the fund alleviates the concern 

that investors will be forced to hold 

investments that they wish to sell. 

The final amendments include a 

limited exception to the shareholder 

approval requirement for funds that 

conduct qualifying tender or repurchase 

offers in advance of a proposed change 

in policy.302 This exception is intended 

to function in a similar manner to the 

rule’s general notice alternative by 

giving investors in unlisted registered 

closed-end funds and BDCs that use this 

alternative the opportunity to exit the 

fund prior to a fund’s change in 

investment policy. This exception will 

provide funds with increased 

optionality in effecting changes to their 

investment policies compared to the 

proposed approach, and this approach 

is designed to mitigate commenter 

concerns that the proposed fundamental 

policy requirement would have put 

unlisted registered closed-end funds 

and BDCs at a competitive disadvantage 

against other types of funds. 

To be eligible for this exception, a 

fund must conduct a tender or 

repurchase offer in accordance with all 

applicable Commission rules prior to 

any change in policy and provide 

shareholders with at least 60 days’ prior 

notice of any change in such policy in 

advance of the offer. In the case of 

tender offers, a fund must purchase 

shares at NAV in order to be eligible for 

the exception. The exception applies 

only insofar as the tender or repurchase 

offer is not oversubscribed.303 If a tender 

or repurchase offer is oversubscribed, 

suggesting that the shareholders are not 

supportive of the change, a fund 

therefore would then be required to 

conduct a shareholder vote prior to 

making the change to its investment 

policy that the notice describes, in 

accordance with the final rule. This 

change also gives a fund discretion to 

determine the number of shares it is 

willing to repurchase from shareholders 

after the notice of the change, in 

accordance with all applicable 

Commission rules. This will permit 

fund managers to weigh the risk of 

oversubscription, and the resulting need 

to have a special shareholder meeting to 

vote on the change, against the amount 

of liquidity they are willing to provide 

to shareholders. 

5. Effect of Compliance With an 80% 

Investment Policy 

We are adopting, substantially as 

proposed, a new provision in the names 

rule providing that a fund’s name may 

be materially deceptive or misleading 

under section 35(d) of the Investment 

Company Act even if the fund adopts 

and implements an 80% investment 

policy and otherwise complies with the 

rule’s requirement to adopt and 

implement the policy.304 The 

Commission has previously stated that 

the names rule’s 80% investment policy 

requirement is not intended to create a 

safe harbor from liability under section 

35(d) for materially deceptive or 

misleading fund names, and we are 

codifying this view to make clear that a 

fund name may be materially deceptive 

or misleading even where the fund 

complies with its 80% investment 

policy.305

Many commenters supported this 

aspect of the proposal.306 Some 

commenters asserted that the 

codification is particularly important for 

fund names that articulate an ESG 

focus.307 One commenter urged the 

Commission to require funds that use 

ESG terms in their name to state clearly 

and prominently what percent of the 

fund is invested in securities that do not 


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308Comment Letter of Corey Shapiro (Aug. 16, 

2022) (‘‘Shapiro Comment Letter’’). 

309See, e.g., CFA Institute Comment Letter; As 

You Sow Comment Letter; Blue Haven Comment 

Letter; Bonwood Comment Letter; Comment Letter 

of Change Finance (Aug. 15, 2022) (‘‘Change 

Finance Comment Letter’’). 

310See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; Dechert Comment Letter; Capital 

Group Comment Letter; PRI Comment Letter. 

311See, e.g., J.P. Morgan Asset Management 

Comment Letter; Federated Hermes Comment 

Letter; Stradley Comment Letter; see also Fidelity 

Comment Letter (expressing particular concern with 

the statements provided in the 2022 Proposal, 

asserting that ‘‘the current regulatory landscape, 

which requires certain specific disclosures under 

Form N–1A and provides for further registration 

statement liability through other securities laws, 

appropriately addresses any potential liability for 

material omissions or misstatements in the 

registration statement’’). 

312See, e.g., MFS Comment Letter; Stradley 

Comment Letter; Capital Group Comment Letter; 

Fidelity Comment Letter (stating that ‘‘the 20% 

portion of the fund’s portfolio that is not subject to 

the Names Rule is a diversification tool in managing 

fund assets’’). 

313See SIFMA AMG Comment Letter; MFS 

Comment Letter. 

314See Proposing Release, supra footnote 2. As 

another example, a fund that is perpetually out of 

compliance with the 80% investment requirement 

on account of temporary departures may have a 

name that is materially deceptive or misleading 

under section 35(d) even if each temporary 

departure is permissible under the rule. Id. Further, 

as discussed above, a fund of funds or other 

acquiring fund can reasonably rely upon the entire 

value of its investment in an appropriate acquired 

fund as a general matter. See supra paragraph 

following paragraph accompanying footnotes 139– 

140. However, if an acquiring fund was aware that 

an underlying fund has changed its investments 

such that it is not following the acquiring fund’s 

investment focus, that acquiring fund’s name may 

be materially misleading or deceptive if it continues 

to include the value of the investment in the 

acquired fund in its 80% basket. 

315See Proposing Release, supra footnote 2, at 

n.102 and accompanying discussion. 

316PIABA Comment Letter; Dogwhistle Comment 

Letter. 

317See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; Dechert Comment Letter; Fidelity 

Comment Letter; Invesco Comment Letter. 

318See SIFMA AMG Comment Letter; BlackRock 

Comment Letter; Dechert Comment Letter (stating 

that ‘‘[w]hile fund sponsors conduct initial and 

ongoing periodic due diligence on index providers, 

index funds rely upon the index providers, on a 

daily basis, to construct the index. Funds make 

clear disclosures concerning their use of indices, 

and we believe investors have established a clear 

understanding of how index funds operate in the 

decades since their introduction’’). 

319See Comment Letter of State Street Global 

Advisors (Aug. 16, 2022) (‘‘State Street Comment 

Letter’’); ICI Comment Letter; WisdomTree 

Comment Letter. 

comply with the investment criteria for 

the 80% basket.308 Other commenters 

suggested that fund names that imply a 

prohibition or absence of investments or 

issuers with certain characteristics 

should have an investment policy that 

prohibits these investments.309

Several commenters, however, 

suggested that the Commission should 

provide more clarity or define precisely 

what types of investments would be 

considered inconsistent with the fund’s 

name to the degree that the name would 

be materially deceptive or misleading 

despite the fund’s compliance with an 

80% investment policy.310 In response 

to an example in the 2022 Proposal that 

a fund that complies with the names 

rule but makes a substantial investment 

that is ‘‘antithetical’’ to the fund’s 

investment focus would have a 

materially deceptive or misleading 

name, commenters expressed that the 

proposed provision poses significant 

risks of second-guessing because 

evaluating whether an investment is 

antithetical to a fund’s name is highly 

subjective.311 Commenters also 

suggested that the uncertainty related to 

the provision would decrease portfolio 

management discretion and flexibility 

in managing the fund’s portfolio, as this 

uncertainty would give rise to concern 

about violating the rule.312 A few 

commenters asserted that absent a claim 

in a fund’s name that the fund will not 

invest in a particular type of investment, 

a fund should have flexibility as long as 

it discloses how it will invest its 20% 

basket.313

After considering the comments on 

the proposed provision, we continue to 

believe that a fund’s name could be 

materially deceptive or misleading for 

purposes of section 35(d) even if that 

fund has complied with the names 

rule’s 80% investment policy 

requirement. For example, a fund’s 

name could be materially deceptive or 

misleading for purposes of section 35(d) 

if the fund invests in a way such that 

the source of a substantial portion of the 

fund’s risks or returns is materially 

different from that which an investor 

reasonably would expect based on the 

fund’s name, regardless of the fund’s 

compliance with the requirements of the 

names rule (e.g., a ‘‘green energy and 

fossil fuel-free’’ fund making a 

substantial investment in an issuer with 

fossil fuel reserves, or a ‘‘conservative 

income bond’’ fund using the 20% 

basket to invest in highly volatile equity 

securities that introduce significant 

volatility into a fund that investors 

would expect to have lower levels of 

volatility associated with lower-yielding 

bonds).314 To the extent a fund uses its 

20% basket to invest in assets that are 

materially inconsistent with the 

investment focus or risk profile reflected 

by the fund’s name, the fund’s name 

would be materially deceptive or 

misleading under section 35(d). While 

we appreciate commenters’ expressed 

concerns, the provision is designed to 

codify the existing relationship between 

the names rule and section 35(d) and 

not to create new requirements or 

standards with respect to the selection 

of investments in a fund’s 20% basket 

that are not now present. For these 

reasons, this provision will not require 

certain disclosures related to the percent 

of a fund’s assets invested in securities 

that do not comply with the investment 

criteria for the 80% basket, nor will this 

provision include an explicit 

prohibition on investments that are 

inconsistent with the activity that a 

fund’s name communicates, as 

suggested by a few commenters. 

Relatedly, the 2022 Proposal 

discussed situations where a fund may 

be invested 80% or more in a market 

index referenced in the fund’s name, but 

that underlying index may have 

components that are contradictory to the 

index’s name.315 In such circumstances, 

even though the fund meets the names 

rule requirements by its investments in 

the index, the name could still be 

materially misleading or deceptive in 

that the index’s name would suggest an 

investment focus that the fund does not 

follow. A few commenters agreed that 

this example could lead to materially 

deceptive or misleading fund names, 

asserting that terms used in the name of 

index funds can communicate an 

investment focus to investors, therefore 

such funds should not be allowed to 

circumvent the technical holding 

requirements of the names rule.316

Other commenters, however, expressed 

that index funds should not be required 

to determine compliance with an 80% 

investment policy regarding 

investments that the name of an index 

indicates, but rather the fund should 

comply with the rule by investing 80% 

of its assets in the components of the 

underlying index.317 Some of these 

commenters expressed that fund 

managers may have visibility into index 

methodologies, but they do not 

determine the particular investments 

that an index includes, making it 

challenging to deviate from an index if 

their principal objective is to track its 

returns.318 In addition, some 

commenters suggested that applying the 

rule to index funds in the manner the 

Commission’s example described could 

increase tracking error between index 

funds and indices, while increasing 

costs and the likelihood of potential 

confusion for investors if funds have to 

deviate from the methodologies of the 

underlying index.319

We continue to believe that a fund 

that is invested 80% or more in an 

index included in the fund’s name can 

be materially deceptive and misleading 

if a meaningful nexus does not exist 


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320See Proposing Release, supra footnote 2, at 

n.102 and accompanying discussion. 

321See supra footnote 119. 

322See instructions to Item 4(a)(1) and Item 

9(b)(1) of Form N–1A; instruction to Item 8(2) of 

Form N–2; and instruction to Item 11 of Form N– 

8B–2. 

323See General Instruction C.3.(g) of Form N–1A; 

General Instruction I of Form N–2; General 

Instruction 2.(l) of Form N–8B–2; and General 

Instruction 5 of Form S–6. For purposes of the final 

disclosure requirements, ‘‘terms’’ mean any word or 

phrase used in a fund’s name, other than any trade 

name of the fund or its adviser, related to the fund’s 

investment focus or strategies. However, words like 

‘‘fund’’ or ‘‘portfolio’’ in a fund’s name do not 

describe an investment focus or strategy and do not 

need to be defined. 

324See, e.g., ICI Comment Letter; CFA Institute 

Comment Letter; SIFMA AMG Comment Letter; 

Public Citizen Comment Letter; Comment Letter of 

IRI (Aug. 16, 2022) (‘‘IRI Comment Letter’’); Fidelity 

Comment Letter; LTSE Comment Letter. 

325See, e.g., ICI Comment letter; CFA Institute 

Comment Letter; SIFMA AMG Comment Letter. 

326See, e.g., CFA Institute Comment Letter; 

SIFMA AMG Comment Letter. 

327However, the names rule does currently 

include this requirement for funds with names 

suggesting investment in particular countries or 

geographic regions. The final amendments replace 

this provision with a general requirement to define 

terms used in the fund’s name whenever the fund’s 

name suggest an investment focus requiring an 80% 

investment policy. 

328See, e.g., Public Citizen Comment Letter. 

329See supra section I.B (discussing growth in the 

breadth of fund investment strategies over the past 

two decades). 

330When the Commission adopted the names rule 

in 2001, the Commission stated that a fund that is 

subject to the rule’s 80% investment policy 

requirement should disclose this policy as one of 

its principal investment strategies in its prospectus. 

See 2001 Names Rule Adopting Release, supra 

footnote 8, at nn.15 and 43; see also section 8(b) of 

the Act (requiring a registered investment 

company’s registration statement to contain certain 

information, including a recital of its investment 

policies); Fidelity Comment Letter (stating that it is 

currently common practice for mutual funds to 

include prospectus disclosure that describes the 

fund’s 80% policies and defines any terms that 

their names include in plain English, including 

funds whose names do not currently require such 

disclosures). 

between the components of the 

underlying index and the investment 

focus suggested by the index’s name.320

We acknowledge that many investors 

that invest in index funds are seeking 

exposure to a particular index and that 

funds will have names that reflect the 

index that they track. However, terms 

used in fund names, including index 

funds, can communicate an investment 

focus that creates a reasonable 

expectation among investors that the 

fund will hold investments that support 

that focus. While we recognize the 

practical constraints and potential for 

investor confusion raised by 

commenters, we believe permitting 

index funds not to consider the 

relationship between the terms in their 

name and the investment focus such 

terms convey undermines the 

investment protection concerns that 

underlie the names rule and section 

35(d). If a fund’s name indicates an 

investment focus, such as investments 

in a specified industry, investors 

reasonably will expect that there is a 

meaningful nexus between fund’s 

investments and the fund’s investment 

focus—regardless of whether the fund 

executes its strategy by selecting 

companies in the specified industry or 

tracking an index that identifies such 

companies. As a result, consistent with 

rule 38a–1, index funds should 

generally adopt and implement written 

policies and procedures reasonably 

designed to ensure that indexes selected 

by a fund do not have materially 

misleading or deceptive names 

themselves.321 While index funds 

should generally implement written 

policies and procedures ensuring that 

they comply with the requirements of 

section 35(d), in response to 

commenters, we are confirming that the 

terms in a market index referenced in an 

index fund’s name would not be subject 

to an 80% investment policy test that 

would be in addition to the fund’s 

policy to invest at least 80% of its assets 

in the index’s components required 

under the rule. 

B. Prospectus Disclosure Defining Terms 

Used in Fund Name 

We are adopting amendments to 

funds’ registration forms—specifically, 

Form N–1A, Form N–2, Form N–8B–2, 

and Form S–6—that each fund that is 

required to adopt and implement an 

80% investment policy must include 

disclosure in its prospectus that defines 

the terms used in its name, including 

the specific criteria the fund uses to 

select the investments that the term 

describes, if any.322 We are also 

adopting a requirement that funds must 

tag most of the new information that 

will be included under the final 

amendments, using a structured data 

language (specifically Inline eXtensible 

Business Reporting Language or ‘‘Inline 

XBRL’’).323 The final amendments are 

designed to help investors better 

understand how the fund’s investment 

strategies correspond with the 

investment focus that the fund’s name 

suggests, as well as to provide 

additional information about how the 

fund’s management seeks to achieve the 

fund’s objective. We are adopting these 

amendments substantially as proposed. 

Commenters generally supported the 

proposed prospectus disclosure 

requirements.324 We did not receive any 

comments opposing this proposed 

requirement. In particular, the 

Commission received comments 

supporting the proposal’s approach that 

allows funds the flexibility to use 

reasonable definitions when defining 

the terms in their names, as there may 

be more than one reasonable definition 

for a particular term.325 Commenters 

also supported requiring funds to 

disclose the specific, non-proprietary 

criteria used to select the investment 

terms used in the fund’s name.326

Without this proposed disclosure, these 

commenters stated, funds are not 

required to convey the key information 

about the fund’s holdings, risks, 

characteristics, or strategies associated 

with the fund’s 80% investment policy. 

The final prospectus disclosure 

requirements will provide investors 

with important information to 

determine whether a particular 

investment meets an investor’s needs 

and goals. These requirements are 

additive to current names rule and other 

disclosure requirements.327 Despite the 

protections afforded by the 

Commission’s anti-fraud rules, the final 

prospectus disclosure requirements will 

help ensure that investors are given 

important information about how a fund 

manager understands how the terms 

used in the fund’s name connect to the 

fund’s 80% investment policy.328 These 

funds must disclose in their 

prospectuses the specific criteria used 

by the fund to select these investments. 

Understanding how terms used in a 

fund’s name are understood by the 

fund’s investment manager is key 

information that an investor needs to 

make an investment decision, as this 

will help the investor understand 

whether the investment focus the name 

suggests is consistent with the investor’s 

investment goals and risk tolerance. 

There are many types of fund names for 

which understanding additional detail 

about how these terms are defined 

would provide greater clarity to an 

investor about the investment focus that 

the name suggests.329

We understand, based on staff 

experience with fund disclosure, that it 

is currently common practice for funds 

to include prospectus disclosure that 

describes the fund’s 80% investment 

policy and that defines the terms in the 

fund’s name.330 The amendments we 

are adopting codify certain best 

practices of some funds that currently 

provide disclosure defining terms used 

in a fund’s name. The disclosure 

requirement, however, does not 

otherwise alter or address disclosure 

that funds currently provide, for 

example in response to prospectus 


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331See Instruction to Item 4(a)(1) of Form N–1A; 

Instruction 8 to Item 9(b)(1) of Form N–1A. 

332See final rule 35d–1(a)(2)(iii) and 35d– 

1(a)(3)(ii); see also Proposing Release, supra 

footnote 2, at text following n.112. 

333See supra section II.A.1.c). Commission staff 

could request information from the fund regarding 

the fund’s basis for determining that the fund name 

is sufficiently consistent with the definitions 

provided, just as staff currently may request 

information from a fund to support its disclosure 

reflecting the fund’s compliance with various 

provisions of the Act and rules thereunder. 

334This disclosure, like other disclosure in funds’ 

prospectuses, should avoid ‘‘excessive detail, 

technical or legal terminology, and complex 

language.’’ See General Instruction C.1.(c) to Form 

N–1A. 

335Many funds are already required to tag certain 

registration statement disclosure items using Inline 

XBRL. See Proposing Release, supra footnote 2, at 

n.115. 

336See Comment Letter of XBRL US (Aug. 16, 

2022) (‘‘XBRL Comment Letter’’); but see SIFMA 

AMG Comment Letter (stating that the costs 

associated with Inline XBRL tagging as proposed 

would be significant). 

337See, e.g., Invesco Comment Letter. 

338While the proposal did not distinguish 

between names-related information that open-end 

funds would disclose in their summary 

prospectuses versus their statutory prospectuses, 

the final amendments do make this distinction. See 

supra paragraph accompanying footnote 331 and 

accompanying text. Only the summary prospectus 

disclosure would be tagged in Inline XBRL format; 

however, the disclosure that open-end funds 

provide in their statutory prospectuses also would 

be reported on Form N–PORT, where it would be 

tagged in XML format. See infra section II.E.2. 

339This tagging requirement would be 

implemented by including cross-references to rule 

405 of Regulation S–T in each applicable fund 

registration form (and, as applicable, updating 

references to those fund registration forms in rule 

11 and rule 405, as well as references in those fund 

registration forms that currently require certain 

information to be tagged in Inline XBRL—that is, 

Form N–1A and Form N–2), by revising rule 405(b) 

of Regulation S–T to include the proposed names 

rule disclosures, and by adopting conforming 

amendments to rule 485 and rule 497 under the 

Securities Act. The final amendments incorporate 

technical changes to the proposed amendments, but 

the tagging requirements that the final amendments 

effectuate are designed to be the same as under the 

proposed amendments. Pursuant to rule 301 of 

Regulation S–T, the EDGAR Filer Manual is 

incorporated by reference into the Commission’s 

rules. In conjunction with the EDGAR Filer Manual, 

Regulation S–T governs the electronic submission 

of documents filed with the Commission. Rule 405 

of Regulation S–T specifically governs the scope 

and manner of disclosure tagging requirements for 

operating companies and investment companies, 

including the requirement in rule 405(a)(3) to use 

Inline XBRL as the specific structured data language 

to use for tagging the disclosures. 

340See infra section IV.D.2 at footnotes 566–568 

and accompanying text (for a discussion of the costs 

for UITs to comply with the new Inline XBRL 

requirement). 

341Final rule 35d–1(a)(2)(iii) and (3)(ii). 

disclosure requirements regarding the 

fund’s investment policies. 

In addition, we are modifying the 

proposed disclosure requirement for 

open-end funds registered on Form N– 

1A to provide that definitions of terms 

in the fund’s name must be summarized 

in the summary section of the 

prospectus and disclosed in the 

statutory prospectus.331 We proposed to 

require funds to provide this disclosure 

solely in the summary section of the 

prospectus. The modifications in the 

final amendments reflect that the 

principal investment strategies 

disclosure in the summary section of the 

prospectus is intended to summarize 

disclosure that appears later in the 

statutory prospectus. Specifically, the 

Form N–1A requirement for principal 

investment strategies disclosure that 

appears in the summary prospectus 

(Item 4(a) of Form N–1A) provides that, 

based on the information given in 

response to the Form N–1A requirement 

for principal investment strategies 

disclosure that appears in the statutory 

prospectus (Item 9(b) of Form N–1A), a 

fund must summarize how it intends to 

achieve its investment objectives by 

identifying the fund’s principal 

investment strategies. 

Funds have flexibility to use 

reasonable definitions of the terms that 

their names use. A fund’s use of 

reasonable definitions of the terms used 

in the fund’s name under the final rule, 

however, may not be inconsistent with 

their plain English meaning or 

established industry use.332 As 

discussed above, what constitutes 

‘‘reasonable’’ in context could vary 

depending on the fund name, but 

requires that definition have a 

meaningful nexus between the term 

used in the fund’s name and the fund’s 

investment focus.333 For instance, when 

the investment focus relates to an 

industry, we recognize that there are 

different approaches a fund could take 

to determine if a given security is tied 

to the economic fortunes and risks 

associated with the named industry. As 

there could be multiple reasonable 

definitions of the same term that 

multiple funds use in their names, each 

fund required to adopt an 80% 

investment policy must disclose how it 

interprets these terms to help investors 

better distinguish among funds.334

As proposed, we are requiring that all 

funds subject to the new prospectus 

disclosure requirements tag information 

we are requiring funds to disclose on 

their registration forms in a structured, 

machine-readable data language, 

specifically Inline XBRL.335 We 

received a comment supporting the 

proposed Inline XBRL tagging 

requirement, stating that the XBRL 

standard is well-suited to narrative 

disclosures and will enhance the ability 

of those interested in using the data to 

extract disclosures quickly and to 

compare disclosures across entities 

more easily.336 One commenter 

discussed that, as the Commission 

recognized in the Proposing Release, the 

proposed Inline XBRL tagging 

requirement would be new for UITs, as 

UITs are not currently subject to 

structured data tagging requirements.337

This commenter requested that the 

Commission except UITs from the Inline 

XBRL tagging requirement, as most UIT 

unitholders are not familiar with Inline 

XBRL and introducing this requirement 

to UITs would be costly. 

We are adopting the Inline XBRL 

tagging requirements substantially as 

proposed.338 These requirements 

include block text tagging of narrative 

information about a fund’s 80% 

investment policy and the terms used in 

its name, including the specific criteria 

the fund uses to select the investments 

that the term describes, if any.339 Many 

funds are already required to tag certain 

registration statement disclosure items 

using Inline XBRL. While UITs do not 

currently have experience with tagging 

in Inline XBRL, after considering 

comments received, we are adopting the 

proposed requirements because we 

anticipate that tagging names rule 

disclosure for all funds that are subject 

to this disclosure requirement will 

benefit investors, other market 

participants, and the Commission by 

making the tagged disclosures more 

readily available and easily accessible 

for aggregation, comparison, filtering, 

and other analysis.340 This requirement 

will enable automated extraction and 

analysis of granular data about how 

funds are defining the terms used in 

their names, allowing investors and 

other market participants to more 

efficiently perform large-scale analysis 

and comparison across funds and time 

periods. An Inline XBRL requirement 

facilitates other analytical benefits, such 

as more easily extracting and searching 

disclosures about funds’ names and 

their 80% investment policies (rather 

than having to manually run searches 

for these disclosures through entire 

documents), and automatically 

comparing these disclosures against 

prior periods. 

C. Plain English/Established Industry 

Use Requirement 

For funds that are required to adopt 

an 80% investment policy, we are 

requiring that any terms used in the 

fund’s name that suggest either an 

investment focus or that such fund is a 

tax-exempt fund must be consistent 

with those terms’ plain English meaning 

or established industry use.341 This 

requirement is designed to provide 

investors with a better understanding of 

the fund and its investment objectives 


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342See, e.g., J.P. Morgan Asset Management 

Comment Letter; Comment Letter of Delbert L. 

Coonce, Jr. (Aug. 15, 2022) (‘‘Coonce Comment 

Letter’’); Comment Letter of John Rosenmiller (Aug. 

15, 2022) (‘‘Rosenmiller Comment Letter’’); 

Building a Sustainable Investment Community 

Comment Letter; Comment Letter of Peter 

Vandermark (Aug. 15, 2022) (‘‘Vandermark 

Comment Letter’’); Comment Letter of Rodney 

Smith (Aug. 15, 2022) (‘‘Smith Comment Letter’’); 

Comment Letter of Jim Metzinger (Aug. 15, 2022) 

(‘‘Metzinger Comment Letter’’); Change Finance 

Comment Letter; Comment Letter of Steve 

Wardwood (Aug. 15, 2022) (‘‘Wardwood Comment 

Letter’’); Public Citizen Comment Letter; Comment 

Letter of Veris Wealth Partners (Aug. 15, 2022) 

(‘‘Veris Comment Letter’’); Feinberg Comment 

Letter. 

343See, e.g., Fidelity Comment Letter (‘‘We 

believe the requirement that the definition be 

reasonable and in plain English, along with the 

existing anti-fraud provisions under the securities 

law, will provide sufficient clarity to shareholders, 

without stifling innovation and opportunities for 

investment advisers to differentiate their 

investment strategies.’’); CFA Institute Comment 

Letter. 

344See, e.g., Calamos Comment Letter. 

345See, e.g., Public Citizen Comment Letter. 

346See, e.g., Seward & Kissel Comment Letter and 

WisdomTree Comment Letter. 

347See CFA Institute Comment Letter. 

348See Public Citizen Comment Letter. 

349See J.P. Morgan Asset Management Comment 

Letter. 

350See Seward & Kissel Comment Letter. 

351See, e.g., Calamos Comment Letter. 

352See, e.g., Fidelity Comment Letter; Seward & 

Kissel Comment Letter. 

353See Seward & Kissel Comment Letter. 

354See Consumer Federation of America 

Comment Letter. 

355See instructions to Item 4(a)(1) and Item 

9(b)(1) of Form N–1A; instruction to Item 8(2) of 

Form N–2; and instruction to Item 11 of Form N– 

8B–2; see also supra paragraph accompanying 

footnotes 92–94. 

356Final rule 35d–1(a)(2)(iii) and (3)(ii). 

by effectively requiring a fund’s name to 

be consistent with a reasonable 

investor’s likely understanding of the 

investment focus or tax status that the 

fund’s name suggests. 

We received many comments 

supporting the proposed 

requirement.342 Commenters expressed 

support for a requirement that would 

address reasonable, plain-English 

definitions for terms used in a fund’s 

name as a means of providing additional 

clarity to fund shareholders.343

We received several comments 

requesting clarification on this 

requirement. One commenter asked how 

the Commission will determine whether 

a term is consistent with its ‘‘plain 

English’’ or ‘‘established industry use’’ 

meaning.344 Another commenter 

requested clarification about 

circumstances where the plain English 

or established industry meaning of a 

word could be inaccurate or 

misleading.345 For clarity on this point, 

commenters suggested that the final rule 

be modified to allow funds to use only 

any ‘‘reasonable’’ definition of the terms 

of its name.346

One commenter stated that some 

plain English meanings may lack clarity 

in an investment context and that funds 

should be required to include a 

description of how terms relate to the 

fund’s 80% investment focus.347

Another commenter similarly stated that 

certain terms like ‘‘sustainable’’ or 

‘‘socially responsible’’ are evolving, and 

investors need to understand how funds 

define those terms.348 As one 

commenter stated, certain terms have 

meanings that changed over time, and 

certain terms, particularly in the ESG 

context, may develop new meanings as 

markets and the investment 

management industry continue to 

evolve.349

Some commenters conveyed concern 

about the proposed plain English and 

established industry use requirement. 

One commenter stated that the plain 

English standard already applies to 

prospectus disclosure, and it should 

therefore not be separately required in 

the names rule.350 One commenter 

suggested that there may still be 

deviations in how funds define terms 

even with this requirement. As a result, 

investors will still need to read the 

prospectus for clarity about the terms 

used in the fund’s name, mitigating any 

positive impact of the requirement.351

Commenters expressed specific 

concerns about the proposed 

‘‘established industry use’’ standard. 

Commenters stated that this standard is 

nebulous, as industries and terminology 

can change over time, thereby altering 

the understood meaning of the term 

under established industry use.352

Additionally, the Commission received 

a comment expressing concern that the 

relationship between the ‘‘plain 

English’’ standard and the ‘‘established 

industry use’’ standard is potentially 

contradictory and opaque.353 One 

commenter cautioned that the 

established industry use standard could 

contribute to greenwashing for terms 

that have been widely used in 

inconsistent ways because the standard 

could permit funds to use terms 

consistent with industry practice when 

the usage of the term for the particular 

fund is misleading.354 For example, this 

commenter stated that the term 

‘‘impact’’ is used in many fund names 

with a range of meanings within the 

fund industry, and therefore funds 

should disclose the definitions of the 

terms used in the name as well as the 

criteria used to select the investments 

the terms describe. 

After considering comments, we are 

adopting this requirement as proposed. 

We recognize that certain terms may be 

defined in multiple reasonable ways. 

Accordingly, the final amendments are 

intended to support these differences 

while providing that the use of terms 

that are inconsistent with their terms’ 

plain English meaning or established 

industry use would mislead investors. 

Whether a fund is using a term 

consistent with its plain English 

meaning or established industry use 

could be derived from a variety of 

sources, including, but not limited to, 

the dictionary, prior public disclosures, 

industry codes or classifications, and/or 

a colloquial understanding of the term. 

Regardless of this requirement, funds 

that use terms in a materially 

misleading manner, for example, by 

using a term that has a plain English 

meaning or established industry use but 

then defining that term in disclosure in 

a materially different way, would 

generally violate section 35(d) of the Act 

and potentially other provisions of the 

Federal securities laws. 

Under the final amendments, funds 

are required to include in their 

prospectus disclosure the definitions of 

the terms used in the fund’s name, and 

as discussed above funds have 

flexibility in defining the terms under 

the policy that a fund adopts under the 

names rule.355 The plain English/ 

established industry use requirement is 

designed to prevent materially 

deceptive and misleading names in light 

of the flexibility that funds otherwise 

have to define the terms in their names. 

A name would be considered materially 

deceptive or misleading if the fund’s 

prospectus disclosure defines a given 

term in the name inconsistent with the 

term’s plain English meaning or 

established industry use, even if that 

disclosure correctly describes the fund’s 

80% investment policy.356 While the 

final amendments require that the 

fund’s prospectus disclosure and the 

terms used in a fund’s name not be 

inconsistent, we recognize that 

prospectus disclosure may—and at 

times is required to—provide further 

information about the terms used in the 

name. For example, a ‘‘solar energy’’ 

fund’s prospectus will need to provide 

additional context to what the name 

term ‘‘solar energy’’ means. This 

disclosure may not, however, otherwise 

change the plain English understanding 

of what solar energy means, for 

example, to include a type of alternative 

energy company that does not include 

solar energy. 

The final rules’ prospectus disclosure 

requirements provide additional context 

to the terms used in a name. Prospectus 

disclosure which, as a commenter 

highlighted, also has a plain English 


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357See, e.g., 17 CFR 230.421(d) and General 

Instruction B.4 of Form N–1A. 

358See Plain English Disclosure, Securities Act 

Release No. 7497 (Jan. 28, 1998) [63 FR 6370 (Feb. 

6, 1998)]. 

359Final rule 35d–1(a)(2)(ii) and final rule 35d– 

1(d); see also final rule 35d–1(g) (defining the term 

‘‘fundamental policy’’). 

360See, e.g., Use of Electronic Media for Delivery 

Purposes, Investment Company Act Release No. 

21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] 

(providing Commission views on the use of 

electronic media to deliver information to investors, 

with a focus on electronic delivery of prospectuses, 

annual reports, and proxy solicitation materials); 

Optional internet Availability of Investment 

Company Shareholder Reports, Investment 

Company Act Release No. 33115 (June 5, 2018) [83 

FR 29158 (June 22, 2018)], at n.18; ExchangeTraded Funds, Investment Company Act Release 

No. 33646 (Sept. 25, 2019) [84 FR 57162 (Oct. 24, 

2019)] (‘‘ETF Adopting Release’’), at n.229 

(encouraging ETFs to consider whether there are 

technological means to make their disclosure more 

accessible). 

361See Fidelity Comment Letter; J.P. Morgan 

Asset Management Comment Letter; Dogwhistle 

Comment Letter; Environmental Defense Fund 

Comment Letter; PRI Comment Letter. 

362See Fidelity Comment Letter. This commenter 

stated that electronic postings should be considered 

to be sufficient notice where a change does not 

materially impact the risk profile of the fund. 

Another commenter similarly advocated for a onetime exception from the notice requirements for 

funds whose policies are not ‘‘meaningfully’’ 

changing. Dogwhistle Comment Letter. 

requirement, is separate from the plain 

English meaning and established 

industry use requirement we are 

adopting for fund names, which is 

specifically focused on the meaning of 

terms used in the fund’s name.357 The 

plain English requirements applicable to 

prospectus disclosures are focused on 

making prospectuses simpler, clearer, 

and more useful to investors.358 Further, 

while a fund’s disclosure in its 

prospectus provides important 

information about how a fund defines 

the terms used in its name and the 

criteria used to select investments 

consistent with the fund’s 80% 

investment policy, the plain English 

requirement in the names rule addresses 

the goal that the name itself is 

reasonably communicative and clear to 

an investor based on the plain English 

or established industry use of terms that 

appear in the name. The plain English 

and established industry use 

requirement is not meant to be static 

and is designed to acknowledge that the 

language used in a fund’s name may 

evolve as industries change and grow 

and the words used to describe funds 

and their investment focuses likewise 

change. While we recognize 

commenters’ concerns about the 

‘‘established industry use’’ of a term 

evolving over time, we are adopting this 

standard as proposed in recognition that 

certain terms in fund names might not 

have a plain English meaning, but still 

convey a particular focus to investors. 

The reference to ‘‘established industry 

use’’ is not designed to prevent a fund 

from defining a name term in reference 

to an emerging or developing definition, 

or from defining a name term in a way 

that is subject to industry debate. The 

fact that members of an industry have 

different conceptions of a term’s 

definition, and that members of a 

particular industry are in good faith 

actively debating or discussing a 

definition, would be an indication that 

the definition is consistent with 

established industry use. That is, 

members of an industry need not 

coalesce on a standard, singular 

definition of a term for the term to be 

consistent with ‘‘established’’ industry 

use. 

Further, we recognize that certain 

fund name terms used in a way that is 

standard within the fund industry could 

be less communicative to reasonable 

investors if they must be translated into 

‘‘plain English.’’ Regarding the 

relationship between the ‘‘plain 

English’’ and ‘‘established industry use’’ 

standards, we are adopting a 

requirement that includes both 

standards in recognition that the 

established industry use of a particular 

term may not be the same meaning 

given to the term in in a plain English 

context. The meaning of a term in 

reference to a specific industry or 

investment strategy, however, may be 

clear within the terminology of a 

particular industry or sector. For 

example, an equity fund could use the 

term ‘‘high beta’’ in its name, which is 

understood within the industry, and the 

investing public, to mean that the fund 

seeks to invest in stocks with high 

sensitivity to market movements, 

although arguably this term has no 

‘‘plain English’’ usage. As another 

example, a fund might define the term 

‘‘value’’ in its 80% investment policy by 

referring to financial metrics that are 

specific to value investing, and therefore 

may not be viewed as reflecting the 

plain English meaning of the term 

‘‘value.’’ The ‘‘established industry use’’ 

requirement is therefore an important 

corollary to the ‘‘plain English’’ 

requirement. The use of certain fund 

name terms, whose meanings are 

communicative to investors interested 

in investing in funds focused in a 

particular industry or using a strategy 

that uses a specific industry-specific 

lexicon, could be limited if we were to 

adopt a plain English requirement 

without alternatively permitting fund 

name terms to be consistent with their 

established industry use. 

D. Modernizing the Rule’s Notice 

Requirement 

Consistent with the current rule, the 

final rule amendments will continue to 

require that, unless a fund’s 80% policy 

is a fundamental policy, notice must be 

provided to shareholders of any change 

in the fund’s 80% policy.359 The 

amendments to the names rule’s notice 

requirement we are adopting, 

substantially as proposed, are designed 

to specify further the content and 

delivery of the notice, and address more 

directly the needs of investors who elect 

electronic delivery. These changes 

reflect the Commission’s commitment to 

adapting and modernizing the way in 

which information is disseminated to 

the investing public in response to 

changes in the industry and 

technology.360 As an additional 

modification, the final amendments, as 

proposed, will also require notices to 

describe not only a change to the fund’s 

80% investment policy, but also an 

accompanying change in the fund’s 

name. 

The Commission proposed to 

modernize the current notice 

requirements in several ways. 

Specifically, the proposed approach 

would: (1) clarify the current 

requirement that the notice must be 

provided separately from any other 

documents; (2) update the legend 

requirements alerting the investor to a 

change in investment policy and/or 

name; (3) specify the content that the 

notices include; and (4) specify notices 

that may be delivered electronically. We 

are adopting each of these requirements 

as proposed, as detailed below. 

The Commission received limited 

comments in response to these proposed 

requirements. Some commenters 

generally supported the proposed 

requirements, stating, for example, that 

the proposal would provide greater 

flexibility and clarity with respect to 

how the notice requirements translate to 

an electronic setting.361 One supporting 

commenter recommended that the 

Commission further modernize 

shareholder notice requirements by 

allowing funds to post notice of certain 

policy changes on their websites rather 

than doing so through paper or email 

communications.362

Amendments Clarifying That Notice Be 

Provided Separately From Other 

Documents 

The final amendments, as in the 

current rule, will continue to require the 

notice to be provided in plain English 

and delivered ‘‘separately from any 


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363While the requirement in the final rule that 

the notice be provided ‘‘separately from any other 

document’’ is worded differently than in the current 

rule, it is functionally the same as the current rule’s 

requirement. See final rule 35d–1(d)(1); rule 35d– 

1(c)(1) (‘‘the notice will be provided in plain 

English in a separate written document’’). This 

rewording is designed to provide clarity regarding 

what it means for the notice to be provided 

separately from any other documents (i.e., the 

notice cannot be built into the fund’s prospectus or 

into other required shareholder communications). 

See Proposing Release, supra footnote 2, at 

paragraph accompanying nn.131–132. 

364Final rule 35d–1(d)(1). 

365Final rule 35d–1(d)(2). 

366Rule 35d–1(c)(3). 

367Final rule 35d–1(d)(2)(i). 

368Final rule 35d–1(d)(3). 

369Final rule 35d–1(d)(2)(ii). As the Commission 

discussed at proposal, the Commission’s current 

guidance regarding electronic delivery does not 

prohibit names rule notices from being delivered 

electronically. See Proposing Release, supra 

footnote 2, at n.136. Although paper is the default 

format for delivery of prospectuses and certain 

other required disclosures such as the proposed 

notice, the Commission has provided guidance 

noting that electronic delivery may be used to 

satisfy prospectus and certain other required 

disclosure delivery requirements if: (1) the investor 

has notice of the availability of the information; (2) 

the use of the medium is not so burdensome that 

intended recipients cannot effectively access the 

information being provided; and (3) the issuer has 

evidence of delivery. Id. 

370All N–PORT funds are required to 

electronically file with the Commission, on a 

quarterly basis, monthly portfolio investment 

information on Form N–PORT, as of the end of each 

month. See Investment Company Reporting 

Modernization Adopting Release, supra footnote 47. 

As BDCs and money market funds are not subject 

to Form N–PORT reporting requirements generally, 

they will not be subject to the final amendments to 

Form N–PORT. This approach is consistent with 

the proposal, and we did not receive any comments 

on this aspect of the proposal. See Proposing 

Release, supra footnote 2, at nn.146–147 and 

accompanying text. Exchange-traded funds 

organized as a UIT will have to comply with the 

Form N–PORT reporting requirements only if their 

initial deposit occurs after the effective date of the 

final amendments. See infra section II.G. Other 

UITs are not subject to reporting on Form N–PORT. 

371See Item B.9 and Item C.2 of Form N–PORT. 

Consistent with the final amendment’s approach to 

derivatives generally, when responding to Item B.9, 

the percentage that the fund reports in response to 

Item B.9.b must reflect the use of notional amounts 

of funds’ derivatives instruments with certain 

adjustments, as well as the value of assets sold short 

with respect to physical short positions. This 

percentage also must reflect any reduction of the 

value of the fund’s assets resulting from, as 

applicable, those exclusions provided in final rule 

35d–1(g). See instruction to Item B.9 and supra 

section II.A.3. 

other documents.’’ 363 Further, as 

proposed, the final amendments 

specifically provide that if the notice is 

delivered in paper form, it may be 

provided in the same envelope as other 

written documents.364 This amendment 

is designed to clarify the current rule’s 

provisions that address when and how 

the notice can be provided with other 

written documents, but not to alter these 

current provisions substantively. 

Amendments Updating Legend 

Requirement 

Similar to the current notice 

requirement and as proposed, the final 

amendments require the notice contain 

the following prominent statement, or 

similar clear and understandable 

statement, in bold-face type: ‘‘Important 

Notice Regarding Change in Investment 

Policy [and Name].’’ 365 This 

requirement represents a change from 

the current rule by requiring a fund to 

prominently indicate to investors any 

changes made to its name that 

accompany a change in investment 

policy in addition to changes made to 

the policy itself. This new requirement 

is designed to put investors on alert 

that, going forward, the fund that is 

described in various regulatory 

materials and other fund and 

intermediary communications is the 

same fund in which they are currently 

invested. 

Under the current notice requirement, 

the mandated statement is required to 

appear on the envelope in which the 

notice is delivered, or if the notice is 

delivered separately from other 

communications to investors, the 

statement must appear either on the 

notice or on the envelope.366 Under the 

final rule, for any notice that is provided 

in paper form, this required statement 

must also appear on the envelope in 

which the notice is delivered.367 This 

expansion of the current requirement is 

designed to help draw shareholders’ 

attention to an important document that 

provides them information about the 

change in the fund’s investment policy 

and, if applicable, the fund’s name. 

Amendments to Notice Content 

Requirements 

The final amendments include certain 

new requirements designed to 

incorporate greater specificity on 

content the notices include. 

Substantially as proposed, the final 

amendments will require that the notice 

describe, as applicable, the fund’s 80% 

investment policy, the nature of the 

change to the 80% investment policy, 

the fund’s old and new names, and the 

effective date of any investment policy 

and/or name changes.368 These 

requirements are designed to codify 

certain best practices of some funds, 

help facilitate funds’ compliance with 

the notice requirement, and increase 

specificity in the content that notices 

include in order to provide the 

information that fund shareholders need 

to decide whether to stay invested in a 

fund whose investment policy is 

changing. 

Amendments Providing Specificity for 

Notices That May Be Delivered 

Electronically 

The final amendments also include 

certain requirements designed to 

address the needs of investors who elect 

to receive notice electronically. 

Substantially as proposed, for notices 

that are provided electronically, the 

final rule will require that the statement 

appear on the subject line of the email 

communication that includes the 

notice.369 This new requirement is 

designed to highlight the purpose of the 

electronic notice to shareholders, in the 

same way that the current requirement 

for a statement to appear on the delivery 

envelope highlights the purpose of the 

included paper notice. This aspect of 

the final amendments is also intended 

to clarify the application of the rule’s 

requirements to electronic notices, 

which in turn will help ensure that 

investors who have opted into 

electronic delivery will receive the 

notices the names rule requires in the 

format that they prefer. 

As proposed, the final amendments 

do not permit funds to post notices to 

their websites as an alternative to 

sending notice directly to shareholders. 

As the Commission discussed in the 

Proposing Release, requiring delivery of 

notice directly to shareholders, rather 

than permitting funds to post notices to 

websites, increases the likelihood that 

an investor would see and read the 

notice. This requirement will play an 

important role in helping investors 

make informed decisions in light of any 

changes to a fund’s investment focus, 

portfolio holdings, risks and returns. 

E. Form N–PORT Reporting 

We are adopting amendments to Form 

N–PORT to include new reporting items 

for registered management investment 

companies and exchange-traded funds 

organized as a unit investment trust 

(‘‘UIT’’), other than money market funds 

or small business investment 

companies, (collectively, ‘‘N–PORT 

funds’’) regarding the 80% investment 

policy that such a fund adopts in 

compliance with the names rule.370 As 

proposed, the final rules require N– 

PORT funds that are required to adopt 

an 80% investment policy to report on 

Form N–PORT: (1) whether each 

investment in the fund’s portfolio is in 

the fund’s 80% basket; and (2) the value 

of the fund’s 80% basket, as a 

percentage of the value of the fund’s 

assets.371

In light of some of the changes to the 

proposed names rule amendments that 

we are adopting, and in response to 


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372The rationale for the required period for 

reporting this information on Form N–PORT is 

based on the period of the quarterly review 

requirement under the names rule and not the 

required period for filing Form N–PORT. Although 

the Commission has separately proposed to increase 

the frequency with which funds file reports on 

Form N–PORT, that proposal, if adopted, would not 

affect the requirement adopted in this release for 

funds to report names-related information on Form 

N–PORT on a quarterly basis, providing the 

information for the third month in each fiscal 

quarter. See, e.g., Open-End Fund Liquidity Risk 

Management Programs and Swing Pricing; Form N– 

PORT Reporting, Investment Company Act Release 

No. 34746 (Nov. 2, 2022) [87 FR 77172 (Dec. 16, 

2022)]. 

373The final amendments also require disclosure 

of these definitions in funds’ prospectuses. See 

supra section II.B. 

374See, e.g., Comment Letter of Nate Regan (June 

15, 2022) (‘‘Regan II Comment Letter’’); Center for 

American Progress Comment Letter; PRI Comment 

Letter; Fidelity Comment Letter. 

375See PRI Comment Letter. 

376See, e.g., SIFMA AMG Comment Letter; T. 

Rowe Comment Letter; J.P. Morgan Asset 

Management Comment Letter; USCOC Comment 

Letter; Nationwide Comment Letter; Federated 

Comment Letter; WisdomTree Comment Letter; 

MFS Comment Letter; Invesco Comment Letter; 

Capital Group Comment Letter; Seward & Kissel 

Comment Letter; Dimensional Comment Letter. 

377See, e.g., Nationwide Comment Letter; SIFMA 

AMG Comment Letter; Federated Comment Letter; 

WisdomTree Comment Letter; MFS Comment 

Letter; Invesco Comment Letter; Capital Group 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Dimensional Comment Letter. 

378See SIFMA AMG Comment Letter; see also 

Proposing Release, supra footnote 2, at nn.4–6 and 

accompanying text. 

379See, e.g., MFS Comment Letter; J.P. Morgan 

Asset Management Comment Letter; T. Rowe 

Comment Letter. 

380See Center for American Progress Comment 

Letter. 

381See, e.g., ICI Comment Letter; Nationwide 

Comment Letter; Federated Comment Letter; J.P. 

Morgan Asset Management Comment Letter; 

Fidelity Comment Letter; WisdomTree Comment 

Letter; Capital Group Comment Letter; MFS 

Comment Letter; SIFMA AMG Comment Letter. 

382See MFS Comment Letter. 

383See ICI Comment Letter. 

384See, e.g., SIFMA AMG Comment Letter; 

Wellington Comment Letter. 

385See, e.g., ICI Comment Letter; J.P. Morgan 

Asset Management Comment Letter; SIFMA AMG 

Comment Letter; Dimensional Comment Letter. 

386See Capital Group Comment Letter. 

387See Fidelity Comment Letter. 

comments, the final Form N–PORT 

amendments modify the proposed 

reporting approach by requiring 

reported information for the third 

month of each quarter, instead of for 

every month. Given that the final 

amendments will not require continual 

names rule compliance monitoring as 

proposed, and instead will require that 

funds review their portfolios for 

compliance no less than quarterly, the 

reporting time frame in the final Form 

N–PORT requirements therefore reflects 

the period for review that will otherwise 

be mandated by the final 

amendments.372

We are also adopting certain changes 

to the proposed approach to namesrelated information that funds will 

report on Form N–PORT, which we 

discuss in more detail below: (1) adding 

a new reporting item, in which funds 

will report the definitions of terms used 

in the fund’s name; and (2) not adopting 

the proposed requirement that funds 

report the number of days that that the 

value of the fund’s 80% basket fell 

below 80% of the value of the fund’s 

total assets during the reporting period. 

As discussed below, the final 

amendments to Form N–PORT are 

designed to provide market-wide insight 

with respect to those registered 

investment companies, other than 

money market funds and BDCs that are 

subject to the 80% investment policy 

requirement for the Commission, its 

staff, and market participants. 

1. Investments To Be Included in a 

Fund’s 80% Basket 

As proposed, we are adopting a new 

Form N–PORT reporting item that 

requires N–PORT funds subject to the 

80% investment policy requirement to 

indicate, with respect to each portfolio 

investment, whether the investment is 

included in the fund’s 80% basket. Such 

N–PORT funds must provide this new 

information, along with the other 

information they are currently required 

to report, for each of their portfolio 

investments on Form N–PORT, and as 

proposed the new information will be 

publicly available. In a change from the 

proposal, we are adopting a requirement 

that each N–PORT fund that is subject 

to the 80% investment policy 

requirement must also report the 

definitions of the terms used in the 

fund’s name, including the specific 

criteria the fund uses to select the 

investments the term describes, if 

any.373 These reporting requirements 

are designed to provide investors as 

well as the Commission and its staff 

insight into the types of investments a 

fund includes in its 80% basket. 

The Commission received several 

comments broadly supporting the 

proposed Form N–PORT reporting 

requirements collectively.374 One of 

these commenters stated that the 

proposed requirements would help 

investors and other market participants 

understand which factors or elements 

that a portfolio investment exhibits are 

consistent with a fund’s 80% policy.375

The Commission received several 

comments that objected generally to the 

collective proposed Form N–PORT 

reporting requirements.376 Commenters 

stated that the proposed reporting 

requirements would be of little benefit 

to investors, as investors are more prone 

to review prospectus disclosure rather 

than information included on Form N– 

PORT.377 The Commission received a 

comment questioning the rationale for 

the proposed reporting requirements 

given the name rule’s unique role in 

addressing materially deceptive and 

misleading names, distinct from other 

disclosure requirements.378

Commenters stated that the costs and 

operational burdens of the proposed 

requirements, in light of these concerns 

and particularly with respect to the 

names that would be included in the 

proposed expanded scope of the 80% 

investment policy requirement, would 

be significant and questioned whether 

they would be warranted.379

The Commission received several 

comments specific to the proposed 

requirement that N–PORT funds report 

whether each investment is counted 

towards the fund’s 80% basket. One 

included a general comment stating that 

this proposed reporting requirement 

would benefit investors and other 

market participants.380 Several other 

commenters objected to this reporting 

requirement.381 These commenters 

expressed concern about the costs and 

burden of tagging each investment on a 

monthly basis.382 The Commission also 

received a comment that the 

Commission should not require funds to 

classify 100% of their portfolio when 

the rule requires that only 80% of a 

given fund’s portfolio be invested 

consistent with the funds 80% 

investment policy.383

Some commenters questioned the 

usefulness of this reporting item 

because Form N–PORT disclosure is by 

its nature backward-looking, and so the 

reported information may not accurately 

represent what the fund’s portfolio 

looks like at the present time.384 Several 

commenters stated that how a fund 

categorizes individual investments in its 

portfolio is subjective and therefore not 

comparable across funds.385 Without 

additional disclosure regarding how a 

fund may categorize individual 

investments, we received comment 

asserting that this disclosure may be 

confusing to investors.386 Separately, a 

commenter stated that whether each 

investment qualifies as an 80% basket 

investment under a fund’s 80% 

investment policy may change on a 

more frequent basis than the proposed 

monthly reporting period and that the 

disclosure requirement therefore may 

overwhelm investors with outdated 

information that would not help 

compare funds in a meaningful way.387

Some commenters stated that the 

proposed new reporting item would 


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388See, e.g., T. Rowe Comment Letter; Invesco 

Comment Letter; Seward & Kissel Comment Letter. 

389See, e.g., Nationwide Comment Letter; 

Federated Comment Letter; Capital Group Comment 

Letter. 

390See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter. 

391See infra section IV.D.2. 

392 Given that funds can leverage efficiencies in 

reporting the information that they will include in 

their prospectuses in response to the final rules’ 

disclosure requirements, we anticipate that the 

burden of this additional reporting item should be 

minimal. See infra section V.D. 

393See, e.g., Capital Group Comment Letter; J.P. 

Morgan Asset Management Comment Letter. 

394To the extent a fund’s name suggests an 

investment focus that has multiple elements, and 

therefore must adopt an 80% investment policy that 

addresses each element of that investment focus, 

the fund must report a single percentage that 

reflects its multi-element investment focus. See 

supra paragraph accompanying footnotes 139–140. 

For example, a ‘‘Wind and Solar Fund’’ would 

report the percentage of its assets invested in wind 

and solar companies combined, rather than 

reporting separate percentages for each of wind and 

solar. 

require the build-out of new systems, for 

daily testing and validation of names 

rule compliance information, and for 

mapping this information over for 

reporting on Form N–PORT.388

Additionally, commenters stated that 

the new reporting requirements would 

consume compliance resources to the 

extent compliance personnel would 

have to attend to the new reporting 

requirements, which would impact 

other compliance activities.389 Some 

commenters stated that funds may need 

to hire third-party vendors for 

supplemental and specially tailored 

data on their portfolio investments, in 

order to comply with the proposed new 

reporting requirements.390 The use of 

third-party vendors may, according to 

these commenters, lead to the 

homogenization in how funds define 

certain terms. 

The requirement for an N–PORT fund 

to report whether each investment is 

included in the 80% basket helps the 

Commission and investors to have 

insight into how funds invest consistent 

with their 80% investment policies. The 

final amendments to Form N–PORT will 

complement the required prospectus 

disclosure defining terms used in fund 

names by providing additional 

information that is designed to increase 

investor understanding of a particular 

fund’s investment focus, which will 

assist investors in making investment 

choices that better match their 

investment preferences. While the new 

information that funds would report on 

Form N–PORT is backward looking in 

that it reflects, on a quarterly basis, how 

funds have implemented their 80% 

policies, investors and third-party users 

who provide services to investors could 

also use this information to understand 

on a going-forward basis how funds may 

continue to implement their 80% 

investment policies consistent with the 

fund’s name. While investors may not 

be directly accessing Form N–PORT, 

third-party service providers that 

investors look to for assistance in 

selecting investments, such as brokerdealers, investment advisers, and those 

that provide investment information for 

analysis to fund investors, will be able 

to use this information to analyze how 

a fund invests consistent with its name. 

We recognize that the benefits of these 

new reporting requirements will come 

with costs, as complying with the new 

reporting requirements will entail new 

compliance activities, and potentially 

also systems and operational 

modifications and the use of third-party 

service providers. The Form N–PORT 

reporting requirements may generate 

costs of adding new data tags for the 

new reporting items. By requiring less 

frequent Form N–PORT reporting and 

reducing the amount of names-related 

information that must be reported on N– 

PORT than was proposed, however, the 

final amendments should, on balance, 

have lower costs compared to the 

proposal.391

We also recognize that funds with 

similar names and investment focuses 

may reasonably make different 

determinations regarding whether an 

investment is appropriately within the 

80% basket. Some funds may have an 

investment focus where the selection of 

80% basket investments involves some 

degree of subjectivity. The reporting 

requirement we are adopting provides 

transparency that should help investors 

and other market participants providing 

transparency to investors, as well as 

Commission staff, understand what 

specific portfolio investments a fund 

may consider to be consistent with the 

fund’s 80% investment policy and those 

that they do not. The Commission, 

investors, and these other market 

participants will also have the ability to 

examine, across N–PORT funds with 

similar investment focuses, whether 

these funds may be characterizing 

particular investments similarly. For 

example, investors interested in funds 

with a growth investment focus will 

better be able to compare across funds 

with similar names to determine 

whether specific investments are 

characterized similarly or differently, 

and therefore invest according to their 

specific preferences. 

In a change from the proposal, we are 

adopting an accompanying reporting 

requirement to provide necessary 

context for this reporting. Under the 

final amendments to Form N–PORT, a 

fund subject to the 80% investment 

policy requirement must report the 

definitions of the terms used in the 

fund’s name, including the specific 

criteria the fund uses to select the 

investments that the term describes, if 

any. This required reporting leverages 

the same disclosure that funds will also, 

under the final amendments, be 

required to include in their 

prospectuses.392 This requirement 

addresses comments the Commission 

received expressing concern that the 

portfolio-specific information that 

would be required under the proposal 

lacked context.393 We are requiring this 

information in both Form N–PORT and 

in the fund’s prospectus to ensure that 

a user of the investment categorization 

information in Form N–PORT is not 

required to look to two documents to 

understand how investments are 

categorized by the fund, and how funds 

define the terms used in their names 

and the specific criteria the fund uses to 

select the investments (which gives 

context for the investment 

categorizations). With this additional 

information, investors will be able to 

better contextualize how the specific 

investments made by the fund adhere to 

the fund’s stated criteria for how 

investments are selected consistent with 

the fund’s 80% investment policy. 

2. Investment Company Act Names Rule 

Investment Policy 

We are adopting, as proposed, the 

requirement for N–PORT funds that 

adopt an 80% investment policy to 

report on Form N–PORT the value of the 

fund’s 80% basket as a percentage of the 

value of the fund’s assets.394 This 

reporting requirement is designed to 

increase the effectiveness of the 

Commission’s oversight of funds’ 

compliance with the names rule as well 

as provide investors meaningful 

information about how funds comply 

with the names rule. This information 

also may allow investors to make 

investment choices that are more 

consistent with their investment 

preferences. As discussed below, we are 

not, however, adopting the proposed 

requirement that an N–PORT fund 

report the number of days that the value 

of the fund’s 80% basket fell below 80% 

of the value of the fund’s total assets 

during the reporting period. 

The Commission received some 

comments specific to the proposed 

requirement that N–PORT funds report 

the value of the fund’s 80% basket as a 

percentage of the value of the fund’s 

assets. Some commenters stated that 

this proposed reporting requirement 


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395See, e.g., SIFMA AMG Comment Letter; 

Dimensional Comment Letter; Fidelity Comment 

Letter. 

396See Proposing Release, supra footnote 2, at 

n.145 and accompanying text for examples of how 

this may be the case. 

397See Fidelity Comment Letter. 

398See, e.g., ICI Comment Letter; Nationwide 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Capital Group Comment Letter; 

MFS Comment Letter. 

399See, e.g., J.P. Morgan Asset Management 

Comment Letter. The commenter who supported 

this reporting item also suggested a longer 

compliance monitoring period than what was 

proposed. See Fidelity Comment Letter. 

400See, e.g., ICI Comment Letter and J.P. Morgan 

Asset Management Comment Letter; Capital Group 

Comment Letter; MFS Comment Letter; see also ICI 

Comment Letter III (discussing particular challenges 

for certain tax-exempt funds that apply the income 

test pursuant to rule 35d–1(a)(3)(i)(B)). 

401See, e.g., USCOC Comment Letter. 

402See J.P. Morgan Asset Management Comment 

Letter. 

403See ICI Comment Letter. 

404Final rule 35d–1(b)(3). 

405The new Form N–PORT reporting 

requirements would not satisfy the record-keeping 

requirements of rule 35d–1(b)(3). The Form N– 

PORT requirements reflect a snapshot of the fund’s 

investments at the end of the reporting period. The 

recordkeeping requirement, however, reflects the 

fund’s ongoing names rule compliance activity. 

406These recordkeeping requirements apply as 

well to any derivatives that a fund includes in its 

80% basket (either because the derivatives 

instrument provides investment exposure to 

investments suggested by the fund’s name, or 

investment exposure to one or more of the market 

risk factors associated with the investment focus 

that the fund’s name suggests). See supra section 

II.A.3. 

407As a technical change to the proposed rule 

text, the final amendments do not specify that a 

fund’s reason for any departure must be ‘‘pursuant 

to paragraphs (b)(1)(2)’’ of the rule. This is because 

final rule amendments do not address specific 

circumstances under which temporary departures 

from the 80% investment requirement would be 

permitted. See supra section II.A.2. 

would lead to inappropriate 

comparisons among funds.395 These 

commenters stated that, because funds 

may have different 80% investment 

policy formulations, despite having the 

same or similar terms in their names, 

comparisons about the percentage of 

funds’ assets invested in their 80% 

baskets would not provide useful 

information to investors. 

We recognize that there are various 

reasonable ways in which funds with a 

similar name could implement the 80% 

investment requirement, and the Form 

N–PORT reporting requirements 

provide an important window into 

exactly how funds implement their 80% 

investment policies. Understanding how 

different funds with the same or similar 

terms in their names may have different 

strategies that invest more or less of the 

fund’s assets outside of their 80% basket 

may provide investors with important 

information that better enables investors 

to select the investment that best meets 

their investment goals.396 The reported 

information is designed to provide an 

additional data point that supplements 

other reported and disclosed 

information about how a fund invests in 

accordance with the focus its name 

suggests. This other reported and 

disclosed information, including the 

definitions of funds’ name terms, will 

provide context that helps ensure that 

information reported about the 

percentage of a fund’s portfolio invested 

in 80% basket assets is not misleading. 

With respect to the proposed 

requirement that a fund report the 

number of days that the value of the 

fund’s 80% basket fell below 80% of the 

value of the fund’s total assets during 

the reporting period, the Commission 

received one supporting comment.397

This commenter stated that the 

proposed reporting requirement would 

assist shareholders in comparing 

different funds as well as the 

Commission in its role overseeing 

fund’s compliance with the names rule. 

The Commission received many 

comments, however, opposing this 

proposed reporting requirement.398 For 

example, a commenter stated that 

monitoring individual securities on a 

daily basis for name rule compliance— 

which would de facto be a necessary 

corollary of the proposed reporting 

requirement—would be operationally 

onerous and should not be required by 

the final rule.399 The Commission also 

received feedback that this proposed 

reporting requirement would be 

confusing, as the information would be 

reported without context and may raise 

unnecessary concern from investors.400

Commenters also suggested that it was 

inappropriate to utilize Form N–PORT 

as a compliance tool.401 Relatedly, a 

commenter stated that requiring the 

proposed reporting of departures below 

80%, without also requiring reporting 

that would provide context of the 

investment team’s judgment, could 

create legal risk for the fund and result 

in the fund manager taking more 

conservative portfolio management 

approaches despite the fact that the 

names rule permits certain 

departures.402 At a minimum, one 

commenter suggested that these 

reporting items, like similar ones for 

liquidity and derivatives reporting, 

should be non-public.403

We are not adopting this proposed 

reporting requirement. The temporary 

departures provision we are adopting as 

part of the final names rule amendments 

does not require funds to monitor names 

rule compliance on a continual basis, 

but instead adopts a time-of-investment 

test with a minimum quarterly review of 

the investments in the fund’s portfolio. 

A requirement to report the number of 

days that the value of the fund’s 80% 

basket fell below 80% of the value of the 

fund’s total assets would be inconsistent 

with this approach to temporary 

departures, because it would require 

daily compliance monitoring. 

F. Recordkeeping 

Consistent with the proposed 

amendments, the final rule will require 

funds that are subject to the 80% 

investment policy requirement to 

maintain certain records documenting 

their compliance with the rule, 

including changes that reflect the final 

rule’s approach to temporary 

departures.404 As a modification to the 

proposal, the final amendments do not 

include the proposed requirement for 

funds that do not adopt an 80% 

investment policy to maintain a written 

record of their analysis that the policy 

is not required under the names rule. 

We are adopting recordkeeping 

requirements designed to enable 

Commission staff, as well as a fund’s 

compliance personnel, to evaluate a 

fund’s compliance with the names rule. 

Neither the current rule nor the general 

recordkeeping rule under the Act 

includes a recordkeeping requirement 

specific to names rule compliancerelated topics. Consistent with the 

proposal, under the final amendments, 

funds that are required to adopt an 80% 

investment policy will be required to 

maintain written records documenting 

their compliance with the names rule. 

Specifically, these funds will be 

required to maintain: 405

• Written records, at the time the 

fund invests its assets, documenting (1) 

whether the investment is included in 

the fund’s 80% basket and, if so, the 

basis for including that investment in 

the 80% basket; and (2) the value of the 

fund’s 80% basket, as a percentage of 

the value of the fund’s assets; 406

• Written records documenting the 

fund’s review of its portfolio 

investments’ inclusion in the fund’s 

80% basket, to be conducted at least 

quarterly, including whether each 

investment is included in the fund’s 

80% basket and the basis for including 

each investment in the 80% basket; 

• If during this review or otherwise 

the fund identifies that the 80% 

requirement is no longer met due to 

drift, written records documenting the 

date this was identified and the reason 

for any departures from the 80% 

investment policy; 407

• If there was a departure from the 

80% requirement in other-than-normal 


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408The six-year retention period under the final 

amendments is designed to be generally consistent 

with other recordkeeping retention periods 

provided in rules under the Act. See, e.g., rule 31a– 

1; rule 2a–7. This consistency with other retention 

periods will likely reduce the compliance burden 

of the recordkeeping requirements under the final 

amendments. 

409See supra paragraph following footnote 165; 

supra paragraph following footnote 174. 

410See J.P. Morgan Asset Management Comment 

Letter; Environmental Defense Fund Comment 

Letter. 

411See ICI Comment Letter; T. Rowe Comment 

Letter; USCOC Comment Letter; Invesco Comment 

Letter; Federated Comment Letter; Dechert 

Comment Letter; SIFMA AMG Comment Letter; 

Seward & Kissel Comment Letter. 

412 ICI Comment Letter; T. Rowe Comment Letter; 

USCOC Comment Letter; Federated Comment 

Letter; SIFMA AMG Comment Letter; Dechert 

Comment Letter. 

413 Dechert Comment Letter. 

414 Invesco Comment Letter; Seward & Kissel 

Comment Letter. 

415 Invesco Comment Letter; Federated Comment 

Letter; Dechert Comment Letter. 

416Final rule 35d–1(b)(3). 

417See supra paragraph following footnote 165; 

supra paragraph following footnote 174. 

418USCOC Comment Letter; T. Rowe Comment 

Letter. 

circumstances, written records 

documenting the date of any such 

departure and reason why the fund 

departed (including why the fund 

determined that circumstances are 

other-than-normal); and 

• Any notice sent to the fund’s 

shareholders pursuant to the rule. 

All of these records must be 

maintained for at least six years 

following the creation of each required 

record (or, in the case of notices, 

following the date the notice was sent), 

the first two years in an easily accessible 

place.408

Functionally, under these 

recordkeeping requirements, each time a 

fund procured an investment, the fund 

would record the basis for including 

that investment in the 80% basket and 

the value of the 80% basket. A fund 

would also make or update such records 

in connection with its quarterly review 

reassessing the characteristics of 

investments in the fund’s 80% basket 

(or any time the fund otherwise 

determines that certain investments’ 

characteristics are inconsistent with the 

fund’s 80% investment policy).409

Some commenters expressed general 

support for the proposed recordkeeping 

requirements, stating that these 

requirements would allow Commission 

staff to better understand and evaluate 

funds’ compliance with the names rule, 

as well as encourage good governance 

and internal controls.410 The majority of 

commenters, however, expressed 

opposition to the proposed 

recordkeeping requirements. Several 

commenters stated that the proposed 

requirement to maintain documentation 

of each investment included in a fund’s 

80% basket would be overly 

burdensome on funds’ compliance and 

management personnel.411 Certain 

commenters stated that they expected 

this requirement to be particularly 

burdensome in light of the increased 

scope of the names rule’s 80% 

investment policy requirement.412 One 

of these commenters stated that the 

requirements would necessitate 

portfolio management personnel 

devoting significant time to 

documenting the basis for each 

investment, including short-term 

investments.413 Other commenters 

stated that some of the proposed 

recordkeeping requirements may not be 

easily automated, including the 

requirement to state the basis for 

including each investment in the 80% 

basket.414 Some commenters also argued 

that this requirement would reduce a 

fund’s capacity to focus on other aspects 

of compliance.415

After considering commenters’ input, 

the final amendments retain the 

proposed requirement for funds 

required to adopt 80% policies to 

maintain documentation of each 

investment it includes in the 80% 

basket.416 The records resulting from 

this requirement will enable our staff to 

evaluate a fund’s treatment of specific 

investments, and the interaction of such 

investments with the overall operation 

of a fund’s 80% investment policy. This 

information will allow our staff to 

identify deficiencies and assess 

compliance of the overall rule as 

amended. 

As discussed above, the final rule’s 

requirements related to temporary 

departures from the 80% requirement 

are different from what was proposed, 

particularly by retaining the time-ofinvestment test; requiring a quarterly, as 

opposed to continual, review; and 

creating different requirements for 

departures in other-than-normal 

circumstances as opposed to drift 

discovered during this quarterly review. 

We are providing more detail in the 

final rule to reflect these changes and 

make clear which records funds must 

maintain and when funds must create 

them under the final amendments. For 

example, the final rule provides specific 

requirements on which records a fund 

will be required to maintain pursuant to 

its quarterly review reassessing the 

characteristics of each investment in the 

fund’s 80% basket (or any time the fund 

otherwise determines that certain 

investments’ characteristics are 

inconsistent with the fund’s 80% 

investment policy).417

These changes also help to address 

questions as to when funds should make 

records under the final rule. Some 

commenters, discussing expected 

burdens, anticipated the need to 

monitor a fund’s 80% basket on a daily 

basis to comply with the proposed 

recordkeeping requirements.418 As 

adopted, the frequency with which 

records under the final rule will be 

made would be at the time of 

investment, as well as when the fund 

engages in an activity that the rule 

requires which triggers a record (e.g., 

conducts a quarterly review), consistent 

with the changes to the temporary 

departure requirements. Making records 

at each of these times will produce 

documentation supporting the fund’s 

compliance with the rule and its 80% 

investment policy at the time a fund 

invests its assets, and in reflection of the 

fact that the fund’s 80% basket and 

investments included in the 80% basket 

could change following initial 

investment, as provided in the rule. The 

frequency of records will, as a practical 

matter, vary based on the specific 

activities and compliance needs of the 

fund, and many funds would make 

certain of these records daily in order to 

reflect ongoing investment activity. For 

example, if a fund (for instance, an 

actively-managed fund whose portfolio 

turns over regularly, or a fund that 

frequently buys and sells portfolio 

assets in response to high or volatile 

investor flows) were making 

investments daily, that fund would keep 

daily records. These records would 

document whether the investments 

made each day are included in the 

fund’s 80% basket (and, if so, the basis 

for that determination) and of the value 

of the fund’s 80% basket, as a 

percentage of the value of the fund’s 

assets. 

As discussed above, the final 

amendments will require funds to 

conduct at-least quarterly—rather than 

continual—assessment of portfolio 

investments’ inclusion in the 80% 

basket. This modification, in turn, could 

mitigate some of the anticipated costs of 

certain of the recordkeeping obligations 

compared to the proposal to the extent 

these anticipated costs assumed 

continual monitoring and assessment of 

portfolio investments, as well as 

recordkeeping requirements that would 

reflect this continual monitoring. We 

recognize that the recordkeeping 

requirements under the final 

amendments will still entail certain 

costs, particularly those associated with 

those records that certain funds (those 


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419See infra section IV.D.2; see also, e.g., J.P. 

Morgan Asset Management Comment Letter (stating 

that, for funds within the current scope of the 

names rule, ‘‘routine testing for compliance can be 

done in a highly automated fashion,’’ and stating 

that ‘‘bespoke automated processes’’ have already 

been developed for funds the sponsor offers that use 

ESG-related terms in their names, but expressing 

concern that for certain names that would be 

brought within the proposed broadened scope, 

compliance testing would be relatively more 

manual. But see supra footnote 71 and 

accompanying text (discussing commenters who 

suggested that it would be challenging to establish 

automated compliance monitoring solutions for 

terms in fund names where subjective criteria are 

part of the decision-making process). As the 

Commission stated in the Proposing Release, 

records that do not lend themselves to automation 

would need to be created on an as-needed basis. 

420Final rule 35d–1(b)(3). 

421See Comment Letter of Independent Directors 

Council (Aug. 16, 2022) (‘‘IDC Comment Letter’’); 

ICI Comment Letter; Seward & Kissel Comment 

Letter; Dechert Comment Letter; SIFMA AMG 

Comment Letter; USCOC Comment Letter; Invesco 

Comment Letter. 

422See J.P. Morgan Asset Management Comment 

Letter. But see ICI Comment Letter; Seward & Kissel 

Comment Letter; Dechert Comment Letter. 

423See Invesco Comment Letter; IDC Comment 

Letter. 424 It would be appropriate for such a fund to 

compile a written analysis at the time it receives 

any such request from staff. This would be 

consistent with final rule’s recordkeeping 

requirements, which do not include a requirement 

for funds that do not adopt 80% investment policies 

to maintain a written record of their analysis as to 

why such policy is not required. To be clear, the 

lack of a requirement to maintain a record of the 

analysis does not mean the fund would not be 

required to determine the applicability of the 80% 

investment policy requirement in the first instance. 

425See generally Proposing Release, supra 

footnote 2, at nn.159–162 and accompanying text. 

426See ICI Comment Letter; SIFMA AMG 

Comment Letter; Invesco Comment Letter. 427See final rule 35d–1(b)(1)(i); see also supra 

section II.A.2. 428See Proposing Release, supra footnote 2, at 

n.160 and accompanying text. 

that make investments on a daily basis) 

would make daily under the final rules 

and records that may not easily lend 

themselves to automation (due to the 

nature of certain investments, or 

otherwise). We continue, however, to 

anticipate that much of the required 

recordkeeping would be able to be at 

least partially automated.419 We also 

recognize that there may be multiple 

reasonable approaches to documenting 

the basis for an investments’ inclusion 

in a fund’s 80% basket in compliance 

with the final amendments. 

As proposed, the final amendments 

will not prescribe the particular form of 

documentation required to be 

maintained but will instead provide 

flexibility in how a fund documents the 

information delineated in the 

recordkeeping requirement. Funds, 

however, should generally maintain 

appropriate documentation that would 

be sufficient for a third party to verify 

the matter covered by each record and 

would be readily available to 

Commission staff. 

The final rule will not include a 

requirement for funds that do not adopt 

80% investment policies to maintain a 

written record of their analysis as to 

why such policy is not required.420

Numerous commenters opposed this 

requirement.421 While one commenter 

expressed general support for this 

provision, several others voiced general 

opposition, asserting that requiring 

funds to demonstrate affirmatively that 

a rule does not apply would be 

inconsistent with the general character 

of the Federal securities laws.422 One 

commenter stated that this requirement 

would not provide a meaningful benefit 

to shareholders, and another expressed 

concern that it could potentially imply 

that funds’ boards of directors were 

required to make or approve a finding 

that the fund is not required to adopt an 

80% policy.423

After considering comments, we have 

determined that this provision is not 

necessary to motivate proper 

determinations of when a fund is 

required to adopt an 80% policy. 

Moreover, the obligations imposed on 

funds through the substantive operation 

of the names rule as amended will 

continue to provide safeguards by 

generally requiring funds to adopt 80% 

investment policies where a fund name 

contains terms suggesting that the fund 

focuses in investments that have, or 

investments whose issuers have, 

particular characteristics. In addition, a 

fund with a name that appears to 

Commission staff to be within the scope 

of the 80% investment policy 

requirement, but that determines not to 

adopt an 80% investment policy, would 

nonetheless be responsible for sharing 

its analysis as to why it is not in 

violation of the names rule if requested 

by the Commission’s examinations and 

enforcement staff.424

G. Unit Investment Trusts 

The 2022 Proposal included 

exceptions for UITs that made their 

initial deposit of securities prior to the 

proposed amendments’ effective date. 

Specifically, the Commission proposed 

to except these UITs from the 

requirements to adopt an 80% 

investment policy and maintain written 

records relating to the rule, unless the 

UIT already adopted—or was required 

to adopt at the time of the initial 

deposit—an 80% investment policy 

under the current rule.425 This proposed 

approach was designed to be generally 

consistent with the treatment of UITs 

under the current names rule, and also 

to retain the existing exception from the 

80% investment policy requirements for 

UITs that pre-date the original rule. In 

a modification from the 2022 Proposal, 

the final amendments will simply 

provide that the 80% investment policy 

and recordkeeping requirements will 

apply to UITs only at the time of initial 

deposit. This modification is designed 

to accommodate the practical realities 

that UITs would encounter if required to 

comply with the new provisions in the 

final amendments that require periodic 

review and potential rebalancing of a 

fund’s portfolio. 

Commenters expressed broad support 

for the proposed exceptions.426 These 

commenters suggested, however, that 

for UITs that do not qualify for the 

exemption, the requirements of the 

names rule should apply only at the 

time of initial deposit and not on an 

ongoing basis. As these commenters 

observed, UITs typically maintain a 

fixed and transparent portfolio of 

securities and are limited in how and 

under what circumstances they can 

acquire or sell securities in their 

portfolio. These commenters therefore 

asserted that UITs are marketed as pro 

rata portions of a fixed portfolio and 

investors generally understand that 

security weightings will change during 

the life of the UIT due to market 

fluctuations. These commenters 

suggested that maintaining compliance 

with the temporary departure provisions 

of the proposed amendments could 

result in a UIT having to rebalance its 

portfolio post-deposit, which could 

create potential operational and legal 

issues. 

After considering these comments, we 

are modifying the proposed approach to 

better align the rule’s new requirements 

with the way in which UITs are 

constructed. Unlike the current rule, the 

final amendments will require a fund to 

review its portfolio assets’ inclusion in 

its 80% basket as least quarterly and 

will also require that, if a fund drifts out 

of compliance with its 80% basket, the 

fund must come back into compliance 

within 90 days.427 Because UITs are 

passively managed vehicles with fixed 

portfolios, it would be challenging for 

them to adjust their portfolios to comply 

with the new portfolio maintenance and 

testing requirements in the final 

amendments. If UITs were required to 

comply with the new requirements for 

temporary departures, portfolio changes 

could result over time that could be 

inconsistent with the requirements of 

UITs’ governance documents or investor 

expectations.428 Accordingly, we have 

modified the proposed exceptions for 

UITs to provide that the 80% 

investment policy and recordkeeping 


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429See final rule 35d–1(e). Functionally, UITs 

that have made their initial deposit prior to the 

compliance date of the final amendments, including 

those that would have been subject to the exception 

in the 2022 Proposal because they pre-date the 

original rule, will not be required to adopt a new 

80% investment policy or comply with the 

recordkeeping requirements in the final 

amendments. 

430A few commenters suggested that the 

Commission should expressly exclude from the 

80% investment policy requirement sub-accounts of 

insurance company separate accounts classified as 

UITs that fund variable annuity contracts and 

variable life insurance contracts when the subaccount invests in a single, designated underlying 

fund and has substantially the same name as the 

corresponding underlying fund. See Dechert 

Comment Letter; IRI Comment Letter; Comment 

Letter of Committee of Annuity Insurers (Aug. 16, 

2022). These UITs should comply with the 80% 

investment policy requirement at initial deposit if 

they use a term in their name that suggests an 

investment focus. See also supra discussion in 

section II.A.1.c) (it would generally be reasonable 

for a fund of funds or other acquiring fund to 

include the entire value of its investment in an 

appropriate acquired fund when calculating 

compliance with the 80% investment requirement 

without looking through to the acquired fund’s 

underlying investments, provided that the acquired 

fund has an 80% investment policy, unless it 

knows that the underlying fund is not investing 

consistent with the acquiring fund’s investment 

focus). 

431See final rule 35d–1(a)(1). In addition, ETFs 

organized as a UIT will be subject to the Form N– 

PORT reporting requirements regarding a fund’s 

80% investment policy post-deposit, consistent 

with their current reporting obligations. See supra 

section II.E. Other UITs will not be required to 

make these reports as they are not required to report 

on Form N–PORT generally. See supra footnote 

371. 

432See Proposing Release, supra footnote 2, at 

section II.H. 

433See supra sections II.B and II.C. One 

commenter stated that the Inline XBRL tagging 

requirements would introduce new costs for UITs 

without significant benefit to investors. See Invesco 

Comment Letter. But see XBRL US Comment Letter 

(supporting the proposed requirement that all funds 

subject to the new disclosure requirements provide 

these disclosures in Inline XBRL format, for the 

reasons discussed at supra footnote 336 and 

accompanying text, and expressing that UITs can 

avail themselves of the same applications and 

processes used by other fund types that report 

information using Inline XBRL data language). 

These costs and benefits are discussed in more 

depth in infra section IV.D. 

434For purposes of the final rules’ tiered 

compliance period, larger entities are funds that, 

together with other investment companies in the 

same ‘‘group of related investment companies’’ (as 

such term is defined in rule 0–10 under the 

Investment Company Act [17 CFR 270.0–10]) have 

net assets of $1 billion or more as of the end of the 

most recent fiscal year, and smaller entities are 

funds that together with other investment 

companies in the same ‘‘group of related investment 

companies’’ have net assets of less than $1 billion 

as of the end of the most recent fiscal year. This 

standard is consistent with prior Commission 

approaches for tiered compliance dates based on 

asset size for rules affecting registered investment 

companies. See, e.g., Investment Company 

Reporting Modernization Adopting Release, supra 

footnote 47; Liquidity Adopting Release, supra 

footnote 214; Inline XBRL Filing of Tagged Data, 

Securities Act Release No. 10514 (June 28, 2018) [83 

FR 40846 (Sep. 17, 2018)]. In our experience, this 

threshold is a reasonable means of distinguishing 

larger and smaller entities for purposes of tiered 

compliance dates for rules affecting investment 

companies. We estimate that, as of December 2022, 

77% of registered investment companies would be 

considered to be larger entities. This estimate is 

based on data reported in response to Items B.5, 

C.9, and F.11 on Form N–CEN. We estimate that, 

as of March 2023, 48% of BDCs would be 

considered to be larger entities. This estimate is 

based on data from Refinitiv BDC Collateral. 

435See ICI Comment Letter; SIFMA AMG 

Comment Letter; Federated Comment Letter; TIAANuveen Comment Letter; IRI Comment Letter; MFS 

Comment Letter; Invesco Comment Letter; Nasdaq 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter; Fidelity Comment Letter; Dechert 

Comment Letter; Capital Group Comment Letter; 

XBRL US Comment Letter. 

436See ICI Comment Letter; SIFMA AMG 

Comment Letter; TIAA-Nuveen Comment Letter; 

J.P. Morgan Asset Management Comment Letter; 

Fidelity Comment Letter; Dechert Comment Letter; 

Capital Group Comment Letter. 

437See ICI Comment Letter; Fidelity Comment 

Letter; Dechert Comment Letter; Capital Group 

Comment Letter. 

438See Freeman Capital Management Comment 

Letter. 

439See infra section IV.D.2. 

requirements will apply only at the 

initial deposit.429

As a result, UITs that have names that 

are implicated by the final amendments 

and whose initial deposit occurs after 

the compliance date of the final 

amendments will need to adopt an 

appropriate 80% investment policy, 

including making such a policy 

fundamental or providing notice to 

investors in the event of a change of the 

policy, if appropriate. However, such 

UITs will not be required to engage in 

the monitoring and other requirements 

associated with the final amendments’ 

temporary departure requirements nor 

will they be required to keep records 

under the final amendments beyond the 

initial deposit. Also consistent with the 

proposal, all UITs will be subject to the 

rule’s other requirements under the final 

amendments, as applicable, as well as 

those of the Federal securities laws 

generally, including section 35(d) of the 

Investment Company Act.430 For 

example, all UITs will continue to be 

subject to the prohibition on names that 

suggest a guarantee by the U.S. 

Government regardless of the date of 

initial deposit.431 Consistent with the 

2022 Proposal, we continue to believe 

that the ability to provide prospectus 

disclosure is not precluded by the fixed 

nature of a UIT’s portfolio.432 As a 

result, UITs will be subject to the plain 

English requirements and the 

prospectus disclosure requirements, 

including the requirement to tag newly 

required information in the prospectus 

using Inline XBRL.433

H. Compliance Dates 

The compliance date for the final 

amendments is [FILL IN date 24 months 

following amendments’ effective date] 

for larger entities, and [FILL IN date 30 

months following amendments’ 

effective date] for smaller entities.434 We 

are adopting this tiered compliance 

period to provide existing funds with 

adequate time to prepare to come into 

compliance with the final amendments. 

We proposed a one-year compliance 

period for all funds that would be 

subject to the amendments, regardless of 

asset size, and we solicited comment on 

whether the transition period should be 

shorter or longer, and whether it should 

be the same for all funds. We received 

comments on this aspect of the 

proposal, with many commenters 

stating that a one-year compliance 

period is an inadequate timeframe given 

the legal, compliance, and operational 

challenges associated with 

implementing the various components 

of the rule.435 Some commenters 

specifically stated that funds will need 

time to evaluate the impact of the 

amendments, determine necessary 

changes, and seek board and/or 

shareholder approval of any required 

changes to funds’ names or investment 

strategies.436 Other commenters stated 

that service providers assisting with 

ongoing assessment of funds’ portfolios 

will need time to develop and update 

systems necessary to support the 

rule.437 One commenter stated that 

many small funds would be particularly 

burdened by heavy legal and 

compliance costs.438

After consideration of commenters’ 

concerns, we are adopting a compliance 

period of 24 months following the final 

amendments’ effective date for larger 

entities, and 30 months following the 

final amendments’ effective date for 

smaller entities. The tiered compliance 

period we are adopting is designed to 

strike the appropriate balance between 

allowing funds adequate time to adjust 

their compliance practices, and 

allowing investors and shareholders to 

benefit from the amended names rule 

framework. This tiered compliance 

period also recognizes commenter 

concerns related to the operational 

challenges associated with compliance 

with the final amendments. In 

considering the adequacy of this 

compliance period, we also have 

considered that certain funds’ current 

investment policies may already be in 

line with the final amendments or could 

be readily conformed without material 

change.439 Furthermore, certain 

provisions of the final amendments will 

reduce both the initial and ongoing 

costs associated with compliance 

compared to the proposed amendments 

from which some commenter concerns 


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440See Stradley Comment Letter. 

441See Mobile Relay Assocs. v. FCC, 457 F.3d 1, 

11 (D.C. Cir. 2006) (‘‘It is often the case that a 

business will undertake a certain course of conduct 

based on the current law, and will then find its 

expectations frustrated when the law changes. This 

has never been thought to constitute retroactive 

lawmaking, and indeed most economic regulation 

would be unworkable if all laws disrupting prior 

expectations were deemed suspect.’’) (internal 

quotation marks omitted). 

442 5 U.S.C. 801 et seq. 

443 15 U.S.C. 80a–2(c). 444See Zycher Comment Letter. 

445For a fuller discussion, see section I.B. 

446See supra footnote 26 and accompanying text. 

447Based on an analysis of fund names as of Dec. 

2022. 

448See R. Kaniel, and P. Wang, Unmasking 

Mutual Fund Derivative Use, CEPR Discussion 

Paper 17755 (2022) (‘‘Kaniel Paper’’). The authors 

find that 26% of active equity mutual funds use 

derivatives. Of these, 63% have derivative returns 

that correlate positively with their non-derivative 

returns. The median correlation was 0.25. For 

comparison, J Koski and J Pontiff, How are 

Derivatives Used? Evidence from the Mutual Fund 

Industry, Journal of Finance, Volume 54(2), 791– 

816 (1999) finds that only 21% of similar funds use 

derivatives. 

stemmed. We anticipate that smaller 

entities will benefit from having an 

additional six months to come into 

compliance with the final amendments, 

based on feedback from commenters 

and to the extent that smaller entities 

may face additional or different 

challenges in coming into compliance 

with the amendments than larger 

entities. 

We disagree with the commenter who 

asserted that the amended rule is 

impermissibly retroactive.440 The 

compliance period that we are adopting 

ensures that the rule amendments will 

operate and will be enforced 

prospectively. That regulated entities 

may have to take action to come into 

compliance with the rule does not make 

that rule retroactive.441

Staff in the Division of Investment 

Management are reviewing its no-action 

letters and other statements addressing 

compliance with the names rule to 

determine which letters and other staff 

statements, or portions thereof, should 

be withdrawn in connection with the 

final amendments. Some of these letters 

and other staff statements, or portions 

thereof, may be moot, superseded, or 

otherwise inconsistent with the final 

rule and, therefore, may be withdrawn 

by the staff. The staff’s review includes, 

but is not necessarily be limited to, the 

staff no-action letters and other staff 

statements listed below. 

• Frequently Asked Questions about 

Rule 35d–1; 

• Disclosure by Funds Investing in 

Government Sponsored Enterprises 

(staff letter to the ICI, Oct. 17, 2003); 

• IM Guidance Update, No. 2013–12, 

Fund Names Suggesting Protection from 

Loss (Nov. 2013). 

III. Other Matters 

Pursuant to the Congressional Review 

Act,442 the Office of Information and 

Regulatory Affairs has designated the 

final amendments as a ‘‘major rule’’ as 

defined by 5 U.S.C. 804(2). If any of the 

provisions of these rules, or the 

application thereof to any person or 

circumstance, is held to be invalid, such 

invalidity shall not affect other 

provisions or application of such 

provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

IV. Economic Analysis 

A. Introduction 

We are mindful of the costs imposed 

by, and the benefits obtained from, our 

rules. Section 2(c) of the Investment 

Company Act 443 provides that when the 

Commission is engaging in rulemaking 

under the Act and is required to 

consider or determine whether an action 

is consistent with the public interest, 

the Commission shall also consider 

whether the action will promote 

efficiency, competition, and capital 

formation, in addition to the protection 

of investors. The following analysis 

considers, in detail, the likely 

significant economic effects that may 

result from the final rule amendments, 

including the benefits and costs to 

investors and other market participants 

as well as the broader implications of 

the final rule amendments for 

efficiency, competition, and capital 

formation. 

Many of the benefits and costs 

discussed below are difficult to 

quantify. For example, the Commission 

cannot quantify how investors may 

change their investments in funds in 

response to the final rule amendments. 

Also, in some cases, data needed to 

quantify these economic effects are not 

currently available and the Commission 

does not have information or data that 

would allow such quantification. For 

example, the costs for investors to 

search for funds and monitor them to 

ensure that their investments are 

consistent with their preferences will 

depend on investors’ opportunity cost of 

time, which could differ across 

investors. While the Commission has 

attempted to quantify economic effects 

where possible, much of the discussion 

of economic effects is qualitative in 

nature. 

B. Broad Economic Considerations 

As discussed in section I above, we 

believe that a fund’s name is one 

important piece of information that 

investors use to select a fund, and that 

asset managers give considerable 

thought to the fund names that they 

choose. To the extent that investors 

value and can determine whether a 

fund’s investments comport with the 

fund’s name, there are reputational 

incentives for funds to hold such 

assets.444 However, it is costly for 

individuals or third parties to analyze 

and monitor the extent to which every 

fund invests in assets consistent with an 

investment focus suggested by its name, 

or even to discover the reputation of 

each fund. As a result, it may be more 

efficient for investors to be able to rely 

on certain regulatory standards 

addressing the relationship between a 

fund’s name and its investments than to 

rely on third parties or individual 

analyses for these purposes. Investors 

within a fund also differ in their 

preferences, and this variability 

mitigates an adviser’s incentive to cater 

to those types of preferences, such as 

preferences over risk or correlation with 

particular market factors. 

Further, an adviser has an incentive 

for the fund to hold investments 

different from those suggested by the 

fund’s name to the extent that doing so 

would lead to increased assets under 

management and increased fee 

revenues. For example, a fund may be 

incentivized to depart from the 

investment focus suggested by its name 

in an attempt to outperform its peers 

and attract greater inflows and may act 

on this incentive within regulatory and 

market constraints. Holding investments 

not consistent with the investment focus 

that a fund’s name suggests could lead 

to investors holding investments that 

are inconsistent with their goals and 

risk tolerances. 

Some commenters believed that the 

current names rule needs to be 

amended.445 Some of these commenters 

stated, for example, that the current 

scope of the 80% investment policy 

provision does not cover all instances in 

which fund names create the reasonable 

expectation that a fund will invest in a 

certain way.446 Funds that suggest an 

investment focus but that are not 

currently covered by the names rule are 

popular. For example, funds with 

‘‘growth’’ or ‘‘value’’ in their name make 

up over 15% of funds.447

In addition, derivatives have become 

a more common tool used by funds 

since the inception of the names rule, 

and many funds that use derivatives do 

so in ways that amplify, rather than 

hedge, their non-derivative positions.448

Because the market value of derivatives 


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449See Kaniel Paper. The authors find that, 

among funds that use derivatives, derivatives are, 

on average, 2% of the market value of those funds. 

By contrast, derivatives make up, on average, 21% 

of those same funds’ gross notional exposure. See 

also supra footnote 238 and accompanying text 

(stating that using a derivatives instrument’s market 

value for purposes of assessing names rule 

compliance could result in a fund being in 

compliance with its 80% investment policy despite 

the fund having significant exposure to investments 

that are not suggested by the fund’s name). 

450See e.g., S. El Ghoul, and A. Karoui, What’s 

in a (Green) Name? The Consequences of Greening 

Fund Names on Fund Flows, Turnover, and 

Performance, Finance Research Letters, Volume 39, 

101620 (2021). The authors find that, following a 

fund name change suggesting socially responsible 

investment, fund inflows increase but there is a 

statistically insignificant change in fund exposure 

to socially responsible investment. See also B. 

Candelon, J. B. Hasse, J.-Q. Lajaunie, ESG-Washing 

in the Mutual Funds Industry? From Information 

Asymmetry to Regulation, Risks, 9, 199 (2021). The 

authors provide empirical evidence that some asset 

managers portray their funds as socially responsible 

yet do not make tangible investment decisions 

consistent with that portrayal. See also C. Wu and 

W. Chen, What’s an AI Name Worth? The Impact 

of AI ETFs on Their Underlying Stocks, Finance 

Research Letters, Volume 46 (B), 102474 (2022). 

The authors compare returns between the stocks in 

two different kinds of AI ETFs: those with and 

without ‘‘AI’’ in their name. They find that the 

constituent stocks of the group with ‘‘AI’’ in the 

name has a higher cumulative abnormal return than 

the constituent stocks of the group without ‘‘AI’’ in 

the name, and attribute this to differential fund 

flows to the different groups. 

451See Michael J. Cooper, Huseyin Gulen, and P. 

Raghavendra Rau, Changing Names with Style: 

Mutual Fund Name Changes and Their Effects on 

Fund Flows, Journal of Finance, Volume 60, 2825– 

2858 (2005) (‘‘Cooper Paper’’). The authors identify 

296 equity mutual funds that make a style name 

change over the period April 1994 to July 2001. 

They find that 63% of style-related name changes 

are ‘misleading’ in that they are not accompanied 

by corresponding changes in investment style to 

reflect the investment style suggested by the new 

name. See also Susanne Espenlaub, Imtiaz ul Haq, 

and Arif Khurshed, It’s all in the name: Mutual 

fund name changes after SEC Rule 35d–1, Journal 

of Banking and Finance, Volume 84, 123–134 

(2017) (‘‘Espenlaub Paper’’). The authors examine 

2,677 fund name changes among 2,110 funds from 

the fourth quarter of 2001 through the fourth 

quarter of 2011. The authors find 435 ‘‘misleading’’ 

name changes in their sample. 

452See Anne-Florence Allard et al., When Mutual 

Fund Names Misinform (working paper, 2020), 

available at https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=3628293. The researchers 

find that funds that perform poorly over the first 

three quarters of a year, and funds that have 

experienced poor fund flows over the first three 

quarters of a year, are more likely to change to an 

investment style that is inconsistent with the style 

implied by the fund’s name. These results suggest 

that funds that have performed poorly over the first 

three quarters of a year, and funds that have 

experienced poor fund flows over the first three 

quarters of a year, would bear an opportunity cost 

if they continued to follow the investment style 

consistent with the strategy implied by the funds’ 

names. 

453See Espenlaub Paper, supra footnote 451. The 

researchers find that ‘‘superficial’’ name changes 

result in increased fund flows but do not result in 

either higher performance or lower fees. See also 

Cooper Paper, supra footnote 451. The researchers 

find that funds that change their names: (1) 

experience negative flows, relative to their peers, 

prior to changing their names, (2) have performed 

poorly on a risk-adjusted basis, and (3) are in a 

style, irrespective of a fund’s individual 

performance, that has recent poor performance. 

454See Cooper Paper, supra footnote 451. 

455See ICI Comment Letter and SIFMA AMG 

Comment Letter. 

456See, e.g., ICI Comment Letter, SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter. 

457See, e.g., ICI Comment Letter, J.P. Morgan 

Asset Management Comment Letter; T. Rowe 

Comment Letter. 

tends to be small relative to the 

exposures they create, certain 

derivatives may currently provide funds 

a way to create large exposures not 

suggested by a fund’s name without 

falling out of compliance with an 80% 

investment policy if derivatives are 

valued using their market value.449

Researchers have studied whether a 

fund’s name can drive investor behavior 

above and beyond the investment 

strategy of the fund. That is, they have 

studied whether an incentive exists for 

managers to use names to attract fund 

flows in ways that are not reflected in 

the investment allocation of the fund. 

Research has found that fund names 

have an impact on fund flows in 

different types of environments.450

Researchers have also found that certain 

funds have changed their names to 

suggest changes in style, but the funds 

do not subsequently change styles.451

Gaps between the investment style 

implied by a fund’s name and the actual 

style of the fund are consistent with 

self-interest of the fund’s adviser. For 

example, research findings suggest that 

fund managers may alter funds’ 

investment styles during the last part of 

a year, without changing their names to 

reflect a new style, in an effort to 

outperform their peers and attract 

greater inflows over the remainder of 

the year.452 Research findings also 

suggest that funds’ name changes that 

do not also involve a style change may 

be intentional and aimed at attracting 

investors.453 In particular, these fund 

name changes tend to suggest fund 

styles that have performed well recently 

and that have received a 

disproportionate amount of fund 

flows.454

Some commenters disputed the 

relevance of this research to the 

proposed amendments to the names 

rule, claiming that it predates the 

current names rule, misuses terms like 

‘‘growth’’ and ‘‘value,’’ and does not 

demonstrate that investors have been 

misled.455 While some of this evidence 

does predate the current names rule, it 

also reflects styles that are not within 

the scope of the current names rule but 

are in the scope of the amended rule 

(i.e., growth and value funds). As such, 

we do not anticipate that the current 

names rule impacted the main findings 

of these studies. Further, we believe that 

the totality of the academic research, 

both before and after the enactment of 

the names rule, suggests that fund 

names affect investor behavior above 

and beyond what can be explained by 

a fund’s returns, risk level, correlation 

with market risk factors, or 

classification by third parties. This is 

not to suggest that names are solely 

determinative in investor decisions. 

While the above research is consistent 

with some investors unknowingly 

choosing funds that invest in assets 

outside of the investment focus 

suggested by their names, this is not the 

only possible explanation for the given 

findings. For example, funds with 

names that superficially suggest popular 

styles may be included more often in 

investors’ initial screenings for funds, 

and investors may nonetheless 

disproportionately choose these funds 

after investigating them more 

thoroughly despite this fact. However, 

this would still suggest inefficiencies in 

the investor-fund matching process that 

could be improved by more precise 

naming and establishes the existence of 

an incentive for managers to choose 

names that maximize fund flows, even 

if the chosen name is not indicative of 

the investment practice of the fund. The 

academic research cited generally does 

not distinguish whether funds were 

purchased directly by investors or by a 

fiduciary or other intermediary. 

However, the rule is intended to 

increase search efficiency for both retail 

investors and fiduciaries. 

Some commenters also criticized the 

proposed amendments for the costs they 

would impose on funds and, by 

extension, investors. Prevalent among 

these were concerns that the expansion 

of the scope of the rule would 

encompass many funds whose names 

have terms that are defined at least 

partially by managerial judgment.456

These funds, commenters argued, would 

have significantly higher costs of 

compliance with the names rule than 

would funds that are already scoped 

into the rule. In particular, commenters 

were worried that automated processes 

could not be implemented that would 

categorize each asset and determine 

whether it fell in its 80% basket.457

These concerns were heightened 

because the approach in the proposing 

release effectively would have required 

funds to do this categorization 

continually (and in some circumstances 

daily) in order to determine the number 

of days that a fund was out of 


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458See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111– 

15 (D.C. Cir. 2022). This approach also follows SEC 

staff guidance on economic analysis for rulemaking. 

See Staff’s ‘‘Current Guidance on Economic 

Analysis in SEC Rulemaking’’ (March 16, 2012), 

available at https://www.sec.gov/divisions/riskfin/ 

rsfi_guidance_econ_analy_secrulemaking.pdf (‘‘The 

economic consequences of proposed rules 

(potential costs and benefits including effects on 

efficiency, competition, and capital formation) 

should be measured against a baseline, which is the 

best assessment of how the world would look in the 

absence of the proposed action.’’); Id. at 7 (‘‘The 

baseline includes both the economic attributes of 

the relevant market and the existing regulatory 

structure.’’). The best assessment of how the world 

would look in the absence of the proposed or final 

action typically does not include recently proposed 

actions, because doing so would improperly assume 

the adoption of those proposed actions. 

459Estimates of the number of registered 

investment companies and their total net assets are 

based on an analysis of Form N–CEN filings as of 

Dec. 31, 2022. For open-end management funds, 

closed-end funds, and management company 

separate accounts, total net assets is the sum of 

monthly average net assets across all funds in the 

sample during the reporting period (see Item C.19.a 

of Form N–CEN). For UITs, we count only N–CEN 

UIT filers that indicated registration on Form S–6 

or Form N–8B–2. Furthermore, we use the total 

assets as of the end of the reporting period (see Item 

F.11 of Form N–CEN), and for UITs with missing 

total assets information, we use the aggregated 

contract value for the reporting period instead (see 

Item F.14.c of Form N–CEN). 

460Estimates of the number of money market 

mutual funds and their total net assets are based on 

an analysis of Form N–MFP filings as of Dec. 31, 

2022. 

461Estimates of the number of BDCs and their net 

assets are based on an analysis of Form 10–K and 

Form 10–Q filings as of Dec. 31, 2022. Our estimate 

includes BDCs that may be delinquent or have filed 

extensions for their filings. 

462See Investment Company Institute, 2023 

Factbook (2023) (‘‘2023 ICI Factbook’’) available at 

https://icifactbook.org/pdf/2023-factbook.pdf. 

463 Id. 

464 Id. 

465See, e.g., Better Markets Comment Letter, 

Consumer Federation of America Comment Letter, 

Center for American Progress Comment Letter. 

466Based on an analysis of fund names as of Dec. 

2022. 

467Certain word pairs are also common in fund 

names. For example, the word pair ‘‘small cap’’ 

appears in 3.6% of fund names. Other common 

word pairs include ‘‘large cap’’ (2.5% of funds), 

‘‘high yield’’ (2.0% of funds), and ‘‘emerging 

markets’’ (3.5% of funds). 

468This estimate is based on a random stratified 

sample of 100 fund names, which is a 

representative sample based on fund size randomly 

selected from the population of N–CEN filings as of 

Dec. 31, 2022. Specifically, 497 and 485BPOS fund 

prospectuses filed in 2021 or 2022 that match to the 

sample of 100 funds are parsed both 

programmatically and manually for keywords and 

phrases indicative of minimum investment 

commitment policies. 485BPOS refers to any posteffective amendments to the initial registration 

statement or prospectus filed pursuant to Securities 

Act rule 485(b). The investment policies for ten 

funds could not be identified in the 497 and 

485BPOS fund prospectuses filed in 2021 or 2022. 

Therefore, these ten funds are excluded for this 

estimate. The random sample of 100 funds 

referenced here is the same sample of funds as that 

used to estimate the percentage of funds whose 

names implicate the 80% requirement. See infra 

section IV.C.3 

469 22% of funds that have investment policies 

specifying a minimum percentage of investments 

consistent with a certain fund focus specify a 

percentage less than 80%. While 67% of funds have 

an investment policy requiring at least 80% of fund 

investments be consistent with a certain investment 

strategy, we estimate that 60% of funds have names 

that trigger the 80% requirement (discussed below). 

These results suggest that funds may adopt 80% 

investment policies even if they are not currently 

within the scope of the names rule’s current 

requirement to adopt an 80% investment policy. 

compliance with its 80% investment 

policy. 

The final amendments have taken 

several steps to mitigate costs for most 

funds relative to the amendments in the 

proposing release. For example, the 

final rule does not include a 

requirement for continual or daily 

monitoring to reassess the 

characteristics of the investments in the 

fund’s 80% basket, alleviating the need 

for daily recategorization. However, a 

fund must review its portfolio 

investments on a quarterly basis to 

determine whether or not the fund’s 

investments continue to be consistent 

with its 80% investment policy. As is 

true under the baseline, a fund must 

also categorize an asset at its time of 

investment. If a fund is trading each of 

its assets daily then the cost mitigation 

described above would not apply. 

C. Economic Baseline 

The baseline against which the costs, 

benefits, and the effects on efficiency, 

competition, and capital formation of 

the final rule are measured consists of 

the current state of the fund market, 

current practice as it relates to fund 

names and investment policies, and the 

current regulatory framework. The 

economic analysis appropriately 

considers existing regulatory 

requirements, including recently 

adopted rules, as part of its economic 

baseline against which the costs and 

benefits of the final rule are 

measured.458

1. Fund Industry Overview 

The fund industry has grown and 

evolved substantially in past decades in 

response to various factors, including 

investor demand, technological 

developments, and an increase in 

domestic and international investment 

opportunities, both retail and 

institutional. As of December 2022, 

there were 9,533 mutual funds 

(excluding money market funds) with 

approximately $21,861 billion in total 

net assets, 2,735 ETFs organized as an 

open-end fund or as a share-class of an 

open-end fund with approximately 

$8,843 billion in total net assets, 748 

registered closed-end funds with 

approximately $389 billion in total net 

assets, and 45 UITs with approximately 

$812 billion in total net assets.459 There 

also were 355 money market funds with 

approximately $5,556 billion in total net 

assets.460 Finally, as of December 2022, 

there were 125 BDCs with 

approximately $138 billion in total net 

assets.461

The final rule amendments would 

also affect current and prospective 

individual investors who invest in 

funds. According to an association 

representing registered funds, as of 

2022, 71.7 million (54.7%) U.S. 

households and 120.5 million 

individuals owned shares in U.S. 

registered investment companies.462

Median mutual fund assets of mutual 

fund-owning households were $125,000 

with the median number of mutual 

funds held being three.463 Moreover, 

registered funds play an important role 

in individuals’ retirement savings. 72% 

of households had tax-advantaged 

retirement savings with $10.1 trillion 

invested in mutual funds either through 

defined contribution plans or IRAs.464

2. Market Practice 

Fund names are an important 

mechanism in marketing funds to 

investors. Although investors have 

access to the entirety of a fund’s 

disclosures, a fund’s name is often the 

first piece of fund information investors 

see and can have a significant impact on 

their investment decision. Several 

commenters stated that the name of a 

fund is vital to an investor’s decisionmaking process and can have a large 

impact on its fund flows.465 Fund 

names commonly include words that 

describe the fund’s investment focus— 

for example, the asset class(es) in which 

the fund invests, as well as the fund’s 

investment strategy. For example, the 

words ‘‘equity’’ or ‘‘stock’’—terms that 

convey an investment type and 

therefore subject funds to the existing 

names rule’s 80% investment policy 

requirement—appear in 1,393 fund 

names (approximately 10.6% of nonmoney market funds).466 The words 

‘‘growth,’’ ‘‘income,’’ and ‘‘value’’— 

terms that do not convey an investment 

type—appear in 1,167 (8.9% of nonmoney market funds), 1,472 (11.2%), 

and 829 (6.3%) fund names, 

respectively.467

A review of fund filings suggests that 

approximately 82% of funds have 

investment policies specifying a 

minimum percentage of investments 

consistent with a certain fund focus,468

while 67% of all funds have such a 

policy with a minimum threshold of 

80% or higher.469 Certain funds also 

specify investment maximums as a 


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470For example, a fund may specify that it invests 

no more than a given percentage of fund assets in 

a given country or geographic region. 

471See section IV.C.3 for details on the current 

regulatory requirement. 

472See supra footnote 448 and accompanying 

text. 

473See Kaniel Paper. 

474See, e.g., A. Frino, A. Lepone, and B Wong, 

Derivative Use, Fund Flows and Investment 

Manager Performance, Journal of Banking & 

Finance, Volume 33, 925–933 (2009). 

475For example, 60% of futures contracts profits 

may be taxed at the long-term capital gains rate 

regardless of duration of the investment. 

476See supra section I.A. 

477Rule 35d–1(d)(1). 

478See rule 35d–1(a)(2)(i), (a)(3)(i). 

479 Id. 

480Alternatively, at least 80% of the income that 

it distributes will be exempt. See rule 35d–1(a)(4); 

see also supra footnote 15. 

481See rule 35d–1(a)(2)(ii), (a)(3)(iii). An 80% 

investment policy relating to a tax-exempt fund, 

however, must be a fundamental policy. 

482Rule 35d–1(a)(3)(ii). 

483 2020 Request for Comment, supra footnote 20. 

484This estimate is based on a random stratified 

sample of 100 fund names. See supra footnote 468. 

485Rule 35d–1(b); see also 2001 Names Rule 

Adopting Release, supra footnote 8. 

486Rule 35d–1(b). As described in greater detail 

in the Proposing Release, supra footnote 2, funds’ 

compliance with the baseline rule is facilitated by 

Commission staff review of funds’ initial 

registration statements, post-effective amendments, 

proxy statements, and annual reports. Likewise, the 

names rule’s 80% investment policy requirement 

has never been intended to create a safe harbor from 

liability under section 35(d) for materially 

deceptive or misleading fund names generally. See 

supra section II.A.5; see also 2001 Names Rule 

Adopting Release, supra footnote 8, (stating that the 

Division would ‘‘continue to scrutinize investment 

company names not covered by the proposed rule 

. . . and [i]n determining whether a particular 

name is misleading, the Division w[ould] consider 

whether the name would lead a reasonable investor 

to conclude that the company invests in a manner 

that is inconsistent with the company’s intended 

investments or the risks of those investments’’). 

Funds that anticipate oversight may be more likely 

to take steps to align their investment practices with 

the terminology used in these funds’ names. 

487 2001 Names Rule Adopting Release, supra 

footnote 8. 

488Rule 35d–1(b). 

489See supra footnote 13 (citing 15 U.S.C. 80a– 

58). 

490Rule 35d–1(a)(2)(ii), (a)(3)(iii). 

491See Proposing Release, supra footnote 2, at 

n.99 and accompanying text. 

percentage of fund assets.470 The review 

also found that 60% of funds are 

required under the current names rule 

to maintain an 80% investment 

policy.471

Funds’ use of derivatives has grown 

in the time since the names rule was 

originally adopted in 2001, with 26% of 

funds now having some derivatives 

exposure.472 Funds use derivatives in a 

variety of ways, including increasing or 

hedging their exposure to certain risk 

factors. Funds primarily do this through 

the use of futures and swaps contracts 

but other derivatives, such as options, 

are also widely used.473 For example, a 

fund may wish to hedge the currency 

risk of a foreign asset through the use of 

a forward contract or its interest rate 

risk using a swap. Similarly, a fund may 

gain exposure to certain equities or 

commodities through the use of forward 

and option contracts. Funds also use 

derivatives for cash management 

purposes when fund flows are high,474

for tax efficiency,475 or to arbitrage 

market mispricing. 

3. Current Regulatory Framework 

As discussed above, section 35(d) of 

the Act authorizes the Commission to 

define certain fund names or titles as 

materially deceptive or misleading.476

The current names rule applies to a 

registered investment company and any 

series of the investment company.477

The rule generally requires that if a 

fund’s name suggests a particular type 

of investment, industry, or geographic 

focus, the fund must invest at least 80% 

of its assets in the type of investment, 

industry, country, or geographic region 

suggested by its name.478 The names 

rule also provides that a fund’s 80% 

investment policy applies ‘‘under 

normal circumstances’’ 479—giving 

funds flexibility to take cash or other 

defensive positions during market 

crises. The names rule also imposes an 

80% investment policy requirement for 

tax-exempt funds.480 Under the rule, a 

fund may generally elect to make its 

80% investment policy a fundamental 

policy (i.e., a policy that may not be 

changed without shareholder approval) 

or instead provide shareholders notice 

at least 60 days prior to any change in 

the 80% investment policy.481 The 

names rule also requires a fund with a 

name suggesting that the fund focuses 

its investments in a particular country 

or geographic region to disclose in its 

prospectus the specific criteria used by 

the fund to select these investments.482

The current names rule has no 

express provision for how derivatives 

are to be treated in a fund’s 80% 

calculation. In practice however, funds 

typically use a derivative’s market value 

consistent with the definition of the 

term ‘‘value’’ in the Investment 

Company Act.483

A review of fund names suggests that 

approximately 60% of funds have 

names that implicate the 80% 

investment policy requirement, but that 

approximately 67% of funds have an 

investment policy that covers at least 

80% of investment assets.484

The 80% investment policy 

requirement generally applies at the 

time when an investment company 

invests its assets.485 If an investment 

causes a fund to no longer satisfy its 

80% investment policy, then all future 

investments must be made in a manner 

that will bring the fund back into 

compliance with the 80% investment 

policy.486

Because the current rule applies to all 

registered investment companies, it 

applies to UITs as well as mutual funds 

and registered closed-end investment 

companies.487 UITs are passively 

managed vehicles that operate pursuant 

to a trust indenture or a similar 

document and have fixed portfolios. 

They are also generally subject to the 

80% investment policy requirement of 

the current names rule at the time of 

investment. However, UITs that have 

made an initial deposit of securities 

before the compliance date of the 

original rule are exempted from this 

requirement.488

BDCs, while not registered investment 

companies, are subject to requirements 

of section 35(d) of the Act, and thus the 

names rule, by operation of section 59 

of the Act.489 Accordingly they must 

meet the current rule’s 80% investment 

policy requirement including to either 

adopt the required 80% investment 

policy as a fundamental policy or 

provide shareholders 60 days’ advance 

notice for any change in the investment 

policy.490 Unlisted registered closedend funds and BDCs, however, do not 

issue redeemable shares or list their 

shares on a national securities exchange. 

Shareholders in an unlisted registered 

closed-end fund or BDC generally will 

have no ready recourse, such as the 

ability to redeem or quickly sell their 

shares, if the fund were to change its 

investment policy and the investment 

focus that the fund’s name indicates.491

All registered management 

investment companies (other than 

money market funds and small business 

investment companies), as well as ETFs 

organized as UITs, file Form N–PORT 

with the Commission on a monthly 

basis. Form N–PORT requires reporting 

of a fund’s complete portfolio holdings 

in a structured data language, with 

every third month available to the 

public 60 days after the end of the 

fund’s fiscal quarter. 

D. Benefits, Costs, and Effects on 

Efficiency, Competition and Capital 

Formation 

The final amendments are designed to 

modernize and enhance the investor 

protections that the names rule 

currently provides. The final 

amendments are designed to improve, 

and broaden the scope of, the 

requirement for certain funds to adopt a 


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492See supra footnote 468 and accompanying 

text. 

493See SIFMA AMG Comment Letter. 

494See supra section II.A.1. 

495See supra footnotes 468–469. The percentage 

estimate is applied to the total number of funds 

(13,541) listed in section IV.C.1. 

496See supra section II.A.2 for a full description 

of the requirement. 

policy to invest at least 80% of their 

assets in accordance with the 

investment focus that the fund’s name 

suggests. These amendments further the 

name rule’s objective of preventing fund 

names from misrepresenting a fund’s 

investments and risks by ensuring that 

a fund’s investment activity is 

consistent with the investment focus its 

name communicates. The final 

amendments also update the rule’s 

notice requirements, establish 

recordkeeping requirements, and 

require enhanced prospectus disclosure 

and reporting on Form N–PORT. 

1. Benefits 

The investor protections provided by 

the names rule benefit investors by 

helping to ensure investors’ assets in 

funds are invested in accordance with 

their investment goals and risk 

tolerances. The distinction in the 

current rule between a type of 

investment—which implicates the 80% 

requirement under the baseline—and an 

investment strategy—which does not 

implicate this requirement—is not 

useful from an investor protection 

perspective because any fund name that 

may connote a particular investment 

focus can result in reasonable investor 

expectations regardless of whether the 

fund’s name describes a strategy or a 

type of investment. Also, under certain 

circumstances, the current structure of 

the rule may not protect investors from 

funds departing from the investment 

focus suggested by their name over time. 

For example, funds may passively hold 

assets whose characteristics change, 

such as a small-cap firm becoming a 

mid-cap firm. Since funds are currently 

required only to assess assets at the time 

of investment, changes in the relative 

value of the assets of a fund could allow 

a fund’s portfolio to drift such that its 

holdings no longer reflect the 

investment focus suggested by its name, 

which could mislead new or existing 

investors. Additionally, the investor 

protections provided by the names rule 

are not designed to address funds’ 

increasing use of derivatives. 

The benefits associated with the final 

amendments may vary based on funds’ 

current practices. We estimate that 82% 

of funds, and over half of funds not 

currently subject to the names rule, 

currently have in place practices related 

to investing a certain percentage of their 

assets in a particular type of assets or 

assets that have certain 

characteristics.492 Depending on the 

extent to which those practices differ 

across funds or differ from the final 

amendments’ requirements, the benefits 

realized by fund investors, as detailed 

below, may vary across fund investors. 

Generally, the final rules should 

increase investor confidence that funds’ 

portfolios are aligned with the 

investment focus suggested by their 

names. The provisions are intended to 

align fund investments with the 

preferences of investors. To the extent 

that funds change their behavior and 

invest in assets more suited to investor 

preferences, allocation efficiency will 

increase. 

One commenter questioned the 

general benefits of the amendments on 

the basis of a lack of enforcement 

actions or lawsuits arising from the 

current names rule.493 We disagree with 

this assessment. There are a number of 

factors that determine whether and 

when the Commission brings 

enforcement actions, meaning the 

presence or absence of such actions 

does not necessarily indicate whether 

rulemaking is or is not justified. For the 

reasons discussed throughout, including 

the Commission and staff’s experience 

with the names rule over the past two 

decades and developments in the fund 

industry, the Commission believes that 

this rulemaking is justified.494

Names Suggesting an Investment 

Focus. To the extent fund names are not 

representative of funds’ investment 

focuses, existing and potential investors 

may hold, or invest in, funds with risk 

and return characteristics that differ 

from investors’ reasonable expectations. 

Absent investor protections with respect 

to fund holdings, existing investors may 

expend resources they otherwise would 

not expend to confirm that fund 

investments are consistent with their 

expectations based on the fund’s name, 

or they may choose to reduce or 

eliminate their investments in funds. 

Similarly, uncertainty about fund 

holdings despite the fund’s name could 

cause potential investors to expend 

greater resources to confirm fund 

investments prior to investment or 

could lead potential investors to invest 

less or forgo investment altogether. The 

final amendments would extend the 

provisions of the names rule to a 

broader set of fund names. 

Specifically, we estimate that 

approximately 8,100 (60%) funds are 

currently subject to the names rule’s 

80% investment policy requirement and 

that our final amendments would 

increase this number to approximately 

10,300 (76%) funds.495 We believe that 

investors in these additional funds 

would benefit to the extent that the 

scope expansion helps ensure that a 

fund’s investment activity is consistent 

with the investment focus its name 

communicates and, thus, the investor 

expectations the name creates. 

Temporary Departures. The final 

amendments will continue to permit a 

fund to depart temporarily from the 

requirement to invest at least 80% of the 

value of its assets in accordance with 

the investment focus its name suggests. 

The final rule requires that a fund must 

invest in accordance with its 80% 

investment policy under normal 

circumstances. Funds must review their 

portfolios on a quarterly basis for 

compliance with the 80% investment 

requirement. In instances where a fund 

identifies that its portfolio is out of 

compliance with the 80% investment 

requirement, the fund must make future 

investments in a manner that would 

bring the fund into compliance as soon 

as reasonably practicable and in all 

circumstances within 90 consecutive 

days of the fund’s identification that the 

requirements are no longer met. If the 

fund departs from the requirements in 

other-than-normal circumstances, the 

fund is not required to come back into 

compliance as soon as reasonably 

practicable but must come back into 

compliance within 90 consecutive days 

of the initial departure. 

In addition, funds are permitted 

under the final rule to temporarily 

depart from the 80% investment 

requirement in connection with a 

reorganization (for which the final rule 

does not specify a required time frame 

for accompanying temporary 

departures) or a fund launch (departure 

not to exceed the period of 180 

consecutive days) or when a notice of a 

change in a fund’s policy in certain 

circumstances has been provided to 

fund shareholders.496

The current rule requires a fund to 

determine at the time it invests whether 

the security is appropriately included in 

the fund’s 80% basket. As a result, a 

fund that does not frequently trade 

could potentially have assets that 

comported with the name of the fund at 

the time of investment, but whose 

characteristics have changed with time. 

As a result, the requirement in the final 

rule for a fund to reassess the 

characteristics of a fund’s assets on a 

quarterly basis will benefit investors by 


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497See, e.g., NASAA Comment Letter; Center for 

American Progress Comment Letter; Consumer 

Federation of America Comment Letter. 

498See supra footnote 428. 

499 Interest-rate derivatives must be adjusted to 

their 10-year bond equivalent, and options must be 

delta-adjusted. Physical short positions must 

instead use the value of the asset sold short. See 

discussion in supra section II.A.3. 

500See final rule 35d–1(g). 

501See discussion in supra section II.A.3. 

502See, e.g., Consumer Federation of America 

Comment Letter; Capital Group Comment Letter; 

J.P. Morgan Asset Management Comment Letter. 

503See supra section II.A.4 for a discussion of the 

rule requirement. 

504See supra section II.A.5 and final rule 35d– 

1(c). 

ensuring that funds cannot passively 

drift such that their name no longer 

reflects their holdings for a prolonged 

period. 

The final rule will also benefit 

investors by imposing a limit to the 

amount of time that a fund can invest 

less than 80% of the value of its assets 

in accordance with the fund’s 

investment focus in other-than-normal 

circumstances. The new deadline gives 

a predictable timeline for discrepancies 

to be resolved, during which funds can 

investigate a name change and 

shareholders can determine whether to 

redeem their shares. Some commenters 

highlighted the benefit of increased 

investor protection that this would 

produce.497 For example, the final rule 

would disallow a departure for longer 

than 90 consecutive days to address a 

market disruption. This will benefit 

investors to the extent that such a 

departure would frustrate the 

expectation of investors who may 

expect the fund to invest consistent 

with its stated investment focus even 

during market disruptions, and 

therefore may choose to rebalance 

investments on their own rather than 

relying upon the fund to do so. 

Because UITs are passively managed 

vehicles that have fixed portfolios, it 

would be difficult to adjust their 

portfolios to comply with the rule’s 

portfolio composition requirements.498

Accordingly, UITs are exempted from 

this provision and the associated 

benefits discussed above do not apply to 

UITs. 

Considerations Regarding Derivatives 

in Assessing Names Rule Compliance. 

The final amendments also address the 

valuation of derivatives instruments for 

purposes of determining a fund’s 

compliance with its 80% investment 

policy, as well as the derivatives that a 

fund may include in its 80% basket. The 

final amendments generally require that, 

in calculating its assets for purposes of 

names rule compliance, a fund must 

value each derivatives instrument using 

its notional amount, with certain 

adjustments.499 The final amendments 

also, in a change from the proposal, 

require a fund to exclude from the 

calculation derivatives transactions that 

it uses to hedge currency risk associated 

with one or more specific foreigncurrency-denominated equity or fixedincome investments held by the fund 

provided that: (1) such currency 

derivatives are entered into and 

maintained by the fund for hedging 

purposes, and (2) the notional amounts 

of such derivatives do not exceed the 

value of the hedged investments (or the 

par value thereof, in the case of fixedincome investments) by more than 10 

percent. The final amendments will 

permit a fund, in determining 

compliance with its 80% investment 

policy, to deduct cash and cash 

equivalents and U.S. Treasury securities 

with remaining maturities of one year or 

less from assets (i.e., the denominator in 

the 80% calculation) up to the notional 

amounts of the fund’s derivatives 

instruments, as well as any closed-out 

positions if those positions result in no 

credit or market exposure to the fund.500

The final amendments also specify that, 

in addition to any derivatives 

instrument that a fund includes in its 

80% basket because the derivatives 

instrument provides investment 

exposure to the investments suggested 

by the fund’s name, the fund also may 

include in its 80% basket a derivatives 

instrument that provides investment 

exposure to one or more of the market 

risk factors associated with the 

investment focus suggested by a fund’s 

name. 

As discussed above, a derivatives 

instrument’s ‘‘value,’’ as defined in the 

Act, will not be the same as the 

investment exposure created by the 

derivatives instrument.501 We believe 

the notional amount generally serves as 

a better measure (than market value) of 

the fund’s investment exposure to the 

underlying reference asset or metric. 

Also, as discussed in section II.A.3 

above, using derivatives instruments’ 

market values for purposes of assessing 

names rule compliance could result in 

a fund being in compliance with the 

fund’s 80% investment policy despite 

the fund having significant exposure to 

investments that are not suggested by 

the fund’s name, as is allowed under the 

baseline. The final amendments will 

benefit investors by allowing funds that 

use derivatives to use names that may 

more effectively communicate their 

investments and risks and reduce the 

risk that a fund may use derivatives to 

invest in a manner inconsistent with the 

investment focus suggested by the 

fund’s name. The final amendments also 

provide clarity to funds and investors 

on how to value derivatives for the 

purpose of the 80% investment test, and 

make the test a more effective tool in 

assessing names rule compliance. 

Comments on different aspects of the 

proposed approach to using notional 

amounts were mixed; however, 

commenters largely agreed that using an 

approach that better reflects the 

economic exposure obtained by a 

derivatives instrument, rather than the 

market value, would result in the 

benefits outlined for this aspect of the 

rule.502

Unlisted Registered Closed-End Funds 

and BDCs. Unlisted registered closedend funds and BDCs do not issue 

redeemable shares or list their shares on 

a national securities exchange. Under 

the baseline, shareholders in an unlisted 

registered closed-end fund or BDC 

generally would have no ready recourse, 

such as the ability to redeem or quickly 

sell their shares, if the fund were to 

change its investment policy. Under the 

final rule amendments, unlisted 

registered closed-end funds and BDCs 

will not be permitted to change their 

80% investment policies without 

shareholder approval unless an 

appropriate liquidity event is offered a 

certain time prior to the implementation 

of such a change.503 This rule will 

increase investor protections by 

requiring that investors have a choice 

when a fund takes action to change its 

80% investment policy, either in the 

form of a vote or in the ability to 

disinvest. 

The proposed rule would have 

required that 80% investment policies 

for unlisted registered closed-end funds 

and BDCs be fundamental policies. We 

believe that the final rule’s approach to 

unlisted registered closed-end funds 

and BDCs achieves the same investor 

protection benefits that the proposal 

would have provided relative to the 

current rule, because investors who no 

longer wish to invest in a fund after a 

change in investment policy will be able 

to either vote on such a change or 

liquidate their position. For most 

investors, we assume that the ability to 

liquidate is at least as strong a recourse 

as the ability to vote in this context. 

Effect of Compliance with an 80% 

Investment Policy. We are adopting a 

new provision in the names rule 

providing that a fund’s name may be 

materially deceptive or misleading 

under section 35(d) even if the fund 

adopts and implements an 80% 

investment policy and otherwise 

complies with the rule’s requirement to 

adopt and implement the policy.504 The 


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505See supra section II.B; see also 2001 Names 

Rule Adopting Release, supra footnote 8, section 

II.A.1. 

506See Proposing Release, supra footnote 2, at 

n.104 and accompanying text. 

507See section II.B, section II.C, section II.E, and 

section II.F for discussions of how the proposed 

prospectus disclosure requirements, plain English 

requirements, N–PORT reporting requirements, and 

recordkeeping requirements, respectively, facilitate 

monitoring of fund investments by investors or 

third parties as well facilitate oversight by the 

Commission. 

508See supra section II.B. For Forms N–2, N–8B– 

2, and S–6, all new prospectus disclosures will be 

tagged in Inline XBRL. For Form N–1A, the new 

summary prospectus disclosures in Item 4 will be 

tagged in Inline XBRL. While the new statutory 

prospectus disclosures in Item 9(b) will not be 

tagged in Inline XBRL, this disclosure will be 

reported on Form N–PORT, where it will be tagged 

in XML format. 

509See, e.g., Birt, J., Muthusamy, K. & P. Bir, 

XBRL and the Qualitative Characteristics of Useful 

Financial Information, Accounting Research 

Journal, 30 (2017) (finding ‘‘financial information 

presented with XBRL tagging is significantly more 

relevant, understandable and comparable to nonprofessional investors’’); Cahan, S.F., Chang, S., 

Siqueira, W.Z. & K. Tam, The roles of XBRL and 

processed XBRL in 10–K readability, Journal of 

Business Finance & Accounting (2021) (finding 10– 

K file size reduces readability before XBRL’s 

adoption since 2012, but increases readability after 

XBRL adoption, indicating ‘‘more XBRL data 

improves users’ understanding of the financial 

statements’’); Efendi, J., Park, J.D. & C. 

Subramaniam, Does the XBRL Reporting Format 

Provide Incremental Information Value? A Study 

Using XBRL Disclosures During the Voluntary Filing 

Program, Volume 52, Issue 2, Abacus, 259 (2016) 

(finding XBRL filings have larger relative 

informational value than HTML filings). 

510The SEC’s fund XBRL data are frequently 

accessed; for example, during the final week of Jun. 

2023, over 37,000 investment company XBRL files 

were accessed via EDGAR. EDGAR access data is 

available at https://www.sec.gov/about/data/edgarlog-file-data-sets. As another example, the 

Commission’s quarterly XBRL datasets for mutual 

fund prospectus risk/return summaries garnered 

over 13,000 pageviews from June 2022 to June 2023, 

according to a Google Analytics query of the 

Commission’s XBRL dataset web page. The web 

page is available at https://www.sec.gov/dera/data. 

Even if some pageviews are not from investors 

themselves, investors may indirectly benefit from 

the processing of XBRL data by information 

intermediaries such as financial media, data 

aggregators, academic researchers, et al.). See, e.g., 

Trentmann, N., Companies Adjust Earnings for 

Covid–19 Costs, but Are They Still a One-Time 

Expense?, The Wall Street Journal (2020) (citing an 

XBRL research software provider as a source for the 

analysis described in the article); Bloomberg Lists 

BSE XBRL Data (Mar. 17, 2019), available at https:// 

www.xbrl.org/news/bloomberg-lists-bse-xbrl-data/; 

Hoitash, R & U. Hoitash, Measuring accounting 

reporting complexity with XBRL, The Accounting 

Review, Volume 93, 259–287 (2018). Also, in 

contrast to XBRL financial statements (including 

footnotes), which consist of tagged quantitative and 

narrative disclosures, the disclosures here do not 

expressly require the disclosure of any quantitative 

values (if a fund were to include any quantitative 

values as nested within the required discussion— 

for example by disclosing as a selection criterion a 

specific upper limit of company revenues from 

industries the fund deems incongruent with its 

definition of ‘‘ESG’’—those values will also be 

individually detail tagged, in addition to the block 

text tagging of the narrative discussion). Tagging 

narrative disclosures can facilitate analytical 

benefits such as automatic comparison/redlining of 

these disclosures against prior periods and the 

performance of targeted artificial intelligence/ 

machine learning (‘‘AI/ML’’) assessments (tonality, 

sentiment, risk words, etc.) of specific definition 

and selection criteria disclosures rather than the 

entire unstructured document. 

511See supra footnotes 357–358 and 

accompanying text for a discussion responding to 

the issues raised by these commenters. 

Commission has previously stated that 

the names rule’s 80% investment policy 

requirement is not intended to create a 

safe harbor for fund names, and the 

provision we are adopting codifies this 

position.505 We anticipate that investors 

will benefit from this codification of the 

prior guidance to the extent that it 

deters funds from investing in a way 

such that the source of a substantial 

portion of the fund’s risks or returns is 

materially different from that which an 

investor reasonably would expect based 

on the fund’s name, as communicated to 

investors. It may also lead funds to 

consider further ways in which their 

names could be materially deceptive 

and misleading even outside of 

compliance with the 80% investment 

policy requirement and modify their 

names and/or investment practices 

accordingly. 

Prospectus Disclosure. We are also 

adopting amendments to funds’ 

registration forms that would require 

each fund that is required to adopt and 

implement an 80% investment policy to 

disclose in its prospectus the definitions 

of the terms used in its name, including 

the specific criteria the fund uses to 

select the investments that the terms 

describe, if any.506 These provisions are 

intended to help an investor understand 

whether the investment focus the name 

suggests is consistent with the investor’s 

investment goals and risk tolerance. The 

final amendments will also reduce costs 

for investors to search for funds that 

match their investment preferences and 

facilitate monitoring by investors or 

third parties as well as facilitate 

oversight by the Commission.507

The final amendments will require 

funds to tag most of the new prospectus 

disclosure in Inline XBRL, a structured, 

machine-readable data language.508 This 

requirement is designed to make the 

tagged prospectus disclosures more 

readily accessible for aggregation, 

comparison, filtering, and other 

analysis. As a point of comparison, 

XBRL requirements for public operating 

company financial statement 

disclosures have been observed to 

improve investor understanding of the 

disclosed information.509 While those 

observations are specific to operating 

company financial statement 

disclosures (including footnotes), and 

not to disclosures from funds outside 

the financial statements, they indicate 

that the final rule’s Inline XBRL 

requirements will provide fund 

investors with increased insight into 

term definitions and investment 

selection criteria at specific funds and 

across funds, asset managers, and time 

periods.510 An Inline XBRL requirement 

is designed to ensure that all disclosures 

on these forms—including both 

structured and unstructured 

disclosures—will be human-readable, 

because Inline XBRL enables a single 

document to include both humanreadable and machine-readable 

disclosure. 

Plain English/Established Industry 

Use Requirement. We are also requiring 

that any terms used in the fund’s name 

that suggest either an investment focus, 

or that the fund is a tax-exempt fund, 

must be consistent with those terms’ 

plain English meaning or established 

industry use. This requirement is 

designed to provide investors with a 

better understanding of the fund and its 

investment objectives by effectively 

requiring a fund’s name to be consistent 

with a reasonable investor’s likely 

understanding of the investment focus 

or tax status that the fund’s name 

suggests. Because terms may inherently 

have multiple meanings, and the 

amended rule provides flexibility to 

funds to define the terms in their name, 

this provision will provide a safeguard 

to investors by helping to ensure that 

these chosen definitions are within a 

term’s plain English meaning or 

established industry use. 

While many commenters agreed with 

the benefits of this requirement, some 

stated that this benefit may be mitigated 

in certain instances; for example, if the 

name uses terms that evolve over time, 

or if the plain English meaning of a term 

differs from its established industry use. 

These commenters suggested that 

investors would need to look at the 

prospectus disclosure to reasonably 

understand these terms and so there 

would be no additional benefit to 

requiring that terms in the name 

comport to either their plain English 

meaning or established industry use.511

While investors should look to 

prospectus disclosure to understand 

how terms in a fund’s name are defined, 

this provision would still benefit 

investors in those circumstances by 

allowing them to more quickly search 

for funds that match their investment 

goals by more effectively filtering for 

funds with names that could be related 

to their desired investment allocation. 

New Form N–PORT Reporting 

Requirements. We are also amending 

Form N–PORT to include new reporting 


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512As discussed above, the final amendments to 

Form N–PORT, like all Form N–PORT reporting 

requirements, apply to registered investment 

companies other than money market funds. BDCs 

are not subject to any Form N–PORT reporting 

requirements and thus would not be subject to the 

final amendments to Form N–PORT. See supra 

footnote 370. 

513See final rule 35d–1(b)(3). The recordkeeping 

requirements will apply to UITs only at the time of 

initial deposit, and with respect to any notice sent 

to shareholders. 

514 Implementations of such existing 80% 

investment policies may vary, for example with 

respect to the kind and frequency of the 

determinations being made. Cost savings would be 

greater for funds whose existing implementation 

can more easily be adapted to meet the specific 

requirements of the final rule. 

items.512 Registered investment 

companies, other than money market 

funds, required to adopt an 80% 

investment policy would be required to 

report on Form N–PORT: (1) with 

respect to each portfolio investment, 

whether the investment is included in 

the fund’s 80% basket, (2) the value of 

the fund’s 80% basket, as a percentage 

of the value of the fund’s assets, and (3) 

the definitions of terms used in the 

name and any selection criteria 

associated with these terms. The new 

information that funds will be required 

to report on Form N–PORT filings will 

facilitate the Commission’s oversight of 

funds’ names rule compliance and assist 

Commission staff in examination, 

enforcement, and monitoring with 

respect to the consistency between 

funds’ portfolio investments and the 

investment focus that the fund’s name 

suggests. In addition to assisting the 

Commission in its regulatory functions, 

investors and other potential users will 

benefit from the periodic public 

disclosure of the information reported 

on Form N–PORT. Although Form N– 

PORT is not primarily designed for 

disclosing information directly to 

individual investors, we intend that 

entities providing services to investors, 

such as investment advisers, brokerdealers, and entities that provide 

information and analysis for fund 

investors, will also utilize and analyze 

the new information that will be 

required by the final amendments to 

Form N–PORT to monitor fund 

investments for consistency with 

investment focuses suggested by fund 

names. The analysis done by these 

parties will make it easier for all 

investors to determine whether or not a 

fund’s investment strategy is consistent 

with their goals and preferences. 

Accordingly, whether directly or 

through third parties, the final new 

disclosure on Form N–PORT is intended 

to benefit all fund investors. 

Recordkeeping. The final 

amendments require funds to maintain 

certain records if the fund is required to 

adopt an 80% investment policy.513

While the amendments do not prescribe 

the particular form of documentation 

required to be maintained, funds 

generally should maintain appropriate 

documentation that would be sufficient 

for a third party to verify the matter 

covered by each record and would be 

readily available to Commission staff. 

These requirements will provide our 

staff, and a fund’s compliance 

personnel, the ability to evaluate the 

fund’s compliance with the proposed 

amendments and thereby will benefit 

investors. 

Notice Requirement. The final 

amendments also protect investors by 

modifying the current notice 

requirements when a fund chooses to 

change its investment policy. The final 

amendments are designed to specify 

further the content and delivery of the 

notice, and address more directly the 

needs of investors who elect electronic 

delivery. The rule change benefits 

shareholders by requiring more 

prominent notice, and by requiring 

notice of both policy changes and 

corresponding name changes. This is 

intended to help ensure that investors 

are aware of any name and/or policy 

change, including to help prevent 

confusion when investors begin 

receiving fund materials referring to the 

new name. The rule change also benefits 

funds by expressly permitting use of 

email for notices and by permitting 

paper notices to be bundled with other 

shareholder correspondence. These 

changes could result in cost savings for 

funds that may be passed on to 

investors. 

2. Costs 

We believe that compliance costs 

associated with the final amendments, 

particularly those that expand the 

current scope of the names rule or create 

new requirements, would vary based on 

a fund’s current practices with respect 

to adopting policies to invest a 

particular percentage of fund assets in 

investments that have, or whose issuers 

have particular characteristics. We 

assume that certain funds’ current 

investment policies may already be in 

line with many of the final rule’s 

requirements or could be readily 

conformed without material change. For 

example, as discussed in section IV.C.3 

above, a review of fund filings suggests 

that approximately 7% of funds have 

investment policies that cover at least 

80% of investment assets but are not 

required to do so under the current 

names rule. Over 80% of these funds 

would be newly scoped into the rule. 

Since we also estimate that 16% of 

funds will be newly subject to the rule, 

this means that roughly one third of 

funds that will be newly subject to an 

80% investment policy requirement 

already have an 80% investment policy, 

though the exact implementation of this 

policy may differ from that required by 

the rule. Even more funds not currently 

scoped into the names rule already have 

a minimum investment policy covering 

less than 80% of assets. These funds 

will have lower implementation costs 

than they would have if they did not 

already have such an investment policy. 

For example, these funds are likely 

already to track the value of their assets 

on an initial and periodic basis for 

purposes of complying with such 

policy, as well as whether a particular 

asset is part of the percentage of their 

assets consistent with the investment 

policy.514

We expect that funds would incur 

costs to review the proposed rule’s 

requirements and modify, as necessary, 

their investing practices, policies and 

procedures, and recordkeeping to 

comply with the proposed rule, or may 

decide to instead change their name. 

Even though we understand that many 

funds, even those that are not currently 

within the scope of the names rule, 

currently have in place practices related 

to investing a certain percentage of their 

assets in a particular type of assets or 

assets that have certain characteristics, 

those practices may differ across funds 

and also may differ from the proposed 

rule’s requirements. 

Certain costs may be fixed, while 

other costs may vary with the size of the 

fund and its investment focus. For 

instance, certain funds may determine 

that, in furtherance of the 80% 

investment policy that the rule requires, 

they will need to create or purchase data 

to track whether selected investments 

are consistent with the fund’s 

investment focus. In certain 

circumstances, this cost may be 

relatively low and not vary much across 

similar funds. For example, some 

growth funds may rely on U.S. financial 

data when selecting fund portfolio 

investments. Even if different funds use 

different metrics to choose their 

investments, or invest in different 

industries, the cost of obtaining and 

using their data will likely be similar 

across funds unless they are able to 

share this cost across funds in a fund 

complex. Further, the cost of aggregating 

and analyzing financial data is likely to 

be relatively low because Generally 

Accepted Accounting Principles 

promote consistency and comparability 

in reported financial information, and 

because in most cases these data are 


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515See section II.A.1 and supra footnote 56. 

516See supra footnote 495 and accompanying 

text. 

517See, e.g., Item 9(b)(1) of Form N–1A. 

Instruction 2 to Item 9(b)(1) of Form N–1A states 

that a fund shall, in determining whether a strategy 

is a principal investment strategy, consider, among 

other things, the amount of the fund’s assets 

expected to be committed to the strategy, the 

amount of the fund’s assets expected to be placed 

at risk by the strategy, and the likelihood of the 

fund’s losing some or all of those assets from 

implementing the strategy. See also Item 8(2)(b) of 

Form N–2. Item 8(2)(b) requires the registrant to 

disclose the investment objectives and policies of 

the registrant that will constitute its principal 

portfolio emphasis as well as how it proposes to 

meet its objectives, including: (1) the types of 

securities in which the registrant invests or will 

invest principally, and (2) the identity of any 

particular industry or group of industries in which 

the registrant proposes to concentrate. 

518See, e.g., J.P. Morgan Asset Management 

Comment Letter, T. Rowe Comment Letter, Stradley 

Comment Letter. 

519 ICI Comment Letter. 

520SIFMA AMG Comment Letter. 

521See supra footnotes 419 and 469 and 

accompanying text. 

522 J.P. Morgan Asset Management Comment 

Letter. 

523See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter. 

524See, e.g., ICI Comment Letter, SIFMA AMG 

Comment Letter; J.P. Morgan Asset Management 

Comment Letter. 

525See, e.g., ICI Comment Letter, SIFMA AMG 

Comment Letter; T. Rowe Comment Letter. 

already tagged in XBRL so they can be 

parsed automatically. Conversely, other 

growth funds may rely on other metrics 

or more subjective criteria, and so the 

cost of creating or acquiring a dataset to 

track whether selected investments are 

consistent with the fund’s investment 

focus may be higher. In general, this 

cost is likely to be relatively larger for 

smaller funds or funds with more 

esoteric or bespoke strategies. 

Similarly, the cost of data that funds 

will likely use to comply with the rule 

may vary across funds based on the 

investment focus. For example, funds 

with an ESG focus may face a lack of 

consistent and comparable ESG 

information since different vendors of 

ESG ratings come to different 

conclusions about the same investment 

assets. This disparity arises from 

differing methodologies as well as 

differing inputs. Data vendors may 

charge a premium for their relatively 

more bespoke analysis compared to 

vendors of other more consistent data, 

such as financial statement data. 

Further, some funds may integrate 

multiple sources of information 

themselves to determine whether a 

particular asset is consistent with a 

fund’s investment focus, further 

increasing the cost. 

Also, while larger funds or funds that 

are part of a large fund complex may 

incur higher costs in absolute terms, 

larger funds may find it less costly, per 

dollar managed, to meet the 

requirements of the final amendments. 

For example, larger funds may have to 

allocate a smaller portion of existing 

resources, and fund complexes may 

realize economies of scale in complying 

with the final amendment’s 

requirements for several funds. 

Names Suggesting an Investment 

Focus. The final amendments broaden 

the scope of the names rule’s current 

80% investment policy requirement to 

also apply to fund names that include 

terms suggesting that the fund focuses 

in investments that have, or whose 

issuers have, particular 

characteristics.515 As discussed above, 

we estimate that this amendment would 

subject an additional 2,200 funds to this 

requirement.516 Fund registration forms 

currently require each fund to include 

disclosure in its prospectus that 

describes its principal investment 

strategies (including the type or types of 

securities in which the fund invests or 

will invest principally).517

Some commenters projected that the 

costs of compliance with the expanded 

scope will be substantially larger than 

was estimated in the Proposing 

Release.518 Regarding the modifications 

of systems to comply with the proposed 

amendments, one commenter suggested 

that ‘‘programming and testing efforts 

are far more complex and time 

consuming than contemplated by the 

Commission.’’ 519 Another stated that 

‘‘[t]his type of compliance monitoring 

for an investment strategy would be 

novel and potentially require substantial 

changes and updates to compliance 

systems.’’ 520 We believe funds with 

names that would be newly scoped into 

the names rule’s 80% investment policy 

requirement under the final 

amendments already have systems in 

place for monitoring compliance with 

existing principal investment strategy 

disclosure requirements, as these 

requirements predate the amendments 

we are adopting and funds presumably 

have systems to ensure that their 

investments are in line with these 

disclosures. Similarly, some of these 

funds already have minimum 

percentage investment policies in place 

and would have systems in place to 

monitor their portfolios in compliance 

with these policies.521 As a result, we 

believe that most funds with names that 

would be newly scoped in already have 

internal systems that could be modified 

to assess compliance with the final rule. 

Further, many fund complexes will use 

the same automated systems across their 

funds, and so these costs could be 

shared across their funds. However, 

funds would need to develop new, or 

revise existing, recordkeeping processes 

as discussed below. 

Funds with names that are not 

currently scoped into the 80% 

investment policy requirement may face 

costs in the need to determine whether 

a specific asset would qualify as part of 

a fund’s 80% basket. One commenter 

stated that conducting an 80% test on 

terms that rely on judgment on the part 

of a fund manager ‘‘could become a 

highly manual process of confirming 

and recording the judgment of 

investment professionals with respect to 

each holding in a fund.’’ 522 We believe 

that to the extent that fund names 

covered by the amended rule include 

terms that represent the judgment of 

their fund managers, the rule could 

create additional compliance costs. 

Assessing compliance with the 80% test 

for funds with such terms could be more 

costly (relative to doing so for terms 

with more automatable criteria) as this 

process is less scalable and potentially 

introduces more operational risk than 

would similar automated compliance 

processes. For example, manual entry of 

data is more prone to error than is an 

automated system. 

The difficulty in scaling this process 

was particularly highlighted by some 

commenters.523 These commenters 

stated that for certain terms used in 

fund names, particularly ‘‘growth’’ and 

‘‘value,’’ there might be no reliable data 

from a third-party vendor that would 

match internal definitions.524 According 

to these commenters, the definition of 

these terms and therefore the 

classification of certain assets may even 

differ across fund managers at the same 

firm, so any classification system would 

need to allow tags at the fund level 

rather than globally.525 Such 

classification, in some of these cases, 

may be difficult to automate or 

outsource. As a result, some 

classifications may need to be done 

manually, with costs being incurred 

each time a fund performs the 

classification process. 

Commenters’ concerns about the 

scalability of this process were based on 

the proposed rule, which in effect 

would have required funds to engage in 

continual compliance testing to reassess 

the characteristics of investments in a 

fund’s 80% basket. The final 

amendments are considerably less 

burdensome relative to the proposal in 

that such a test would need to take place 

only quarterly, in association with Form 

N–PORT reporting, or for each new 

investment (not the entire portfolio) at 


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526See supra section II.A.2. 

527See supra footnote 486. 

528See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter; Stradley Comment Letter. 

529See, e.g., ICI Comment Letter; CCMC Comment 

Letter; Dechert Comment Letter. 

530See supra footnote 341 and accompanying 

text. 

531See Forms N–1A, N–2, and N–8B–2, as 

amended. 

532See final rule 35d–1(a)(2)(ii). 

533See, e.g., SIFMA AMG Comment Letter; J.P. 

Morgan Asset Management Comment Letter. 

534WisdomTree Comment Letter. But see also, 

e.g., Fidelity Comment Letter; Dechert Comment 

Letter; SIFMA AMG Comment Letter. 

535See supra footnote 319 and accompanying 

text. 

536See supra section II.A.5. 

537See, e.g., ICI Comment Letter; J.P. Morgan 

Asset Management Comment Letter; Capital Group 

Comment Letter. This release does not incorporate 

the ‘‘antithetical investment’’ language that the 

2022 Proposal included, as final rule 35d–1(c) is 

designed to codify the existing relationship between 

the names rule and section 35(d) and not to create 

new requirements or standards with respect to the 

selection of investments in a fund’s 20% basket that 

are not now present. 

the time of the investment.526 A fund 

subject to the 80% investment policy 

requirement that trades its entire 

portfolio each day would still be 

required to make a daily assessment for 

each asset of whether the asset belongs 

in a fund’s 80% basket. However, funds 

whose disclosure of principal 

investment strategies indicates that the 

fund invests in assets with particular 

characteristics are presumably already 

doing the type of analysis required for 

such classification at the time of 

investment.527 The primary new burden 

of the amended rule in this respect is 

that the analysis must be redone for 

each asset on a quarterly basis. At this 

frequency, the classification process 

should be manageable even if done 

manually, though we recognize that this 

will be more costly for funds with 

names that include terms involving 

managerial judgment than it will be for 

funds whose names evoke a strategy 

where compliance testing is more easily 

automated. 

Many commenters stated that the 

expanded scope will create interpretive 

questions.528 For example, funds that 

were not previously required to have an 

80% investment policy will need to 

evaluate whether their current fund 

name would subject them to this 

requirement. In addition, some 

commenters were concerned that 

including more ‘‘subjective’’ terms into 

the scope of the rule would engender 

‘‘second-guessing’’ by the Commission 

or staff on a fund’s choice of definition 

of these key terms.529 The amended rule 

will require that these definitions 

comport with their plain English 

meaning or established industry use.530

So to the extent that a term is relatively 

more subjective, funds will have 

discretion to define it consistent with 

the fund’s investment strategy. 

Regardless of the chosen definition, a 

fund manager must make investments 

by applying specific criteria set forth in 

the fund’s prospectus 531 related to the 

fund’s investment focus or strategies 

such as ‘‘growth’’ or ‘‘value.’’ 532 The 

investment decision is guided by 

definitions and methodologies 

prescribed in advance and publicized by 

the fund, mitigating the concern 

expressed by the commenters. 

Nonetheless, to the extent that 

‘‘subjective’’ terms in a fund’s name 

cause the fund’s managers to be 

concerned about ‘‘second-guessing,’’ 

funds may spend more resources to 

comply with the final rule. 

Some commenters were concerned 

that wherever fund names that are 

newly subject to an 80% test employ 

terms that are based on projections or 

otherwise forward-looking metrics, the 

Commission might evaluate their 

compliance with these terms 

retrospectively based on the outcomes 

of the investments.533 For example, a 

fund that calls itself a ‘‘growth’’ fund, 

on the basis of its projection that fund 

assets will grow in value, might be 

concerned that if those assets do not 

grow, its name could be construed as 

misleading. However, the amended rule 

is designed for funds to retain 

reasonable discretion in establishing 

their 80% investment policies and 

defining the terms in their names. This 

discretion includes the use of forwardlooking metrics and models in their 

selection process, just as is allowed 

under the baseline in certain 

circumstances. 

Newly scoped index funds may also 

face higher costs of compliance than 

those already subject to the rule. One 

commenter was concerned that 

‘‘managers of index funds could be 

required to develop new fundamental 

analysis capabilities to evaluate each 

index constituent against the index 

name,’’ and this sentiment was shared 

by several commenters.534 Commenters 

also suggested that an index fund’s 

tracking error could increase as a result, 

which could also frustrate investor 

expectations.535 As is true under the 

baseline, index funds should generally 

adopt and implement written policies 

and procedures reasonably designed to 

ensure that the names of their selected 

indexes are not materially misleading 

themselves.536 However, for terms 

whose meanings may vary across people 

or time, such as ‘‘growth’’ or ‘‘value,’’ 

we acknowledge that funds may incur a 

higher cost for determining that the 

indexes they rely on are not themselves 

misleading. 

Similarly, funds may not take a 

position that would undermine the 

investment focus suggested by the 

fund’s name, even if such a position 

contributes less than 20% of the fund’s 

total assets. Ensuring that a fund’s 

investments are not inconsistent with its 

name in this way is likely to be costlier 

for funds that are newly scoped into the 

rule than it is for those already subject 

to an 80% investment policy 

requirement. In response to an example 

in the 2022 Proposal, some commenters 

highlighted what they characterized as 

the subjective nature of deciding 

whether an investment is ‘‘antithetical’’ 

to the description of the fund, 

particularly when no specific 

prohibitions are included in the fund’s 

name.537 We agree that such a 

determination of whether a substantial 

portion of the fund’s risks or returns is 

materially different from that which an 

investor reasonably would expect based 

on the fund’s name may be more 

difficult to make in some cases and 

accordingly come with higher costs of 

compliance. 

Finally, to the extent that funds 

choose to rename their funds in more 

generic ways to avoid having to comply 

with the amended names rule, investors 

may face increased search costs in 

determining their optimal fund 

allocation. However, this cost will exist 

only to the extent that those funds who 

choose to change their name previously 

had names that provided useful 

information to investors for their 

investment allocation decision. 

Temporary Departures. The final 

amendments would retain a fund’s 

ability to depart temporarily from the 

80% investment requirement. The final 

amendments require that a fund must 

invest in accordance with its 80% 

investment policy under normal 

circumstances. Funds must reassess 

their portfolio assets’ inclusion in the 

fund’s 80% basket at least quarterly. In 

instances where a fund identifies that its 

portfolio is out of compliance with the 

80% investment requirement, the fund 

must make future investments in a 

manner that would bring the fund into 

compliance as soon as reasonably 

practicable and in all circumstances 

within 90 consecutive days of the fund’s 

identification that the requirements are 

no longer met. If the fund, in other-thannormal circumstances, invests in a 

manner not consistent with the 80% 

investment policy, the fund is not 

required to come back into compliance 

as soon as reasonably practicable, but 


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538See, e.g., supra footnote 207 and 

accompanying text. 

539See, e.g., SIFMA AMG Comment Letter; 

Invesco Comment Letter; ICI Comment Letter. 

540See, e.g., J.P. Morgan Asset Management 

Comment Letter; T. Rowe Comment Letter; ICI 

Comment Letter. 

541See, e.g., Dimensional Comment Letter; 

Seward & Kissel Comment Letter; Nasdaq Comment 

Letter. 

542See, e.g., ICI Comment Letter; Dechert 

Comment Letter; SIFMA AMG Comment Letter. 

543See, e.g., SIFMA AMG Comment Letter; 

Dimensional Comment Letter; J.P. Morgan Asset 

Management Comment Letter. 

544 In the case of a physical short, a fund would 

use the value of the asset sold short. 

545See final rule 35d–1(g). 

546See supra discussion following footnote 234. 

547See final rule 35d–1(b)(2). 

548For example, rule 18f–4 includes an exception 

from certain of the rule’s requirements that requires 

Continued 

must come back into compliance within 

90 consecutive days of the initial 

departure. Funds are permitted under 

the final rules to temporarily depart 

from the 80% investment requirement 

in connection with a reorganization (for 

which the final rule does not specify a 

required time frame for accompanying 

temporary departures) or a fund launch 

(departure not to exceed the period of 

180 consecutive days) or when a notice 

of a change in a fund’s policy in certain 

circumstances has been provided to 

fund shareholders. 

This change could create a cost for 

investors under circumstances where 

departing from the 80% investment 

requirement for an extended period of 

time would be beneficial to the fund 

and its shareholders, and such a 

departure would have been allowed 

absent the adopted amendments. For 

example, investors may experience 

lower returns if funds are forced to sell 

assets at depressed prices, or in a taxdisadvantaged manner, or if funds are 

forced to purchase less liquid securities 

in a compressed timeframe, which 

could drive up their cost for those 

securities. Also, to the extent that funds’ 

assets become less liquid during a 

market crisis, funds’ ability to manage 

liquidity risk may be affected as well as 

funds’ ability to meet redemptions. 

These costs are generally mitigated by 

the length of the period of time for 

resolving departures from investment 

compliance. In many circumstances, 90 

days is significantly longer than we 

understand would be required for a 

fund to remedy departures from its 80% 

investment policy.538 This cost is also 

mitigated by flexibility in the amended 

rule for funds to instigate a name change 

as an alternative to returning to 

compliance. 

When a fund manager considers 

purposely departing from the fund’s 

80% investment policy, the manager 

must weigh the risks of bearing these 

costs against the potential benefit. 

Accordingly, these costs should arise 

only when the likelihood of bearing 

such costs is small relative to the upside 

of the departure. More often, the cost of 

this aspect of the rule will be reflected 

in any unearned excess return that the 

fund does not earn because it chose not 

to depart from its investment focus or 

tax treatment when it otherwise would 

have, absent the amended rule. 

To the extent that funds do not 

already have systems in place for doing 

so, they would have to set up systems 

to identify departures from the 80% 

investment requirement during 

quarterly testing, and systems to 

monitor the time limits for returning to 

the 80% investment requirement after a 

temporary departure. This will entail 

additional costs. 

Many commenters were concerned 

that a UIT would be required to monitor 

and change its assets in a case where its 

assets passively drifted such that they 

would no longer be consistent with the 

fund’s 80% investment policy.539 The 

final rule clarifies that UITs are subject 

to the 80% investment policy 

requirement at the time of initial 

deposit, but not on an ongoing basis. As 

a result, the costs associated with 

ongoing monitoring of portfolio 

investments for consistency with the 

fund’s 80% investment policy discussed 

for other funds above will not be present 

for UITs. 

The final rule’s approach to 

temporary departures differs from that 

in the Proposing Release, which would 

have enumerated four specific cases in 

which funds would be allowed to depart 

temporarily from compliance with the 

80% test for a period of, generally, no 

longer than 30 days. Many commenters 

interpreted this as requiring daily or 

otherwise constant monitoring of their 

assets in regard to the 80% test, even 

when they were not trading.540 The final 

amendments mitigate this concern by 

requiring a fund to review its portfolio 

investments on a quarterly basis to 

determine whether the fund’s 

investments continue to be consistent 

with its 80% investment policy. Many 

commenters were also concerned with 

the enumerated exceptions to 

compliance with the 80% requirement 

and preferred the current standard in 

which compliance was required ‘‘under 

normal circumstances.’’ 541 Some 

commenters wanted more specific 

exceptions to be added if the final rule 

were to include a prescribed list.542 Still 

more commenters were concerned that 

unforeseeable events might occur which 

would reasonably cause managers and 

investors to agree that a temporary 

change in investment focus was 

warranted.543 We agree that 

enumerating the circumstances in 

which a fund could deviate from their 

80% investment policy would have 

provided significantly less flexibility to 

fund managers. Under the final rule the 

loss of flexibility is significantly less 

than under the proposed rule, relative to 

the baseline. A fund’s use of its 

flexibility in accordance with investors’ 

preferences will also promote capital 

allocation efficiency. Conversely, 

compared to the proposal, the final rule 

may be less effective at protecting 

investors to the extent that fund 

managers do not effectively manage 

their funds to the benefit of the fund’s 

investors (for example, because fund 

managers do not fully internalize 

investors’ preferences over risk or 

diversification benefits). However, we 

intend that the newly established 

timeline for returning to compliance 

with an 80% investment policy will 

limit this potential harm. 

Considerations Regarding Derivatives 

in Assessing Names Rule Compliance. 

The final amendments address the 

valuation of derivatives instruments for 

purposes of determining the fund’s 

compliance with its 80% investment 

policy requirement. Specifically, the 

final amendments require that, in 

calculating its assets for purposes of 

names rule compliance, a fund must 

generally use the notional amount 544 of 

each derivatives instrument, with 

certain adjustments as discussed above, 

and may reduce the value of its assets 

by excluding cash, cash equivalents, 

and certain Treasury securities up to the 

notional amounts of the derivatives 

instrument(s) and the value of asset(s) 

sold short and by excluding closed-out 

derivative positions.545 An exception to 

this requirement is the use of currency 

derivatives associated with one or more 

specific foreign-currency-denominated 

equity or fixed-income investments held 

by the fund, that are entered into and 

maintained by the fund for hedging 

purposes, which must be excluded.546

The final rule also specifies that a fund 

may include in its 80% basket 

derivatives that provide investment 

exposure to one or more of the market 

risk factors associated with investments 

suggested by the fund’s name.547

Our understanding is that funds that 

use derivatives typically calculate 

notional amounts for purposes other 

than names rule compliance, and that 

such a calculation, if not already 

performed, would not be 

burdensome.548 As such, we do not 


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the calculation of notional amounts. More 

generally, however, funds that use derivatives 

typically consider notional amounts, and not solely 

their market value, when entering into derivatives 

contracts or when considering the economic effects 

of a derivatives contract within an existing 

portfolio. 

549See, e.g., ICI Comment Letter; T. Rowe 

Comment Letter; Dechert Comment Letter. 

550See, e.g., Dechert Comment Letter; Fidelity 

Comment Letter; ICI Comment Letter. 

551See supra section II.A.5. 

552This will only impact existing funds if they 

currently rely on a 60-day notice period, since 

funds whose 80% investment policy is a 

fundamental policy already require a shareholder 

vote to change the policy. 

553 In 2019, the ICI surveyed its member firms 

with respect to the costs of obtaining shareholder 

approval for proposals requiring funds to obtain a 

quorum of greater than 50% to approve. The ICI 

reports that 64 member firms with over $18 trillion 

of US-registered fund assets responded. Cost 

estimates for 145 separate campaigns totaled $373 

million. The ICI also reports that: (1) 22 campaigns 

had costs greater than, or equal to, $1 million, (2) 

eight had costs greater than or equal to $10 million, 

and (3) the most expensive campaign was $107 

million. The ICI report does not disaggregate data 

on the cost of obtaining shareholder approval for 

changes to a fund’s fundamental investment 

policies. See Comment Letter of the Investment 

Company Institute regarding the SEC Roundtable on 

the Proxy Process (File No. 4–725) (Dec. 23, 2019), 

available at https://www.sec.gov/comments/4-725/ 

4725-6580709-201124.pdf. In a 2002 rulemaking 

related to fund mergers, we estimated the cost of 

obtaining shareholder approval to be $75,000. We 

did not receive any comments on that estimate. See 

Investment Company Mergers, Investment 

Company Act Release No. 25666 (July 18, 2002). 

Adjusting for inflation, $75,000 at the beginning of 

2002 would imply a cost of approximately $128,800 

as of May 2023. See Bureau of Labor Statistics CPI 

Inflation Calculator, available at https://

www.bls.gov/data/inflation_calculator.htm. While 

this estimate is significantly lower than the average 

estimate from ICI, the distribution of costs in their 

sample is heavily skewed by a relatively small 

number of very expensive campaigns. The 

Commission estimate is more analogous to the 

median of that distribution. Further, the kinds of 

votes included in the ICI survey are much broader 

than those considered here and contain votes on 

more contentious issues over which funds may 

spend more resources on marketing and other costs. 

anticipate that there will be additional 

costs associated with calculating 

notional values. While some funds may 

not currently calculate one or more of 

the adjustments to notional value 

required by the rule, we do not expect 

that doing so will entail significant 

costs. The inputs required for these 

calculations are widely available, 

including on most platforms that allow 

for trading these derivatives, and they 

can be automated with widely used and 

accessible software. The level of 

sophistication required to implement 

these calculations is significantly lower 

than that needed to manage the risk of 

the derivatives instruments in question. 

We understand, however, that meeting 

the requirements of this aspect of the 

final amendments could require 

reprogramming of internal systems for 

funds not currently subject to the names 

rule, and reprogramming of existing 

systems used for monitoring names rule 

compliance by funds currently subject 

to the names rule. However, we 

anticipate that the marginal 

contributions to cost of calculating the 

adjusted notional value will be minimal 

given that these same systems will need 

to be updated to comply with the rule 

generally. 

The goal of the treatment of 

derivatives under the final rule is to 

align the value of the derivative being 

used for compliance with the 80% 

requirement with the exposure that this 

derivative provides to investors. There 

are inherent trade-offs in achieving this 

goal, however, because derivatives 

instruments are so varied in their 

purposes and details of execution. On 

the one hand, a uniform standard has 

the danger of being inappropriate in 

certain cases that could alter the 

incentives for its use. On the other 

hand, allowing greater flexibility runs 

the risk of being too permissive in a way 

which could undermine the purpose of 

this aspect of the amended rule. 

Many commenters were particularly 

concerned with the costs associated 

with a uniform derivatives valuation 

approach that limits their flexibility to 

choose a valuation that would be most 

appropriate. Some of these commenters 

suggested alternatives, such as 

additional flexibility to decide whether 

to incorporate the required adjustments 

or whether the notional value or some 

other value would best represent a 

particular derivative’s exposure, which 

they stated could alleviate these 

costs.549 One particular concern shared 

by many commenters was that 

derivatives used to hedge risk exposures 

unrelated to the name of the fund could 

cause the fund to fail an 80% test.550 As 

discussed above, the final amendments 

require currency derivatives used as a 

hedge to be excluded from the 80% test 

calculation, and this approach addresses 

certain of the concerns commenters 

raised. However, this exception is 

limited to only currency hedges, and 

there are other possible hedges (such as 

those on interest rates) whose notional 

values will remain in the denominator, 

and not the numerator, of an 80% test 

calculation. As a result, the final 

amendments may disincentivize some 

funds from using derivatives to hedge 

risks other than those related to 

currency risk in the part of a fund’s 

portfolio that is not used to satisfy the 

80% requirement. 

The final rule will also allow funds to 

include derivatives in their 80% basket 

for the purposes of complying with an 

80% investment policy test so long as 

those derivatives provide exposure to 

one or more risk factors associated with 

the name. While in most cases, this will 

more accurately account for the 

derivative’s effect on a portfolio’s 

exposure to risks associated with the 

name, there may be instances in which 

this will overstate the amount of 

exposure a derivative creates. For 

example, in certain cases, a derivative 

may be modifying the risk of another 

asset in the portfolio rather than 

creating a new exposure. It may be 

possible for a fund to count both the 

derivative (at its notional value) and the 

underlying asset in the 80% basket for 

the purposes of compliance with an 

80% test, even though a more useful 

valuation might rightfully treat these as 

a single asset for the purposes of 

representing risk exposures. This double 

counting could, in these instances, make 

the 80% test more lenient than 

intended. To the extent that this reduces 

the investor protection intended in the 

rule, this would create a cost to 

investors. This cost is mitigated by the 

rule’s codification of the effect of 

compliance with an 80% investment 

policy since a fund’s name may still be 

misleading even if the fund technically 

complies with the 80% investment 

policy requirement.551

Unlisted Registered Closed-End Funds 

and BDCs. Under the current rule, 

unless a fund’s name suggests that it is 

a tax-exempt fund, an unlisted 

registered closed-end fund’s or BDC’s 

80% investment policy must either be a 

fundamental policy or subject to a 

requirement in the rule to provide 

shareholders 60-days’ advance notice of 

any change in the policy. Under the 

final rule amendments, unlisted 

registered closed-end funds and BDCs 

will not be permitted to change their 

80% investment policies without 

shareholder approval unless, among 

other things, the fund provides a 60-day 

notice and a tender or repurchase offer 

that is not oversubscribed.552

Funds that currently rely on a 60-day 

notice period thus have two options for 

complying with the final amendments. 

Some funds may choose to seek 

shareholder approval to change their 

80% investment policy. These funds 

would incur costs including legal and 

accounting fees incurred in connection 

with preparing proxy materials, the 

costs of printing and mailing the proxy 

materials, the cost of an external proxy 

solicitor, if one is used, and the cost of 

holding an annual or special meeting of 

the shareholders.553

Other funds may instead opt to make 

a repurchase or tender offer if doing so 


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554See, e.g., Stradley Comment Letter; Dechert 

Comment Letter; ICI Comment Letter. 

555We are unable to quantify the total of these 

costs because we do not have data on the magnitude 

of many of the sources of these costs, such as 

underwriting costs, which are privately negotiated. 

Further, these costs are likely to vary largely 

depending on the specific circumstances of the 

fund. However, the SEC has previously estimated 

the PRA burden of a Schedule TO at approximately 

$9,000 per response. See Filing Fee Disclosure and 

Payment Methods Modernization, Investment 

Company Act Release No. 34396 (Oct. 13, 2021) [86 

FR 70166 (Dec. 9, 2021)]. 

556See 17 CFR 270.23c–3(a)(3), (b)(5), and (c). 557See, e.g., Invesco Comment Letter; Stradley 

Comment Letter; SIFMA AMG Comment Letter. 558See, e.g., ICI Comment Letter; Simpson 

Thacher Comment Letter; Dechert Comment Letter. 559Final rule 35d–1(c). 560See Proposing Release, supra footnote 2, at 

n.101. 

561See, e.g., Fidelity Comment Letter; Dechert 

Comment Letter; SIFMA Comment Letter. 

562See, e.g., ICI Comment Letter; J.P. Morgan 

Asset Management Comment Letter; Capital Group 

Comment Letter; see also supra footnote 537. 

563See supra the text following footnote 525 

through the text accompanying footnote 537 for a 

discussion of these costs. 

564See instruction to Item 4(a)(1) of Form N–1A; 

instruction to Item 9(b)(1) of Form N–1A; 

instruction 2 to Item 8(2) of Form N–2; instruction 

2 to Item 11 of Form N–8B–2, and instruction 1(a) 

of the Instructions as to the Prospectus of Form S– 

6. Based on the results of the PRA analysis provided 

in Tables 2, 3, 4, and 5 infra it is estimated that 

the annual internal costs, plus initial costs 

annualized over a 3-year period, attributable to 

information collection requirements associated with 

this aspect of the final amendments will be 

$53,694,312. The annual external costs are 

estimated to be $12,453,730. However, as we 

understand that including the prospectus disclosure 

that the final amendments would require is 

currently a common practice, the PRA estimates 

likely overestimate the costs associated with the 

final amendments for those funds whose disclosure 

is currently in line with the disclosure the 

amendments would require. See infra section V.C. 

565See BlackRock Comment Letter. 

566See supra footnote 508. Based on the results 

of the PRA analysis provided in Table 7 infra it is 

estimated that the ongoing external costs 

attributable to Inline XBRL tagging requirements 

will be $749,550 for Form N–1A, Form N–2, Form 

N–8B–2 and Form S–6 filers, and the ongoing 

internal costs, plus initial costs annualized over a 

3-year period, will be $1,562,678 for those filers. 

Form N–8B–2 and Form S–6 filers (i.e., UITs) are 

not subject to any current Inline XBRL requirements 

(or Inline XBRL requirements with compliance 

dates in the future) and will thus incur initial 

implementation costs associated with structuring 

disclosures in Inline XBRL (such as the cost of 

training in-house staff to prepare filings in Inline 

XBRL, and the cost to license Inline XBRL filing 

preparation software from vendors). For Form N–1A 

and Form N–2 filers, who are subject to current 

Inline XBRL requirements, the PRA estimate does 

not incorporate any such implementation costs. 

is cheaper or otherwise more 

advantageous to the fund’s sponsor than 

holding a shareholder vote. The costs 

incurred would include legal and 

accounting fees associated with 

preparing offer documents and filing 

documents with the Commission such 

as Schedule TO, the cost of 

disseminating offer materials and 

information, and underwriting costs. 

There may also be costs associated with 

the fund needing to fulfill the offer and 

thus no longer having an adequate 

capital stock to take advantage of some 

investment opportunities. Some 

commenters noted that many of the 

funds subject to this requirement 

already make periodic tender or 

repurchase offers and so allowing this 

alternative would significantly reduce 

their costs.554 For such funds, if the 

proposed change in the investment 

policy would not create an 

oversubscription to their regular tender 

or repurchase offer, the cost of 

compliance may be minimal. Exercising 

this option will be more costly for funds 

that are not already regularly providing 

tender or repurchase offers.555

The cost of the final rule will 

therefore be the difference between the 

cost of either seeking shareholder 

approval or making a tender or 

repurchase offer and the cost of issuing 

notice under the baseline. Instead of 

incurring these costs some funds may 

instead choose simply not to change 

their policy when faced with these 

costs. The value of any foregone 

investment opportunities that would 

have benefited investors if the fund had 

changed its investment policy would be 

a cost of the final rule. 

The Proposing Release would have 

required that 80% investment policies 

for unlisted registered closed-end funds 

and BDCs be fundamental policies, with 

no alternative. While unlisted registered 

closed-end funds and BDCs generally 

offer a periodic repurchase tender offer, 

these offers are limited and unlikely to 

provide recourse to investors in the case 

where a large number of investors are 

dissatisfied with the change. Even 

discretionary repurchases as permitted 

under 17 CFR 270.23c–3(c) are generally 

limited to 25% of the common stock 

outstanding.556 This amount could be 

too low to address the investor 

protection the rule is designed to 

address. In the Proposing Release, we 

were concerned that a large tender offer 

for all, or substantially all, of the 

outstanding shares could prove even 

more costly to these funds than a 

shareholder vote and could result in the 

fund’s liquidation. 

Some commenters highlighted the 

costs of the proposed approach,557 and 

stated that an alternative in which 

investors were able to liquidate would 

be valuable.558 We believe that the costs 

of the final rule are lower than those of 

the proposed rule, since these funds 

may now, instead, offer a repurchase 

opportunity, and funds can choose the 

lower-cost alternative. 

Effect of Compliance with an 80% 

Investment Policy. The amended rule 

states that a fund’s name may be 

materially deceptive or misleading 

under section 35(d) even if the fund 

adopts an 80% investment policy and 

otherwise complies with the rule’s 

requirement to adopt and implement the 

policy.559 The Commission has 

previously stated that the names rule’s 

80% investment policy requirement is 

not intended to create a safe harbor for 

fund names, and the final amendments 

will codify this view to make it clear.560

Because the provision will codify an 

existing Commission position that that 

80% investment policy is not intended 

to create a safe harbor for fund names 

and restate the existing scope and effect 

of section 35(d), we do not anticipate 

that the provision creates new costs. 

Some commenters stated that they 

believed that this provision created new 

requirements that were not clear from 

previous statements by the Commission. 

These comments largely addressed a 

fund’s responsibilities to monitor the 

indexes that they track 561 and relatively 

small positions that commenters 

questioned whether, in response to an 

example in the 2022 Proposal, would be 

‘‘antithetical’’ to those suggested by a 

fund’s name.562 To the extent that funds 

comply with the final rules in a way 

that may be costlier for names with 

certain terms, this represents a cost of 

the rule’s scope expansion, and not from 

a separate provision under the final 

amendments.563

Prospectus Disclosure. The final 

amendments to funds’ registration 

forms—specifically, Form N–1A, Form 

N–2, Form N–8B–2, and Form S–6— 

require each fund that is required to 

adopt and implement an 80% 

investment policy to include disclosure 

in its prospectus that defines the terms 

used in its name, including the specific 

criteria the fund uses to select the 

investments that the terms describe, if 

any.564 We received one comment 

stating that the costs of prospectus 

disclosure were underestimated.565

The final amendments require funds 

to tag most of the new prospectus 

disclosure in Inline XBRL.566 This will 

impose on Form N–1A and Form N–2 

filers the cost of adding new data tags 

for the new disclosures on Form N–1A 

and Form N–2, but will not include any 

initial implementation costs associated 

with structuring data, because those 

forms are already subject to structuring 

requirements. Thus, notwithstanding 

one commenter’s statement that the 

costs associated with Inline XBRL 

tagging as proposed would be 

significant, we do not believe the Inline 


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567See SIFMA Comment Letter. 

568See supra text accompanying footnote 337; 

Invesco Comment Letter. 

569See infra section IV.E.4. 

570See supra footnote 341 and accompanying 

text. 

571Based on the results of the PRA analysis 

provided in Table 6, it is estimated that the ongoing 

annual internal costs, plus initial costs annualized 

over a 3-year period, attributable to information 

collection requirements for reporting about an 80% 

investment policy are $8,059,912. The annual 

external costs are estimated to be $11,216,380. 

572Based on the results of the PRA analysis 

provided in Table 6, it is estimated that the ongoing 

annual internal costs, plus initial costs annualized 

over a 3-year period, attributable to information 

collection requirements for investments to be 

included in a fund’s 80% basket are $56,419,384. 

The annual external costs are estimated to be 

$11,216,380. 

573See supra section II.E. 

574See supra footnote 571. 

575See final rule 35d–1(b)(3). The recordkeeping 

requirements will apply to UITs only at the time of 

initial deposit, and with respect to any notice sent 

to shareholders. 

576Based on the results of the PRA analysis 

provided in Table 1, it is estimated that the internal 

annual costs, plus initial costs annualized over a 3- 

year period, attributable to recordkeeping 

requirements would be $30,450 per fund, with an 

additional $565 of external annual costs. 

577See supra footnote 419 and accompanying 

text. 

XBRL tagging requirement would 

impose significant costs on Form N–1A 

and Form N–2 filers.567 For UITs and 

their sponsors, as noted by another 

commenter, the cost of adding new 

Inline XBRL tags for the new disclosures 

on Form N–8B–2 and Form S–6 is more 

likely to entail initial implementation 

costs because UITs are not currently 

subject to Inline XBRL requirements.568

As discussed in further detail below, 

notwithstanding this commenter’s 

recommendation to except UITs from 

Inline XBRL tagging requirements, we 

are including all funds (including UITs) 

within the scope of tagging 

requirements under the final rule.569

Plain English/Established Industry 

Use Requirement. For funds that are 

required to adopt an 80% investment 

policy, the final amendments would 

require that any terms used in the fund’s 

name that suggest either an investment 

focus, or that the fund is a tax-exempt 

fund, must be consistent with those 

terms’ plain English meaning or 

established industry use.570 To the 

extent that funds are currently using 

terms in their names that are not 

consistent with either, funds would bear 

costs to either change their name or 

their investment policy so that they can 

define the terms in such a way that 

would comply with this provision. 

These costs will be similar to those 

described above for funds changing 

their name or investment policies and 

practices for other reasons. 

New Form N–PORT Reporting 

Requirements. The final amendments 

include new Form N–PORT reporting 

items regarding the 80% investment 

policy that a fund will be required to 

adopt in compliance with the names 

rule.571 As proposed, the final rule 

requires N–PORT funds that are 

required to adopt an 80% investment 

policy to report on Form N–PORT: (1) 

whether each investment in the fund’s 

portfolio is in the fund’s 80% basket; (2) 

the value of the fund’s 80% basket, as 

a percentage of the value of the fund’s 

assets. The final amendments also add 

a new reporting item, in which funds 

will report the definitions of terms used 

in the fund’s name including specific 

criteria a fund uses to select the 

investments the term describes, if 

any.572

Under the baseline, funds covered by 

the rule likely already tracked whether 

a particular asset was a part of the 

fund’s 80% basket, as well as the total 

value of the 80% basket as a share of the 

total assets of the fund, as an aspect of 

their compliance practices. However, 

we recognize that reporting these items 

on Form N–PORT could necessitate 

periodic reassessments that might not 

otherwise occur. It may also require 

modifications to compliance systems 

and the use of third-party service 

providers. 

Although the final amendments will 

not increase the frequency of public 

disclosure, they will increase the 

amount of information available about 

certain funds’ portfolio investments. 

Form N–PORT data, however, is made 

public only for the third month of each 

quarter, and on a 60-day delayed basis. 

We do not believe that quarterly public 

disclosure with a 60-day lag will have 

a significant, additional competitive 

impact. 

The proposed rule required reporting 

information for each month of the 

quarter, while the final rule instead 

requires reporting information only for 

the last day of the third month of the 

quarter. The proposed rule also would 

have required certain information to be 

reported on Form N–PORT that is not 

included in the final Form N–PORT 

amendments (the number of days that 

that the value of the fund’s 80% basket 

fell below 80% of the value of the fund’s 

total assets during the reporting period), 

although the final reporting 

requirements include a new reporting 

item that was not included in the 

proposal (the definitions of terms used 

in the fund’s name and criteria for 

selecting the investments the name 

describes, if any). The final rule should, 

on balance, have lower costs compared 

to the proposal because of the reduced 

amount of information reported on net, 

and efficiency gains in aligning a fund’s 

compliance review with its reporting 

obligations.573

The compliance cost associated with 

the new Form N–PORT reporting 

requirements includes the cost of 

adding new data tags for the newly 

reported items.574 It does not include 

any initial implementation costs 

associated with structuring data, 

because the form is already subject to 

structuring requirements. 

Recordkeeping. The final rule requires 

funds to maintain certain records if the 

fund is required to adopt an 80% 

investment policy.575 The final rule 

does not prescribe the particular form of 

documentation required to be 

maintained but would instead provide 

flexibility in how a fund documents the 

information delineated in the 

recordkeeping requirements. However, a 

fund that is subject to the requirement 

to adopt an 80% investment policy 

generally should maintain appropriate 

documentation that would be sufficient 

for a third party to verify the matter 

covered by each record and would be 

readily available to Commission staff.576

We anticipate that much of the 

recordkeeping required in this rule can 

be at least partially automated for most 

funds.577 For example, we anticipate 

that records relating to the value of the 

fund’s 80% basket and whether a 

particular investment is included in that 

basket can be automated for most funds, 

though for some funds this process may 

necessitate more manual steps as 

outlined above. For those records that 

can be automated, we believe that the 

marginal contribution to the costs of 

automating these systems above and 

beyond those which would be required 

to otherwise comply with the rule are 

relatively small, since the systems that 

retain this information will be similar to 

those necessary to ensure compliance at 

the time of investment or on a quarterly 

reassessment. We recognize, however, 

that some records, such as those 

documenting the reasons for any 

departures from the 80% investment 

policy, are unlikely to be easily 

automated. 

The final rule differs from the 

proposed amended rule in ways that 

may reduce costs in comparison to the 

proposal. First, under the final 

amendments funds are required to 

reassess the characteristics of individual 

assets on only a quarterly rather than 

ongoing basis. Since it may be difficult 

for some funds to fully automate the 

creation of a record with the basis for an 

asset’s inclusion in the 80% basket, 


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578Final rule 35d–1(a)(2)(ii). 

579Like the current rule, based on the results of 

the PRA analysis provided in Table 1, it is 

estimated that the internal annual costs, plus initial 

costs annualized over a 3-year period, attributable 

to notice requirements would be $8,500 per fund, 

for those funds providing notices. We also estimate 

an additional $565 in external annual costs 

attributable to notice requirements. 

580We believe that the low end of this range is 

reflective of a fund that incurs costs only to analyze 

the application of the rule, or that is covered by the 

rule and already has practices in place that could 

be readily adapted to meet the final rule’s 

requirements. In the latter case the fund would 

incur costs associated with analyzing its current 

practices relative to the final rule’s requirements. 

581We believe the costs would be closer to the 

lower end of the range for funds that belong to large 

fund families because certain aspects of the costs, 

such as most aspects of system automation or the 

costs of reviewing rule requirements, are fixed costs 

that could be spread across multiple funds. 

582See, e.g., J.P. Morgan Asset Management 

Comment Letter; T. Rowe Comment Letter; ICI 

Comment Letter. 

583See, e.g., ICI Comment Letter III (‘‘The 

Commission has issued a wide range of 

interconnected rule proposals . . . [that] in the 

aggregate warrant further analysis by the 

Commission. . . . The Commission’s failure to 

consider the Interconnected Rules holistically is a 

widespread concern among other market 

participants.’’); USCOC Comment Letter (urging the 

Commission to ‘‘determine the cumulative impact 

of its regulatory agenda upon economic activity or 

capital formation’’). Commenters also specifically 

suggested the Commission consider the interaction 

between the final rule and the ESG Disclosure 

Proposal and/or its proposal relating to outsourcing 

by investment advisers. See Dechert Comment 

Letter, ICI Comment Letter, and AIC Comment 

Letter; see also Outsourcing by Investment 

Advisers, Investment Advisers Act Release No. 

6176 (Oct. 26, 2022) [87 FR 68816 (Nov. 16, 2022)]. 

These proposals have not been adopted and thus 

have not been considered as part of the baseline 

here. To the extent those proposals are adopted in 

the future, the baseline in those subsequent 

rulemakings will reflect the regulatory landscape 

that is current at that time. 

584 ICI Comment Letter III. See also USCOC 

Comment Letter (‘‘Regulated entities would have to 

divert substantial resources to comply with a host 

of new rules in a condensed time frame.’’). 

585See, e.g., ICI Comment Letter III. 

particularly if its 80% investment policy 

relies on managerial judgment, this 

change could substantially lower the 

cost. However, to the extent that funds 

hold particular assets for less than two 

consecutive days, this change will not 

provide much cost mitigation since 

funds are also required to keep such 

records at the time of investment. 

Further, this rule as initially proposed 

would have additionally required funds 

that are not required to adopt an 80% 

investment policy to also maintain 

records of their analysis in that 

determination. Since the final rule will 

omit this requirement, the cost of 

complying with the rule will be lower 

for these funds than under the proposal. 

Notice Requirement. The names rule 

requires that unless the 80% investment 

policy is a fundamental policy of the 

fund, notice must be provided to fund 

shareholders of any change in the fund’s 

80% investment policy.578 The final 

amendments would incorporate some 

modifications to the current notice 

requirement that are designed to better 

address the needs of shareholders who 

have elected electronic delivery and to 

incorporate additional specificity about 

the content and delivery of the notice. 

We do not believe that these alterations 

would materially increase the cost to 

prepare the notice.579

Quantified Compliance Costs. We 

estimate that the initial costs to 

establish and implement practices 

designed to meet the requirements of 

the final amendments as described 

above will range from $50,000 to 

$500,000 per fund, depending on the 

particular facts and circumstances of the 

fund.580 We believe the costs would be 

closer to the lower end of the range for 

funds whose current practices are more 

similar to the requirements of the final 

rule.581

The direct estimated costs of 

compliance are broadly attributable to 

the following activities: (1) reviewing 

the final rule’s requirements; (2) 

determining whether to change a fund’s 

name or comply with the new 

requirements, as applicable; (3) 

developing new (or modifying existing) 

practices, reporting, and recordkeeping 

requirements to align with the 

requirements of the final rule; (4) 

integrating and implementing those 

practices, reporting, and recordkeeping 

requirements to the rest of the funds’ 

activities; and (5) preparing new 

training materials and administering 

training sessions for staff in affected 

areas. 

The estimated range in this section is 

aimed at quantifying the full direct 

compliance cost associated with the 

final amendments’ provisions. As a 

result, the estimates in this section 

encompass more costs than do the 

estimates discussed below in section V 

for purposes of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’). Further, 

note that the estimated range of costs 

above is the same as that included in the 

economic analysis in the proposing 

release. Keeping the estimated range the 

same reflects our assessment that the 

funds with the highest compliance 

costs, such as those whose entire 

portfolio turns over on a nearly daily 

basis, will face costs similar to those 

that would have been incurred under 

the proposed rule. The low end of the 

range is reflective of a fund that only 

incurs cost associated with analyzing 

the requirements of the rule. 

However, the final amendments are 

different from the proposed 

amendments in many ways that mitigate 

costs for most but not all funds. 

Compared to the Proposing Release, we 

believe that the largest reduction in cost 

comes from changing the provisions that 

would have effectively required 

continual, manual monitoring of 

whether funds’ portfolio investments 

are consistent with the fund’s 80% 

investment policy. This is consistent 

with many commenters’ concerns.582

Since this is not required under the final 

rule unless all assets are traded daily, 

and other changes have also been made 

to mitigate costs, we believe that the 

typical cost for a fund to comply with 

the final rule will, while still contained 

within the same range, be significantly 

lower than the cost of compliance under 

the approach that the Proposing Release 

described. 

Some funds may change their name 

rather than comply with the amended 

rule. For these funds, we estimate that 

the total direct burden, including 

analyzing the rule and deciding to 

change their name, is a one-time cost 

range of $75,000 to $250,000. Funds that 

decide to change their name rather than 

comply with the new requirements will 

also incur indirect costs associated with 

changing fund names, which include a 

potential loss in market share. However, 

this will translate to a cost to investors 

only to the extent that there is a 

decrease in efficiency resulting from 

investors being less able to find 

appropriate funds as a result of the rule. 

Without providing specifics, some 

commenters requested the Commission 

analyze Commission rules and 

proposals holistically.583 The 

Commission’s economic analysis in 

each adopting release considers the 

incremental benefits and costs for the 

specific rule—that is the benefits and 

costs stemming from that rule compared 

to the baseline. One commenter stated 

that the Commission should consider 

‘‘practical realities such as the 

implementation timelines as well as 

operational and compliance 

requirements.’’ 584 The Commission 

acknowledges that resource limitations 

can lead to higher compliance costs in 

some cases when two or more rules 

affecting the same parties have 

overlapping compliance periods. In 

determining compliance periods, the 

Commission considers the benefits of 

the rules as well as the costs of delayed 

compliance periods and potential 

overlapping compliance periods. 

In this regard, some commenters 585

mentioned the recent Shareholder 


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586See Tailored Shareholder Reports for Mutual 

Funds and Exchange-Traded Funds; Fee 

Information in Investment Company 

Advertisements, Investment Company Act Release 

No. 34731 (Oct. 26, 2022) [87 FR 72758 (Nov. 25, 

2022)] (‘‘Shareholder Reports Final Rule’’). The 

compliance date for those rules will be in July 2024. 

Certain fund managers, such as managers to mutual 

funds and ETFs, that will manage funds subject to 

the final rule are also generally subject to different 

aspects of the Shareholder Reports Final Rule. 

587See Money Market Fund Reforms; Form PF 

Reporting Requirements for Large Liquidity Fund 

Advisers; Technical Amendments to Form N–CSR 

and Form N–1A, Investment Company Act Release 

No. 34959 (Jul. 12, 2023) [88 FR 51404 (Aug. 3, 

2023)] (‘‘Money Market Fund Final Rule’’). The 

compliance dates for these rules vary between Oct. 

2023 and Oct. 2024. Certain fund managers, namely 

managers to money market funds, who will be 

subject to the final rule will also be subject to the 

Money Market Funds Final Rule. 

588The Commission also considered the fact that, 

to the extent recently adopted rules address matters 

related to those in the final rules, the benefits of the 

final rules may be impacted to the extent recently 

adopted rules already offer certain investor 

protections or to the extent that recently adopted 

rules and the final rules offer synergies. However, 

we do not believe that there are significant 

interacting effects with recently adopted rules with 

respect to benefits in this case, because recently 

adopted rules do not address the same set of issues 

as those addressed in the final rule. 

589As discussed above, the tiered compliance 

period we are adopting is designed to strike the 

appropriate balance between allowing funds 

adequate time to adjust their compliance practices, 

and allowing investors and shareholders to benefit 

from the amended names rule framework. See supra 

section II.H; see also infra section IV.D.3. 

590For example, as discussed throughout this 

section, relative to the proposed rule the final rule 

has fewer recordkeeping tasks, fewer items on Form 

N–PORT, and removes the need for daily 

assessments of portfolio compliance with an 80% 

investment policy for assets that are not actively 

traded. See supra section IV.D.2. 

591For example, by decreasing potential 

greenwashing concerns, the final amendments, in 

turn, may increase investor confidence in selecting 

funds with names implying an ESG strategy and 

increase capital formation among ESG issuers. 592 Investors may believe that these funds have an 

incentive to protect the value of their reputations 

by continuing to invest in ways consistent with 

their names. See Klein, Benjamin and Keith B. 

Leffler, The Role of Market Forces in Assuring 

Contractual Performance, Journal of Political 

Economy 89, 615–641 (1981) (‘‘Klein Paper’’). 593This argument assumes that fund reputation 

and investor protections provided by regulatory 

requirements are substitute mechanisms for 

providing assurances to investors. 

Reports Final Rule 586 and the recent 

Money Market Funds Final Rule.587

Overlapping compliance periods for 

these rules may result in economic costs 

for some entities that are also in the 

scope of the final amendments.588 For 

the reasons discussed above, we have 

adopted longer compliance periods 

relative to the proposal.589 In analyzing 

the costs of this final rule relative to the 

proposal, we believe the potential for 

heightened costs is mitigated by those 

longer compliance periods. The costs 

from overlapping compliance periods 

for smaller entities are even further 

mitigated by the longer compliance 

period for those entities relative to the 

compliance period for larger entities. 

Moreover, commenters raised concerns 

about the costs of overlapping 

compliance periods in the context of the 

proposal and, as discussed above, we 

have taken steps to reduce costs of the 

final rule in several ways from the 

proposal.590

As a result, we believe that for both 

larger and smaller entities, any higher 

costs due to overlapping compliance 

periods raised in the context of the 

proposal may generally be mitigated 

under the final rules. We therefore do 

not believe that the overlap between the 

final rules, the Shareholder Reports 

Final Rule, and the Money Market 

Funds Final Rule will significantly 

increase the compliance costs of the 

final rule for small or large entities. 

3. Effects on Efficiency, Competition 

and Capital Formation 

To the extent the final amendments 

will help ensure that fund names are 

more appropriately representative of a 

fund’s investment focus, we predict that 

investors will benefit. Developing a 

dollar figure for this predicted benefit is 

complex, however. We do not observe 

investors’ decision-making and 

resources expended in the management 

of their investment portfolio, nor do we 

observe the cost to investors from being 

invested in a fund that does not match 

their preferences. To the extent fund 

names would be more appropriately 

representative of the fund investment 

focus under the final amendments and 

to the extent those more appropriately 

representative fund names will allow 

investors to more easily select funds 

that better match their preferences, 

however, we would expect the 

efficiency of investment to increase. 

Conversely, if, as a result of the final 

rules, some funds change their names 

and investment policies in ways that 

lead to less efficient matching between 

funds and some investors or increase 

search costs for some investors, capital 

allocation efficiency may decrease. For 

example, some funds may decide to use 

more generic names so as not to convey 

an investment focus with their name. If 

these funds previously had names that 

conveyed information that investors 

found more useful, then investors will 

either face higher costs in finding the 

funds best suited to their goals, or 

choose funds less tailored to those goals. 

Additionally, the final amendments 

may disincentivize some funds from 

investing in assets with characteristics 

that do not readily lend themselves to 

popular investment focuses and 

incentivize investment in assets that do. 

Depending on whether any such change 

aligns with the preferences of investors 

or runs counter to their preferences, 

capital allocation efficiency may 

increase or decrease. 

To the extent the final amendments 

increase efficiency of investment in the 

fund market, then we may observe a 

change in investment in funds. For 

example, if there are investors who 

currently do not invest in certain funds 

(or invest less than they would have) 

because they lack confidence that funds’ 

names accurately convey funds’ 

investment focuses, then to the extent 

the final amendments lower those costs 

and enhance investor protections, we 

would expect to observe more investors 

entering the funds market.591 The 

increased demand for securities could, 

in turn, facilitate capital formation. We 

note, however, that to the extent 

increased investment in funds reflects 

substitution from other investments, the 

effect on capital formation would be 

attenuated. 

More investors entering the funds 

market could also increase competition, 

to the extent that competition in a 

market is related to the size of the 

market. The final amendments may 

affect competition through an additional 

channel: certain funds may have 

established reputations for making 

investments consistent with the 

investment focus the fund’s name 

suggests. Investors wishing to invest in 

funds with specific investment focuses 

may have greater confidence investing 

in funds with established reputations 

for investing in a way consistent with 

the investment focus the fund’s name 

suggests.592 There may be investors who 

do not invest in funds lacking 

established reputations for making 

investments consistent with the focuses 

their names suggest (or invest less than 

they would have) because those 

investors are less confident that such 

funds will make investments consistent 

with their names. We would expect the 

investor protections offered by the final 

amendments, which are designed to 

ensure that funds’ names accurately 

convey funds’ investment focuses, could 

enhance the ability of funds without 

established reputations to compete with 

those funds with established 

reputations. This could, in turn, lead to 

increased investment for funds without 

established reputations.593

However, the compliance costs of the 

rule may also result in negative 

competitive effects by causing firms to 

close their funds and reducing the 

competitive alternatives investors have. 

Relative to the proposed rule, the final 

rule took steps to mitigate these costs in 

several ways. For example, relative to 


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594See supra section IV.D.2. 595See supra section IV.D. 596See supra section IV.D.2. 597See supra footnote 594 and accompanying 

text. 598See supra section IV.D.2; see also, e.g., ICI 

Comment Letter III. 

599This approach was suggested by many 

commenters (see, e.g., ICI Comment Letter, Dechert 

Comment Letter; Cato Institute Comment Letter) 

and offered by Commissioner Peirce (see statement, 

available at https://www.sec.gov/news/statement/ 

peirce-fund-names-statement-052522). 

600For a fuller discussion, see supra section 

IV.D.2. 601See supra section IV.C. 

the proposed rule, the final rule has 

fewer recordkeeping tasks, fewer items 

on Form N–PORT, and removes the 

need for daily assessments of portfolio 

compliance with an 80% investment 

policy for assets that are not actively 

traded.594

In addition, as stated above, some 

commenters requested the Commission 

consider interactions between the 

economic effects of the proposed rule 

and other recent Commission rules, as 

well as practical realities such as 

implementation timelines.595 As 

discussed above, the Commission 

acknowledges that overlapping 

compliance periods may in some cases 

increase costs.596 This may be 

particularly true for smaller entities 

with more limited compliance 

resources. This effect can negatively 

impact competition because these 

entities may be less able to absorb or 

pass on these additional costs, making 

it more difficult for them to remain in 

business or compete. However, in 

addition to mitigating the overall costs 

of the final rules relative to the 

proposal,597 we believe we have 

mitigated the potential for heightened 

costs by adopting longer compliance 

periods for all entities relative to the 

proposal, and even longer compliance 

periods for smaller entities. The 

compliance periods for the rules 

mentioned by commenters, the 

Shareholder Reports Final Rule and the 

Money Market Funds Final Rule,598

culminate in approximately July– 

October 2024 while the compliance 

dates for the final rule are [FILL IN date 

24 months following amendments’ 

effective date] for larger entities, and 

[FILL IN date 30 months following 

amendments’ effective date] for smaller 

entities. We therefore do not expect the 

risk of negative competitive effects from 

increased compliance costs from 

simultaneous compliance periods to be 

significant. 

Finally, to the extent that the final 

amendments disincentivize some funds 

from investing in assets with 

characteristics that do not readily lend 

themselves to popular investment 

focuses that fund names suggest and 

incentivizes investment in assets that 

do, the final amendments could affect 

capital formation. For example, it may 

be relatively more difficult for funds to 

conclude that certain issuers—for 

example, firms that are newer, smaller, 

or whose strategies and performance 

objectives are not as well publicized or 

as clearly articulated—should 

appropriately be included in a fund’s 

80% basket, and therefore funds that are 

within the scope of the 80% investment 

policy requirement may invest relatively 

less in these issuers. These issuers could 

consequently face increased costs of 

capital. Conversely, assets whose 

appropriate inclusion in a fund’s 80% 

basket is relatively easier for a fund to 

determine (for example, because they 

exhibit quantifiable criteria that assist in 

this determination) may receive more 

fund attention and consequently face 

reduced costs of capital. 

E. Reasonable Alternatives Considered 

1. Disclosure-Based Framework 

The final rule expands the scope of 

names that require an 80% investment 

policy. For certain categories of names, 

we considered whether a disclosurebased framework would be more 

appropriate. Specifically, we considered 

whether a fund whose name suggests a 

particular investment focus should be 

required to have additional disclosure 

in that fund’s prospectus describing the 

investment strategy in lieu of the 

requirement to maintain an 80% 

investment policy.599 Such a 

requirement could have been 

accompanied either by no scope 

expansion at all for the 80% investment 

policy requirement or by a lessencompassing scope expansion. The 

additional disclosure could have 

included definitions of the terms in the 

name of the fund, criteria for investment 

selection, or other information that 

would clarify for investors how a fund’s 

name relates to the investment strategy 

pursued by the fund. 

We are cognizant of the differential 

cost and benefits of this alternative 

relative to the adopted expansion of the 

80% investment policy requirement. In 

particular, funds whose names include 

terms that are defined at least partially 

using managerial judgment are likely to 

face higher costs and lower benefits 

from an 80% test relative to funds with 

names that include more objective 

terms.600

However, we also considered the 

costs associated with excluding certain 

terms or types of terms from the 

requirement. Excluding certain types of 

funds names, or terms used in fund 

names, from the requirement would 

incentivize funds to follow strategies 

associated with these exclusions and 

thus limit the investment options 

available to investors. This, however, 

may be balanced by the effect of 

investors seeking funds covered by the 

amended rule. In addition, to the extent 

that investor behavior is affected by the 

name of the fund itself, additional 

prospectus disclosure on its own would 

not provide additional investor 

protection. There is significant evidence 

from academic literature that a fund’s 

name does affect investor behavior 

above and beyond what can be 

explained by any observable aspect of 

the fund’s actual investment strategy.601

2. Alternatives to 90-Day Temporary 

Departure Limit 

The final amendments require a fund 

to invest consistent with its 80% 

investment policy under normal 

circumstances. In the event that a fund 

identifies that its portfolio is no longer 

invested consistent with its 80% 

investment policy, a fund must return to 

compliance as soon as is reasonably 

practicable and in no more than 90 

consecutive days. Separately, if the fund 

decides to invest in a manner not 

consistent with the 80% investment 

policy under other-than-normal 

circumstances, the fund is not required 

to come back into compliance as soon 

as reasonably practicable but must come 

back into compliance within 90 

consecutive days. As an alternative, we 

considered whether to require instead 

that, if a temporary departure persists 

past 30 days, the fund’s board must 

approve, or be informed in writing 

about, the temporary departure. We also 

considered whether to adopt a limit 

greater than 90 days. In the context of 

requiring board approval, we also 

considered requiring a majority of the 

independent directors to approve the 

departure. In the context of requiring 

board notification, we considered 

requiring a written report or notification 

that includes a recommendation from 

the fund’s adviser to be provided to the 

board immediately or at the next 

regularly scheduled board meeting. 

Collectively, these alternatives may 

provide more flexibility for funds to 

address the conditions that necessitate 

temporary departures than the final 

amendments. Either they would not 

limit the duration for which a fund 

could engage in a temporary departure, 

provided that the board either approves 

or is notified of the departure, or they 

would increase the allowable length of 

time that a fund could depart from its 


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602See supra footnote 433. 

603See infra section V.E. Funds file registration 

statements and amendments using the 

Commission’s EDGAR electronic filing system, 

which generally requires filers to use ASCII or 

HTML for their document submissions, subject to 

certain exceptions. EDGAR Filer Manual (Volume 

II) version 66 (June 2023), at 5–1; see 17 CFR 

232.301 (incorporating EDGAR Filer Manual into 

Regulation S–T). To the extent UITs are part of the 

same fund family as other types of funds that are 

subject to Inline XBRL requirements, they may be 

able to leverage those other funds’ existing Inline 

XBRL tagging experience and software, which 

would mitigate the initial Inline XBRL 

implementation costs that UITs will incur under the 

final amendments. 

604 In addition, one commenter noted that UITs 

can avail themselves of the same applications and 

processes used by other fund types that report 

information using Inline XBRL. See supra footnote 

433. 

605 44 U.S.C. 3501 et seq. 

606 44 U.S.C. 3507(d); 5 CFR 1320.11. 

80% investment policy. These 

approaches could provide funds with 

more flexibility to reduce loss during 

market crises and manage liquidity risk, 

which could, in turn, reduce any 

adverse effects that a fund’s trading 

activity may have on the markets for the 

investments in its portfolio. 

Conversely, these alternatives may 

have been less effective than the final 

amendments at addressing the concerns 

highlighted above regarding portfolio 

‘‘drift’’ or extended-length intentional 

departures. That is, fund managers and 

boards may not fully internalize 

investors’ preferences for certain 

elements of a portfolio, such as risk and 

diversification benefits, that a fund 

name suggests, and so could be willing 

to extend departures for longer than 

would be optimal for investors. For 

example, a fund board could determine 

to engage in a departure for longer than 

90 days to address a market disruption, 

but this action might frustrate the 

expectation of investors who may 

expect the fund to invest consistent 

with its named investment focus even 

during market disruptions, and 

therefore may choose to rebalance 

investments on their own rather than 

relying upon the fund to do so. We also 

believe that the alternative that includes 

board notification or approval would 

increase burdens on fund boards, 

particularly if we were to require the 

approval or notification be immediate. 

Further, in determining not to use a 

longer time frame for this requirement, 

we considered the fact that in practice 

funds may be out of compliance for 

more than 90 days, since funds will be 

required to reassess their portfolio 

assets’ inclusion in the fund’s 80% 

basket no less than quarterly and funds 

may unknowingly be out of compliance 

between assessments. 

3. Permit But Not Require the Use of 

Derivatives’ Notional Values for 

Purposes of Names Rule Compliance 

As an alternative, we considered 

permitting, but not requiring, funds to 

value derivatives using notional values 

for purposes of assessing names rule 

compliance. As discussed in section 

II.A.3 above, an approach where a fund 

uses notional values for these purposes 

could allow a fund to use a name that 

effectively communicates its 

investments where it would not be able 

to do so under the current rule. 

However, allowing a fund to use 

derivatives instruments’ market values 

for purposes of assessing names rule 

compliance could result in a fund being 

in compliance with the fund’s 80% 

investment policy despite the fund 

having significant exposure to 

investments that are not suggested by 

the fund’s name. Because we believe the 

use of notional values better reflects the 

investment exposure of derivatives 

investments than market values for 

purposes of assessing names rule 

compliance in most cases, we are 

requiring, rather than permitting, the 

use of notional values. 

4. Exclude Unit Investment Trusts From 

Requirements for Tagging Prospectus 

Disclosure 

Under the final amendments, the new 

prospectus disclosure of term 

definitions and investment selection 

criteria submitted by UITs on Form N– 

8B–2 and Form S–6 will be tagged in 

Inline XBRL. Alternatively, we could 

have changed the scope of the tagging 

requirement for the new prospectus 

disclosures by excepting UITs from this 

requirement. Such an exception was 

suggested by one commenter, who noted 

that UITs are not currently required to 

tag any filings in Inline XBRL.602 Under 

this alternative, UITs would submit 

their prospectus disclosures in 

unstructured HTML or ASCII, and forgo 

the initial Inline XBRL implementation 

costs (such as the cost of training inhouse staff to prepare filings in Inline 

XBRL, and the cost to license Inline 

XBRL filing preparation software from 

vendors) and ongoing Inline XBRL 

compliance burdens that would result 

from the tagging requirement.603

However, narrowing the scope of 

tagging requirements to exclude UITs 

would diminish the extent of 

informational benefits that would 

accrue as a result of the disclosure 

requirements by making UITs’ 

disclosures comparatively costlier to 

process and analyze.604 As such, we are 

not excluding UITs from Inline XBRL 

tagging requirements. 

V. Paperwork Reduction Act Analysis 

A. Introduction 

Certain provisions of the final rules 

and form amendments contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).605 We are submitting the final 

collections of information to the Office 

of Management and Budget (‘‘OMB’’) for 

review in accordance with the PRA.606

The titles for the collections of 

information are: (1) ‘‘Rule 35d–1 under 

the Investment Company Act of 1940, 

Investment Company Names’’ (OMB 

Control No. 3235–0548); (2) ‘‘Form N– 

1A under the Investment Company Act 

of 1940 and Securities Act of 1933, 

registration statement of Open-End 

Management Investment Companies’’ 

(OMB Control No. 3235–0307); (3) 

‘‘Form N–2 under the Investment 

Company Act of 1940 and Securities Act 

of 1933, Registration Statement of 

Closed-End Management Companies’’ 

(OMB Control No. 3235–0026); (4) 

‘‘Form N–8B–2, Registration Statement 

of Unit Investment Trusts Which Are 

Currently Issuing Securities’’ (OMB 

Control No. 3235–0186); (5) ‘‘Form S–6, 

Registration Under the Securities Act of 

1933 of Unit Investment Trusts 

Registered on Form N–8B–2’’ (OMB 

Control No. 3235–0184); (6) ‘‘Form N– 

PORT under the Investment Company 

Act of 1940’’ (OMB Control No. 3235– 

730); and (7) ‘‘Investment Company 

Interactive Data’’ (OMB Control No. 

3235–0642). An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it displays a 

currently valid OMB control number. 

The Commission published notice 

soliciting comments on the collection of 

information requirements in the 

Proposing Release and submitted the 

proposed collections of information to 

OMB for review in accordance with 44 

U.S.C. 3507(d) and 5 CFR 1320.11. The 

Commission received some comments 

that specifically addressed the estimated 

PRA burdens and costs in the Proposing 

Release, as well as some comments that 

discussed the overall burdens of 

implementing aspects of the proposal 

associated with collections of 

information. We discuss these 

comments below along with discussing 

updated estimates of the collection of 

information burdens associated with the 

final amendments to rule 35d–1, Form 

N–1A, Form N–2, Form N–8B–2, Form 

S–6, Form N–PORT; and the interactive 

data requirements under the final 


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607See supra section II.F. 

608 ICI Comment Letter. 

609 ICI Comment Letter; T. Rowe Comment Letter; 

SIFMA AMG Comment Letter; Seward & Kissel 

Comment Letter. 

610 ICI Comment Letter; SIFMA AMG Comment 

Letter; T. Rowe Comment Letter; Dechert Comment 

Letter. 611 ICI Comment Letter; T. Rowe Comment Letter; 

SIFMA Comment Letter; Seward & Kissel Comment 

Letter. 

612 Invesco Comment Letter; Seward & Kissel 

Comment Letter. 

613See supra section II.A.2. 

amendments. A description of the final 

amendments, including the need for the 

information and its use, as well as a 

description of the likely respondents, 

may be found in sections I and II above, 

and a discussion of the economic effects 

of the final amendments may be found 

in section IV above. 

B. Rule 35d–1 

Rule 35d–1 is designed to address 

certain broad categories of investment 

company names that, in the 

Commission’s view, are likely to 

mislead an investor about a company’s 

investments and risks. The final 

amendments will expand the scope of 

funds covered by the 80% investment 

policy requirement of rule 35d–1. In 

addition to those fund names currently 

subject to the rule, the final 

amendments specify that any fund with 

a name suggesting that the fund focuses 

its investments in investments that 

have, or whose issuers have, particular 

characteristics will have to adopt an 

80% investment policy. 

We are also adopting amendments to 

the names rule’s notice requirement. 

These amendments are designed to 

specify further the content and delivery 

of the notice, and address more directly 

the needs of investors who elect 

electronic delivery. The final 

amendments will require notices not 

only to describe a change in the fund’s 

80% investment policy, but also a 

change to the fund’s name that 

accompanies the investment policy 

change. 

The final amendments also include 

certain new recordkeeping 

requirements. These amendments will 

newly require a fund that is required to 

adopt an 80% investment policy to 

maintain a written record documenting 

its compliance with the rule, including 

among other things the fund’s record of 

which assets are invested in the fund’s 

80% basket, the basis for including each 

such asset in the fund’s 80% basket, and 

certain information regarding departures 

from the fund’s 80% investment policy. 

A fund also will be required to keep 

records of any notice sent to the fund’s 

shareholders pursuant to the rule. In a 

modification to the proposal, the final 

amendments will not require funds that 

do not adopt an 80% policy to maintain 

a record of the fund’s analysis that such 

policy is not required under the names 

rule.607

Rule 35d–1, including the final 

amendments to the rule, contains 

collection of information requirements. 

These collection of information 

requirements include, as detailed in the 

chart below, the notice requirement and 

recordkeeping requirements for funds 

that are required to adopt an 80% 

investment policy. Compliance with 

these requirements is mandatory. 

Responses to these requirements will 

not be kept confidential. 

The Commission received only one 

comment that specifically addressed the 

PRA analysis for the proposed 

amendments to rule 35d–1, stating that 

the Commission had ‘‘significantly 

underestimated’’ the costs related to 

preparing and providing notices to 

shareholders.608 The Commission 

received other comments that did not 

specifically address the PRA analysis 

but suggested that the Commission had 

generally underestimated the 

compliance costs associated with the 

proposed notice and recordkeeping 

requirements.609 Some commenters 

stated that the costs of providing notices 

would likely increase in light of the 

rule’s increase in scope.610 With respect 

to the proposed recordkeeping 

requirements, commenters stated that 

funds would face significant compliance 

costs related to the requirement to 

document each investment included in 

the 80% basket.611 Some commenters 

also stated that the proposed 

recordkeeping requirements may not be 

easily automated, including the 

requirement to include a basis for 

including each investment in the 80% 

basket, and the reasons for departure 

from the fund’s 80% investment 

policy.612

We have adjusted the proposal’s 

estimated annual burden hours and total 

time costs to reflect these comments and 

to reflect changes from the proposal. 

Specifically, we are increasing the 

estimated annual burden associated 

with the recordkeeping requirement to 

reflect that certain records may not 

easily lend themselves to automation. 

The final estimate also reflects that 

funds will be required under the final 

amendments to reassess the 

characteristics of investments in the 

fund’s 80% basket on a quarterly basis, 

in contrast to the proposed rule, which 

would have required funds to engage in 

continual compliance testing to reassess 

the characteristics of investments in the 

fund’s 80% basket.613 Because we are 

not adopting the proposed 

recordkeeping requirement for funds 

that are not required to adopt 80% 

investment policies, the burdens 

associated with that requirement are 

omitted from the final estimates below. 

We have also adjusted the proposal’s 

estimated annual burden hours and total 

time costs to reflect updated wage rates. 

Because funds already have in place 

systems required to provide notice to 

shareholders, we do not believe that 

per-fund costs of providing notice to 

shareholders will materially increase as 

result of the rule’s increased scope 

under the final amendments. We also do 

not believe that per-fund costs of 

providing notice will increase as a 

direct result of exception under the final 

amendments related to unlisted 

registered closed-end funds and BDCs 

because we believe that the costs 

associated with providing notice under 

this exception are comparable to the 

costs that a fund not relying on this 

exception would incur by providing 

notices associated with the shareholder 

vote that would otherwise be required 

for a change to the fund’s investment 

policy. The proposed estimate of funds 

that would provide notices under the 

names rule over-estimated the number 

of unlisted registered closed-end funds 

and BDCs that would provide notices, as 

it did not subtract unlisted registered 

closed-end funds and BDCs from the 

overall estimate of registered closed-end 

funds and BDCs (even though the 

proposal did not anticipate that unlisted 

registered closed-end funds and BDCs 

would provide notices under the names 

rule, as they would have to conduct a 

shareholder vote in connection with a 

change in an 80% investment policy). 

We are therefore not changing our 

analysis in our estimates of the final 

rules’ PRA burdens to increase the 

proposed estimate, even though the 

final amendments (unlike the proposal) 

would permit unlisted registered closedend funds and BDCs to send notices to 

shareholders in connection with a 

change in an 80% investment policy 

instead of holding a shareholder vote. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the final 

notice and recordkeeping amendments 

to rule 35d–1. 


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TABLE 1—PRA ESTIMATES FOR RULE 35d–1 AMENDMENTS

Initial 

hours Annual hours 1 Wage rate 2 Internal time costs 

Annual 

external 

cost burden 

Currently Aproved Burdens 

Notice Requirement ...............................................

Number of Funds ...................................................

0 

..........

20 hours 3 .................

× 38 funds 4 ..............

$425 (estimate of wage rate in most recently approved supporting statement).$8,500 ......................

× 38 funds ................

........................

Current Burden Estimates ..................................... .......... 760 hours ................. ............................................................... $323,000 .................. $0 

Proposed Estimated Burdens 

Notice Requirement ...............................................

Number of Funds ...................................................

0 

..........

20 hours 5 .................

× 34 funds 6 ..............

$425 (blended rate for attorneys) ......... $8,500 ......................

× 34 funds ................

7 496 

Total New Burden for Notice Requirement (I) ...... .......... 680 hours ................. ............................................................... $289,000 .................. 16,864 

Recordkeeping for Funds with an 80% Policy 8 ....

Number of Funds ...................................................

9 9 

..........

50 hours ...................

× 10,394 funds .........

$356 (1:1 blend for compliance attorney and senior programmer).$17,800 ....................

× 10,394 funds .........

496 

Total New Burden for Recordkeeping For Funds 

Required to Adopt 80% Policy (II).

.......... 519,700 hours .......... ............................................................... $185,013,200 ........... 5,155,424 

Recordkeeping For Funds Not Required to Adopt 

80% Policy.

0 1 hour .......................

× 3,465 funds 10 ........

$425 (blended rate for attorneys) ......... $425 .........................

× 3,465 funds ...........

496 

Total New Burden for Recordkeeping For Funds 

Not Required to Adopt 80% Policy (III).

.......... 3,465 hours .............. ............................................................... $1,472,625 ............... 1,718,640 

Total Proposed Estimated Burdens Including Amendments 

Total New Annual Burden (I + II + III) ................... .......... 523,845 hours .......... ............................................................... $186,774,825 ........... 6,890,910 

Final Estimated Burdens 

Notice Requirement ...............................................

Number of Funds ...................................................

0 

..........

20 hours 5 .................

× 34 funds 6 ..............

$425 (blended rate for attorneys) ......... $8,500 ......................

× 34 funds ................

11 565 

Total New Burden for Notice Requirement (I) ...... .......... 680 hours ................. ............................................................... $289,000 .................. 19,210 

Recordkeeping for Funds with an 80% Policy 8 ....

Number of Funds ...................................................

9 9 

..........

75 hours 12 ................

× 10,291 funds .........

$406 (1:1 blend for compliance attorney and senior programmer).$30,450 ....................

× 10,291 funds .........

565 

Total New Burden for Recordkeeping (II) ............. .......... 771,825 hours .......... ............................................................... $313,360,950 ........... 5,814,415 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden (I + II) .......................... .......... 772,505 hours .......... ............................................................... $313,649,950 ........... 5,833,625 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimated figures for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3This estimate assumed that these notices are typically short, one-page documents that are sent to shareholders with other written materials. The Commission anticipated that each respondent would only incur these burden hours once. 4The currently-approved burden takes into account the Commission’s previous estimate, across approximately 13,182 open-end funds and 676 closed-end funds 

then registered with the Commission, that there are approximately 11,502 funds that have names covered by the rule or 83% of funds covered by the rule (13,858 

funds × 83% = 11,502). The Commission estimated that 1% of these funds, or 115 funds, would, within the next three years, provide a notice to shareholders pursuant to rule 35d–1. Therefore, over the course of 3 years, the Commission estimated that, on average approximately 38 funds per year would provide a notice to 

shareholders under rule 35d–1. 5The final amendments would make some changes to the current notice requirement, including requiring funds to provide additional specificity about the content 

and delivery of notice. Because funds already have in place systems required to provide notice to shareholders, the Commission continues to believe, as in the proposal, that these proposed alterations would not increase the burden hours needed to prepare the notice. Although the final rules, unlike the proposed rules, would 

permit unlisted registered closed-end funds and BDCs to make changes to their 80% investment policies without a shareholder vote under certain circumstances, including that a fund provide certain notice to shareholders, we have not increased our estimates as a result of this provision. The costs associated with providing notice under this exception are comparable to the costs that a fund would incur by providing notices associated with the shareholder vote that would otherwise be required for a CEF/BDC to change its 80% investment policy under the final rule. 6The currently-approved PRA burden for rule 35d–1 was based on the Commission’s estimate that 83% of funds were covered by rule 35d–1. The Commission at 

proposal estimated that 75% of funds would have names subject to the 80% investment policy. The prior PRA burden was based on an estimate using a different analytical approach than the Commission employed at proposal, based on its updated economic analysis. Based on that analysis, the Commission estimated that 62% 

of funds were subject to rule 35d–1 at the time of proposal and that the proposed rule amendments would increase this estimate to 75% of funds. The Commission 

estimated, across approximately 14,532 open-end and closed-end funds registered with the Commission, that there were approximately 10,394 funds that have 

names that would be covered by the proposed rule amendments, or 75% of funds covered by the rule amendments. The Commission estimated that 1% of these 

10,394 funds, or 103 funds, would within the next three years provide a notice to shareholders pursuant to the proposed rule amendments. Therefore, over the course 

of 3 years, the Commission estimated that, on average approximately 34 funds per year would provide a notice to shareholders under the proposed rule amendments. The Commission now estimates, pursuant to its current economic analysis, that 60% of funds are currently subject to the 80% investment policy requirement, 

and that 76% of funds would be subject to this requirement under the final amendments. The Commission estimates, across approximately 13,541 open-end and 

closed-end funds registered with the Commission, that there are approximately 10,291 funds that have names that would be covered by the final rule amendments, or 

76% of funds covered by the rule amendments (9,533 mutual funds (other than money market funds) + 2,735 non-UIT ETFs + 355 money market funds = 12,975 

open end funds + 748 registered closed-end funds + 125 BDCs + 45 UITs = 13,541 funds × 76% = 10,291 funds). The Commission estimates that 1% of these 

10,291 funds, or 103 funds, would within the next three years provide a notice to shareholders pursuant to the final rule amendments. Therefore, over the course of 3 

years, the Commission estimates that on average approximately 34 funds per year would provide a notice to shareholders under the final rule amendments. 7This estimate was based on the estimated wage rate of $496, for 1 hour of outside legal services. The Commission’s estimate of the relevant wage rates for external time costs, such as outside legal services, took into account staff experience, a variety of sources including general information websites, and adjustments for 

inflation. 8For funds that adopt an 80% investment policy under the proposed rule, the recordkeeping requirements under proposed rule 35d–1(b)(3) would require records 

documenting the fund’s compliance under paragraphs (a) and (b) of proposed rule 35d–1. Written records documenting the fund’s compliance include: the fund’s 

record of which assets are invested in the 80% basket and the basis for including each such asset in the fund’s 80% basket; the percentage of the value of the fund’s 

assets that are invested in the 80% basket; the reasons for any departures from the fund’s 80% investment policy (including why the fund determined that circumstances are other-than-normal); the dates of any departures from the 80% investment policy; and any notice sent to the fund’s shareholders pursuant to proposed 

rule 35d–1(e). The Commission based its proposed estimate on its understanding that these records would generally need to be made daily, but that the vast majority 

of records would be automated. The Commission stated that it understood, however, that some records, specifically, records documenting the reasons for any departures from the 80% investment policy, may not be automated and may require a fund to spend more time to make. The proposed PRA estimates took these considerations into account. The recordkeeping requirements under the final rule are substantially similar to the proposed requirements, but do not include the proposed requirement for funds that do not adopt an 80% investment policy to maintain a record of their analysis that such a policy is not required. 


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614See supra footnote 565. 

9This estimate initial burden for the proposed recordkeeping requirement accounts for the time the Commission estimates that fund will need to establish recordkeeping procedures for the records that must be kept. 10The Commission at proposal estimated that, across approximately 14,532 open-end and closed-end funds registered with the Commission, there were approximately 3,465 funds that have names that would be not covered by the proposed rule amendments, or 25% of funds covered by the rule amendments. 11This estimate is based on the estimated wage rate of $565, for 1 hour of outside legal services. The Commission’s estimate of the relevant wage rates for external time costs, such as outside legal services, takes into account staff experience, a variety of sources including general information websites, and adjustments for inflation. 12The Commission’s estimates of the internal annual time burdens associated with the recordkeeping requirement under the final rules have been increased by 

50% from the proposal to account for records that may not be easily automatable. This estimate reflects that funds will be required under the final amendments to reassess the characteristics of investments in the fund’s 80% basket on a quarterly—as opposed to continual—basis. Therefore, while we recognize that some records 

may not be able to be automated, as commenters discussed, we are not increasing the proposed estimates to the degree that commenters suggested would be appropriate in light of the final rule’s comparatively less-burdensome approach to reassessing investments in the fund’s 80% basket. 

C. Prospectus Disclosure 

We are adopting amendments to 

funds’ registration forms—specifically, 

Form N–1A, Form N–2, Form N–8B–2, 

and Form S–6—that will require each 

fund that is required to adopt and 

implement an 80% investment policy to 

include disclosure in its prospectus that 

defines the terms used in its name, 

including the specific criteria the fund 

uses to select the investments that the 

term describes, if any. These 

amendments are designed to help 

investors better understand how a 

fund’s investment strategy corresponds 

with the investment focus that the 

fund’s name suggests as well as to 

provide additional information about 

how the fund’s management seeks to 

achieve the fund’s objective. While this 

is not currently required in a fund’s 

prospectus, we understand that 

including similar disclosure is currently 

common industry practice, and believe 

that that the impact that the final 

amendments will have on funds subject 

to the names rule will generally be 

minor. Therefore, the PRA estimates for 

the final prospectus disclosure 

amendments likely overestimate the 

costs for those funds whose disclosure 

is currently in line with the disclosure 

the amendments would require. 

The final amendments to Form N–1A, 

Form N–2, Form N–8B–2, and Form S– 

6 all contain collection of information 

requirements. Compliance with the 

disclosure requirements of each form is 

mandatory. Responses to these 

disclosure requirements will not be kept 

confidential. 

The Commission received one 

comment stating that the costs of 

prospectus disclosure were 

underestimated.614 We have adjusted 

the proposal’s estimated annual burden 

hours and total time costs to reflect 

updated wage rates, and in light of 

developments in our analysis with 

respect to estimating the burdens 

associated with initial disclosure-related 

burdens. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the 

amendments to Form N–1A, Form N–2, 

Form N–8B–2, and Form S–6. 

1. Form N–1A 

TABLE 2—FORM N–1A PRA ESTIMATES

Initial 

hours Annual hours 1 Wage rate 2 Internal time costs 

Annual 

external 

cost burden 

Currently Aproved Burdens 

Preparing and Filing Reports on Form N– 

1A Generally.

.......... 278 ........................... $284 (estimate of wage rate in most recently approved supporting statement).$78,952 .................... $21,849. 

Number of Responses ............................. .......... 6,002 3 ...................... .................................................................. 6,002 ........................ 6,002. 

Current Burden Requirement ................... .......... 1,672,077 hours ....... .................................................................. $474,392,078 ........... $132,940,008. 

Propoproposed Burdens 

Proposed New Names Rule Disclosure ..

Number of funds ......................................

7 

..........

10 hours ...................

× 9,731 funds 4 .........

$356 (1:1 blend of attorney and senior 

programmer).

$3,560 ......................

× 9,731 funds ...........

$992.6

× 9,731 funds. 

Total Proposed Estimated Burdens Including Amendments 

Total New Annual Burden ........................ .......... 97,310 hours ............ .................................................................. $34,643,250 ............. $9,653,152. 

Final Estimated Burdens 

New Names Rule Disclosure ...................

Number of funds ......................................

5 15 12 hours ...................

× 9,593 funds 7 .........

$406 (1:1 blend of attorney and senior 

programmer).

$4,872 ......................

× 9,593 funds ...........

$1,130.6

× 9,593 funds. 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden ........................ .......... 115,116 hours .......... .................................................................. $46,737,096 ............. $10,840,090. 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3The currently-approved burden was based on the Commission’s estimate that included all open-end funds, including ETFs, then registered on Form N–1A. 

4The currently-approved PRA burden for rule 35d–1 was based on the Commission’s estimate that 83% of funds were covered by rule 35d–1. This estimate assumed that 75% of funds would be covered by our proposed rule amendments. The prior PRA burden was based on an estimate using a different analytical approach 

than we are now employing. The Commission estimated at proposal that 62% of funds were currently subject to rule 35d–1, and that the proposed rule amendments 

would increase this estimate to 75% of funds. The Commission estimated, across approximately 12,975 open-end funds including ETFs registered with the Commission, that there are approximately 9,731 open-end funds that have names that would have been covered by the proposed rule amendments, or 75% of open-end 

funds covered by the rule amendments (10,223 mutual funds (other than money market funds) + 2,320 non-UIT ETFs + 432 money market funds = 12,975 open end 

funds × 75% = 9,731 open-end funds). 


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5The estimated initial burden has been increased based on developments in our analysis with respect to estimating the burdens associated with initial disclosurerelated burdens. This burden has been increased to reflect internal review processes that we understand are conventional when updating prospectus disclosures to 

reflect a new disclosure requirement, as well as the time that we understand, based on staff experience with the disclosure review process, drafting disclosure in response to new disclosure requirements typically takes. 6The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the estimated wage rate of $565/hour, for 

2 hours, for outside legal services. The Commission’s estimates of the relevant wage rate for external time costs, such as outside legal services, take into account 

staff experience, a variety of sources including general information websites, and adjustments for inflation. 7Based on our current analysis, we estimate that 60% of funds are currently subject to rule 35d–1, and that the final amendments will increase this estimate to 

76% of funds. The Commission estimates, across approximately 12,623 open-end funds including ETFs registered with the Commission, that there are approximately 

9,467 open-end funds that have names that will be covered by the final amendments (9,533 mutual funds (other than money market funds) + 2,735 non-UIT ETFs + 

355 money market funds = 12,623 × 76% = 9,593 open-end funds). 

2. Form N–2 

TABLE 3—FORM N–2 PRA ESTIMATES

Initial 

hours Annual hours 1 Wage rate 2 Internal time costs 

Annual 

external 

cost burden 

Currently Aproved Burdens 

Preparing and Filing Reports on Form N–2 

Generally.

.......... 2,426 ........................ $400 (estimate of wage rate in most recently approved supporting statement).$970,533 .................. $160,523. 

Number of Responses ................................. .......... 298 ........................... ...................................................................... 298 ........................... 298. 

Current Burden Requirement ...................... .......... 722,948 hours .......... ...................................................................... $289,218,834 ........... $47,835,854. 

Proposed Burdens 

Proposed New Names Rule Disclosure ......

Number of Funds .........................................

7 

..........

10 hours ...................

× 626 funds 3 ............

$356 (1:1 blend of attorney and senior programmer).$3,560 ......................

× 626 funds ..............

$992.5

× 626. 

Total Proposed Estimated Burdens Including Amendments 

Total New Annual Burden ........................... .......... 6,260 hours .............. ...................................................................... $2,228,560 ............... $620,992. 

Final Estimated Burdens 

New Names Rule Disclosure ......................

Number of Funds .........................................

4 15 

..........

12 hours ...................

× 663 funds 6 ............

$406 (1:1 blend of attorney and senior programmer).$4,872 ......................

× 663 funds ..............

$1,130.5

× 663. 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden ........................... .......... 7,956 hours .............. ...................................................................... $3,230,136 ............... $749,190. 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3The currently-approved PRA burden for rule 35d–1 was based on the Commission’s estimate that 83% of funds were covered by rule 35d–1. We now estimate 

that 75% of funds would be covered by our proposed rule amendments. The prior PRA burden was based on an estimate using a different analytical approach than 

we are now employing. The Commission estimated that 62% of funds were currently subject to rule 35d–1, and that the proposed rule amendments would increase 

this estimate to 75% of funds. The Commission estimated, across approximately 835 closed-end funds registered with the Commission, that there were approximately 

626 closed-end funds that had names that would be covered by the proposed rule amendments, or 75% of closed-end funds covered by the rule amendments (736 

registered closed-end funds +99 BDCs = 835 Form N–2 registrants × 75% = 626 Form N–2 registrants). 4The estimated initial burden has been increased based on developments in our analysis with respect to estimating the burdens associated with initial disclosurerelated burdens. This burden has been increased to reflect internal review processes that we understand are conventional when updating prospectus disclosures to 

reflect a new disclosure requirement, as well as the time that we understand, based on staff experience with the disclosure review process, drafting disclosure in response to new disclosure requirements typically takes. 5The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the estimated wage rate of $565/hour, for 

2 hours, for outside legal services. The Commission’s estimates of the relevant wage rate for external time costs, such as outside legal services, take into account 

staff experience, a variety of sources including general information websites, and adjustments for inflation. 6Based on our current analysis, we estimate that 60% of funds are currently subject to rule 35d–1, and that the final amendments will increase this estimate to 

76% of funds. The Commission estimates, across approximately 873 closed-end funds registered with the Commission, that approximately 663 closed-end funds have 

names that will be covered by the final rule, or 76% of closed-end funds (748 registered closed-end funds + 125 BDCs = 873 Form N–2 registrants × 76% = 663 

Form N–2 registrants). 

3. Form N–8B–2 

TABLE 4—FORM N–8B–2 PRA ESTIMATES

Annual hours 1 Wage rate 2

Cost of 

internal 

burden per 

portfolio 

Annual cost 

burden per 

portfolio 

Currently Aproved Burdens 

Preparing and Filing Reports on Form N– 

8B–2 Generally.

UITs ................... 10 hours ............ $351 (estimate of wage rate in most recently approved supporting statement).$3,510 ............... $10,000. 

UIT ETFs ........... 18 hours ............ $351 (estimate of wage rate in most recently approved supporting statement).$6,318 ............... $0. 

Number of Responses ............................... ........................... 1 3 ...................... .................................................................... 1 ........................ 1. 

Current Burden Requirement .................... ........................... 28 hours ............ .................................................................... $9,828 ............... $10,000. 


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TABLE 4—FORM N–8B–2 PRA ESTIMATES—Continued 

Annual hours 1 Wage rate 2

Cost of 

internal 

burden per 

portfolio 

Annual cost 

burden per 

portfolio 

Proposed Burdens 

Proposed New Names Rule Disclosure ....

Number of Responses ...............................

7 ........................

...........................

10 hours ............

× 1 UIT 4 ............

$356 (1:1 blend of compliance attorney 

and senior programmer).

$3,560 ...............

× 1 UIT ..............

$992.6

× 1 UIT. 

Total Estimated Burdens Including Amendments 

Total New Annual Burden ......................... ........................... 10 hours ............ .................................................................... $3,560 ............... $992. 

Final Estimated Burdens 

New Names Rule Disclosure .....................

Number of Responses ...............................

15 5 ....................

...........................

12 hours ............

× 1 UIT 4 ............

$406 (1:1 blend of compliance attorney 

and senior programmer).

$4,872 ...............

× 1 UIT ..............

$1,130.6

× 1 UIT. 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden ......................... ........................... 12 hours ............ .................................................................... $4,872 ............... $1,130. 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3Based on Commission records, in 2016, 2017, 2018, and 2019, during that four-year period, the Commission received 1 filing, submitted in 2019, on Form N–8B– 

2. The cumulative 4-year average is, therefore, 0.25 filings per year. 4The Commission’s proposed estimate was 1 annual filing and we continue to assume 1 filing annually. 

5The estimated initial burden has been increased based on developments in our analysis with respect to estimating the burdens associated with initial disclosurerelated burdens. This burden has been increased to reflect internal review processes that we understand are conventional when updating prospectus disclosures to 

reflect a new disclosure requirement, as well as the time that we understand, based on staff experience with the disclosure review process, drafting disclosure in response to new disclosure requirements typically takes. 6The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the estimated wage rate of $565/hour, for 

2 hours, for outside legal services. The Commission’s estimates of the relevant wage rate for external time costs, such as outside legal services, take into account 

staff experience, a variety of sources including general information websites, and adjustments for inflation. 

4. Form S–6 

TABLE 5—FORM S–6 PRA ESTIMATES

Initial 

hours Annual hours 1 Wage rate 2 Internal costs Annual external costs 

Currently Aproved Burdens 

Draft and Update Disclosures on Form 

S–6 3.

24 18 hours ................... $356 (1:1 blend of compliance attorney 

and senior programmer).

$6,408 ...................... $27,265. 

Number of Responses ............................. .......... 2,498 ........................ .................................................................. 2,498 ........................ 2,498. 

Current Burden Requirement ................... .......... 107,359 .................... .................................................................. $16,007,184 ............. $68,107,970. 

Proposed Burdens 

Proposed New Names Rule Disclosure .. 7 10 hours ................... $356 (1:1 blend of compliance attorney 

and senior programmer).

$3,560 ...................... $992.6

Number of Responses ............................. .......... 785 filings. ................ .................................................................. × 785 filings 4 ............ × 785 filings 

Total Proposed Estimated Burdens Including Amendments 

Total New Annual Burden ........................ .......... 7,850 hours .............. .................................................................. $2,794,600 ............... $778,720. 

Final Estimated Burdens 

New Names Rule Disclosure ................... 5 15 12 hours ................... $406 (1:1 blend of compliance attorney 

and senior programmer).

$4,872 ...................... $1,130.6

Number of Responses ............................. .......... × 764 filings 7 ............ .................................................................. × 764 filings .............. 764 filings. 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden ........................ .......... 9,168 hours .............. .................................................................. $3,722,208 ............... $863,320. 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3Form S–6 incorporates the disclosure requirements of Form N–8B–2 for UITs on an ongoing basis. Because Form S–6 incorporates the requirements of Form N– 

8B–2, the amendments would indirectly affect these entities. UITs that have made their initial deposit of securities prior to the effective date of any final rule would be 

required to update their disclosure on Form S–6 to comply with the amended requirements of Form N–8B–2. As discussed above, UITs formed after the adoption of 

any final rules would be required to comply with the proposed disclosure requirements upon formation when those UITs file Form N–8B–2 with the Commission. 


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615See supra section II.E. 

616See, e.g., MFS Comment Letter; J.P. Morgan 

Asset Management Comment Letter; T. Rowe 

Comment Letter. 

617See MFS Comment Letter. 

618See, e.g., T. Rowe Comment Letter; Invesco 

Comment Letter; Seward & Kissel Comment Letter. 

619See, e.g., ICI Comment Letter; SIFMA AMG 

Comment Letter. 

620See, e.g., J.P. Morgan Asset Management 

Comment Letter. 

4The currently-approved PRA burden for rule 35d–1 was based on the Commission’s estimate that 83% of funds were covered by rule 35d–1. The Commission estimated that 75% of funds would be covered by our proposed rule amendments, based on this proposal’s economic analysis above. The prior PRA burden was based 

on an estimate using a different analytical approach than we are now employing. The Commission estimated that 62% of funds are currently subject to rule 35d–1 

and that our proposed rule amendments would increase this estimate to 75% of funds. The Commission estimated 49 non-separate account and non-ETF UITs registered with the Commission. However, the Commission based its estimate on the belief that using the number of filings instead of registrants would form a more accurate estimate of annual disclosure burdens. The Commission estimated 1,047 filings based on the average number of filings made on Form S–6 from 2018 to 2020. 

The Commission therefore estimated that there would be approximately 785 filings for funds that have names that would be covered by the proposed rule amendments, or 75% of the filings for UITs covered by the rule amendments (1,047 filings × 75% = 785 filings). 5The estimated initial burden has been increased based on developments in our analysis with respect to estimating the burdens associated with initial disclosurerelated burdens. This burden has been increased to reflect internal review processes that we understand are conventional when updating prospectus disclosures to 

reflect a new disclosure requirement, as well as the time that we understand, based on staff experience with the disclosure review process, drafting disclosure in response to new disclosure requirements typically takes. 6The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the estimated wage rate of $565/hour, for 

2 hours, for outside legal services. The Commission’s estimates of the relevant wage rate for external time costs, such as outside legal services, take into account 

staff experience, a variety of sources including general information websites, and adjustments for inflation. 7Based on our current analysis, we estimate that 60% of funds are currently subject to rule 35d–1, and that the final amendments will increase this estimate to 

76% of funds. The Commission estimates 45 non-separate account and non-ETF UITs registered with the Commission. However, consistent with the Commission’s 

methodology at proposal, we believe that using the number of filings instead of the number of registrants will form a more accurate estimate of annual disclosure burdens. The Commission estimates 1,005 filings based on the average number of filings made on Form S–6 from 2020 to 2022. The Commission therefore estimates 

that there will be approximately 764 filings for funds that have names that will be covered by the final amendments, or 76% of the filings for UITs covered by the rule 

amendments (1,005 filings × 76% = 764 filings). 

D. Form N–PORT Reporting 

Requirements 

We are adopting amendments to Form 

N–PORT to include new reporting items 

for N–PORT funds regarding the 80% 

investment policy that such a fund 

adopts in compliance with the names 

rule. As proposed, the final 

amendments require N–PORT funds 

that are required to adopt an 80% 

investment policy to report on Form N– 

PORT: (1) whether each investment in 

the fund’s portfolio is in the fund’s 80% 

basket; and (2) the value of the fund’s 

80% basket, as a percentage of the value 

of the fund’s assets. 

The final amendments contain some 

modifications from the proposal.615

First, the final Form N–PORT 

amendments modify the proposed 

reporting approach by requiring 

reported information for the third 

month of each calendar quarter, instead 

of for every month. This modified 

reporting frame corresponds with the 

period for review that will otherwise be 

mandated by the final amendments. 

Secondly, the final amendments add a 

new reporting item, in which funds will 

be required to report the definitions of 

terms used in a fund’s name. Lastly, we 

are not adopting the proposed 

requirement that funds report the 

number of days that that the value of the 

fund’s 80% basket fell below 80% of the 

value of the fund’s total assets during 

the reporting period. 

Form N–PORT, including the final 

amendments, contains collection of 

information requirements. Compliance 

with the requirements of the form is 

mandatory. Responses to these reporting 

requirements will be kept confidential, 

subject to the provisions of applicable 

law, for reports filed with respect to the 

first two months of each quarter. 

Responses to the new Form N–PORT 

reporting requirements for the third 

month of the quarter will not be kept 

confidential, but made public sixty days 

after the quarter end. 

The Commission did not receive 

public comment regarding the PRA 

estimates for the amendments to Form 

N–PORT in the proposing release, but it 

did receive comments on the overall 

costs and burdens associated with this 

aspect of the proposal. Some 

commenters stated that the costs and 

operational burdens of the proposed 

requirement for N–PORT funds subject 

to the 80% investment policy 

requirement to indicate whether each of 

its portfolio investments is included in 

the fund’s 80% basket would be 

significant.616 Commenters specifically 

expressed concern about the costs and 

burden of reporting this information for 

each investment on a monthly basis.617

Some commenters also stated that the 

proposed new reporting item would 

require the build-out of new systems, for 

daily testing and validation of names 

rule compliance information, and for 

mapping this information over for 

reporting on Form N–PORT.618

Commenters also stated that funds may 

need to hire third-party vendors for 

supplemental and specially-tailored 

data on their portfolio investments, in 

order to comply with the proposed new 

reporting requirements.619 With respect 

to the proposed requirement that a fund 

report the number of days that the value 

of the fund’s 80% basket fell below 80% 

of the value of the fund’s total assets 

during the reporting period, 

commenters stated that monitoring 

individual securities on a daily basis for 

name rule compliance would be 

operationally onerous.620

We have adjusted the proposal’s 

estimated annual burden hours and total 

time costs to reflect these comments as 

well as the changes from the proposed 

requirements. We recognize that 

complying with the new reporting 

requirements will entail compliance 

activities, and potentially systems and 

operational modifications as well as the 

use of third-party service providers, and 

that reporting will be required for each 

of a fund’s portfolio holdings. As a 

result, we have adjusted the estimated 

initial and annual hours associated with 

the requirement for funds to report 

whether each of its investments is part 

of its 80% basket. On the other hand, we 

expect that the modified reporting time 

frame will reduce the burdens 

associated with the final amendments’ 

collection of information requirements. 

The burdens associated with the 

proposal will also be reduced because 

we are not adopting the proposed 

requirement to report the number of 

days that the value of the 80% basket 

fell below 80% of the value of the fund’s 

total assets. We do not anticipate the 

new reporting item under the final 

amendments requiring funds to include 

definitions of terms used in a fund’s 

name will entail significant costs 

because this reporting requirement 

leverages the same disclosure that funds 

will also, under the final amendments, 

be required to include in their 

prospectuses. Moreover, any costs 

associated with this requirement should 

be recurring costs only to the extent a 

fund determines to change its name or 

its definition of the terms used in its 

name. 

The table below summarizes the 

estimates for internal burdens 

associated with the new requirements 

under the final amendments to Form N– 

PORT. 


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621The Investment Company Interactive Data 

collection of information do not impose any 

Continued 

TABLE 6—FORM N–PORT PRA ESTIMATES

Initial 

hours Annual hours 1 Wage rate 2 Internal time costs 

Annual external 

cost burden 

Currently Aproved Burdens 

Preparing and Filing Reports on Form N– 

PORT Generally.

.......... 44,500 ...................... $344.19 (estimate of wage rate in most 

recently approved supporting statement).

$15,316,455 ............. $4,684,296. 

Number of Responses ............................. .......... 2,696 ........................ .................................................................. 2,696 ........................ 2,696. 

Current Burden Requirement ................... .......... 1,839,903 hours ....... .................................................................. $654,658, 288 .......... $113,858,133. 

Proposed Burdens 

New Reporting About 80% Investment 

Policy 3.

4 9 hours ..................... $356 (blend of compliance attorney and 

senior programmer).

$3,204 ...................... $992.4

Number of Funds ..................................... .......... × 9,996 funds 3 ......... .................................................................. × 9,996 funds ........... × 9,996 funds. 

Total New Burden for New Reporting 

About 80% Investment Policy (I).

.......... 89,964 hours ............ .................................................................. $32,027,184 ............. $9,916,032. 

Investments to be Included in a Fund’s 

80% Basket 4.

Number of Funds .....................................

4 

..........

10 hours ...................

× 9,996 funds 4 .........

$356 (rate for compliance attorney and 

senior programmer).

$3,560 ......................

× 9,996 funds ...........

$992.6

× 9,996 funds. 

Total New Burden for Investments to be 

Included in a Fund’s 80% Basket (II).

.......... 99,960 hours ............ .................................................................. $35,585,760 ............. $9,916,032. 

Total Proposed Estimated Burdens Including Amendments 

Total New Annual Burden (I + II) ............. .......... 189,924 hours .......... .................................................................. $67,612,944 ............. $19,832,064. 

Final Estimated Burdens 

New Reporting About 80% Investment 

Policy 3.

4 2 hours ..................... $406 (blend of compliance attorney and 

senior programmer).

$812 ......................... $1,130.4

Number of Funds ..................................... .......... × 9,926 funds 3 ......... .................................................................. × 9,926 funds ........... × 9,926 funds. 

Total New Burden for New Reporting 

About 80% Investment Policy (I).

.......... 19,852 hours ............ .................................................................. $8,059,912 ............... $11,216,380. 

Investments to be Included in a Fund’s 

80% Basket4.

15 14 hours ................... $406 (rate for compliance attorney and 

senior programmer).

$5,684 ...................... $1,130.6

Number of Funds ..................................... .......... × 9,926 funds 6 ......... × 9,926 funds ........................................... × 9,926 funds..

Total New Burden for Investments to be 

Included in a Fund’s 80% Basket (II).

.......... 138,964 hours .......... .................................................................. $56,419,384 ............. $11,216,380. 

Total Final Estimated Burdens Including Amendments 

Total New Annual Burden (I + II) ............. .......... 158,816 hours .......... .................................................................. $64,479,296 ............. $22,432,760. 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2The estimated wage figures are based on published rates for the professionals described in this chart, modified to account for an 1800-hour work-year and inflation. The estimates for the proposed and final burdens were multiplied by 5.35 to account for bonuses, firm size, employee benefits, and overhead. See Securities Industry and Financial Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013. 3This burden corresponds to the requirement for a fund to report the value of its 80% basket as a percentage of the value of its assets. The proposed estimate 

also reflects the burden associated with the requirement for funds to report the number of days that the value of the 80% basket fell below 80% of the value of the 

fund’s total assets. Because we are not adopting this requirement under the final rule, the final annual hours burden estimate has been reduced by 33% compared to 

the proposed estimate. The final annual hours estimate has also been reduced by a factor of 3 to reflect the modified reporting timeframe under the final amendments 

(i.e., quarterly as opposed to monthly). Accordingly, the adjustment from proposed annual hours burden estimate to the final estimate reflects the following calculation: 

9 hours × (2⁄3) = 6 hours/3 = 2 hours. 4This burden corresponds to the requirement for funds that are required to adopt 80% policies to indicate, with respect to each portfolio investment, whether the investment is included in the fund’s calculation of assets in the fund’s 80% basket; and for the final estimate (but not the proposed estimate), the requirement for funds 

to report definitions of the terms used in their names. Our final estimate of the initial hours burden has been increased by a factor of 2 compared to the proposed estimate to reflect costs associated with systems and operational modifications that may be required for compliance with these requirements. Our final estimate of the annual hours burden also reflects these increased costs compared to the proposed estimate; however it has been reduced in order to reflect the modified reporting timeframe under the final amendments (i.e., quarterly as opposed to monthly), resulting in an overall estimate for the annual hours burden that is lower that the proposed 

estimate. Specifically, the adjustment from the proposed annual hours burden estimate to the final estimate reflects the following calculation: 10 hours × 2 = 20 hours/ 

3 = 6.67 (rounded to 7 hours). 3The currently-approved PRA burden for rule 35d–1 was based on the Commission’s estimate that 83% of funds were covered by rule 35d–1. The Commission estimated that 75% of funds would be covered by our proposed rule amendments. The prior PRA burden was based on an estimate using a different analytical approach than we are now employing. The Commission estimated that 62% of funds are currently subject to rule 35d–1 and that the proposed rule amendments would 

increase this estimate to 75% of funds. The Commission estimated, across approximately 14,001 open-end and closed-end funds registered with the Commission, not 

including money market funds, that there would have been approximately 10,394 funds that have names that would be covered by the proposed rule amendments, or 

75% of funds covered by the rule amendments (10,223 mutual funds (other than money market funds) + 2,320 non-UIT ETFs = 12,543 open end funds + 736 registered closed-end funds + 49 UITs = 13,328 funds × 75% = 9,996 funds). 4See id. 

5The estimated burdens at proposal were based on the estimated wage rate of $496/hour, and at adoption are based on the estimated wage rate of $565/hour, for 

2 hours, for outside legal services. The Commission’s estimates of the relevant wage rate for external time costs, such as outside legal services, take into account 

staff experience, a variety of sources including general information websites, and adjustments for inflation. 6Based on our current analysis, we estimate that that 60% of funds are currently subject to rule 35d–1, and that the final amendments will increase this estimate to 

76% of funds. The Commission estimates, across approximately 13,061 open-end and closed-end funds registered with the Commission, not including money market 

funds, that there will be approximately 10,318 funds that have names that will be covered by the proposed rule amendments, or 76% of the funds covered by the rule 

amendments (9,533 mutual funds (other than money market funds) + 2,735 non-UIT ETFs + = 12,268 open end funds + registered closed-end funds + 45 UITs = 

13,061 funds × 76% = 10,318 funds). 

E. Investment Company Interactive Data 

We are adopting amendments to Form 

N–2, Form N–8B–2, and Form S–6, as 

well as rules 485 and 497 under the 

Securities Act and rule 11 and 405 of 

Regulation S–T, to require certain new 

structured data reporting requirements 

for funds.621 The final amendments 


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separate burden aside from that described in our 

discussion of the burden estimates for this 

collection of information. The amendments we are 

adopting to rules 485 and 497 under the Securities 

Act, as well as rules 11 and 405 to Regulation S– 

T, are conforming amendments that have no 

associated PRA burden. While the new namesrelated information that open-end funds will be 

required to disclose under our final amendments to 

Form N–1A also will be required to be tagged using 

Inline XBRL, the final amendments to Form N–1A 

will create no additional PRA burden. The final rule 

amends Item 4 of Form N–1A; Form N–1A 

registrants are already required to submit the 

information that they provide in response to Item 

4 using Inline XBRL. See supra footnote 115. 

Therefore, the burdens associated with tagging Item 

4 disclosure are already accounted for under the 

current Investment Company Interactive Data 

collection of information. 

622See supra section II.B; see also instruction to 

Item 4(a)(1) of Form N–1A; instruction to Item 

9(b)(1) of Form N–1A; instruction to Item 8(2) of 

Form N–2; instruction to Item 11 of Form N–8B– 

2. 

include new structured data 

requirements that will require funds to 

tag the information in their registration 

statements about their fund name using 

Inline XBRL.622 The purpose of these 

information collections is to make 

information regarding fund names easier 

for investors to analyze and to help 

automate regulatory filings and business 

information processing, and to improve 

consistency across all types of funds 

with respect to the accessibility of fund 

name information they provide to the 

market. 

Funds filing registration statements 

on Form N–2 already submit certain 

information using Inline XBRL format. 

Based on filing data as of December 

2022, we estimate that 663 funds filing 

registration statements on these forms 

would be subject to the proposed 

interactive data amendments. UITs 

filing initial registration statements on 

Form N–8B–2 and post-effective 

amendments on Form S–6 are not 

currently subject to requirements to 

submit information in structured form. 

Because these UITs have not previously 

been subject to Inline XBRL 

requirements, we assume that these 

funds will experience additional 

burdens related to one-time costs 

associated with becoming familiarized 

with Inline XBRL reporting. These costs 

will include, for example, the 

acquisition of new software or the 

services of consultants, and the training 

of staff. Based on filing data as of 

December 30, 2020, we estimate that 

796 filings would be subject to these 

proposed amendments. In our most 

recent Paperwork Reduction Act 

submission for Investment Company 

Interactive Data, we estimated a total 

aggregate annual hour burden of 

323,724 hours, and a total aggregate 

annual external cost burden of 

$16,041,450. Compliance with the 

interactive data requirements is 

mandatory, and the responses will not 

be kept confidential. 

The Commission did not receive 

public comment regarding the PRA 

estimates for the investment company 

interactive data requirements. We have 

adjusted the proposal’s estimated 

annual burden hours and total time 

costs, however, to reflect updated wage 

rates. 

The table below summarizes our PRA 

initial and ongoing annual burden 

estimates associated with the proposed 

amendments to Form N–1A, Form N–2, 

Form N–8B–2, and Form S–6, as well as 

Regulation S–T. 

TABLE 7—INVESTMENT COMPANY INTERACTIVE DATA PRA ESTIMATES

Internal initial 

burden hours 

Internal annual 

burden hours 1 Wage rate 2 Internal time costs 

Annual external 

cost burden 

Proposed Burdens 

Names rule information for current 

XBRL filers 3.

1 1 hour 4 ..................... $356 (blended rate for compliance attorney and senior programmer).

$356 ......................... $50.5

Number of funds ............................ ................................ × 626 funds 6 ............ ....................................................... × 626 funds .............. × 626 funds. 

Names rule information for new 

XBRL filers 7.

9 4 hours 8 ................... $356 (blended rate for compliance attorney and senior programmer).

$1,424 ...................... $900.9

Number of filings ........................... ................................ × 785 filings 10 .......... ....................................................... × 785 filings .............. × 785 filings. 

Total new aggregate annual burden................................. 3,766 hours 11 ........... ....................................................... $1,340,696 12 ............ $737,800.13

Total Proposed Estimated Burdens Including Amendments 

Current aggregate annual burden 

estimates.

................................ + 252,602 hours ....... ....................................................... ................................... + $15,350,750. 

Revised aggregate annual burden 

estimates.

................................ 256,368 hours .......... ....................................................... ................................... $16,088,550. 

Final Estimated Burdens 

Names rule information for current 

XBRL filers 3.

1 1 hour 4 ..................... $406 (blended rate for compliance attorney and senior programmer).

$406 ......................... $50.5

Number of funds ............................ ................................ × 663 funds 6 ............ ....................................................... × 663 funds .............. × 663 funds. 

Names rule information for new 

XBRL filers 7.

9 4 hours 8 ................... $406 (blended rate for compliance attorney and senior programmer).

$1,625 ...................... $900.9

Number of filings ........................... ................................ × 796 filings 14 .......... ....................................................... × 796 filings .............. × 796 filings. 

Total new aggregate annual burden................................. 3,847 hours 11 ........... ....................................................... $1,562,678 12 ............ $749,550.13

Total Final Estimated Burdens Including Amendments 

Current aggregate annual burden 

estimates.

................................ + 323,724 hours ....... ....................................................... ................................... + $16,041,450. 

Revised aggregate annual burden 

estimates.

................................ 324,571 hours .......... ....................................................... ................................... $16,791,000 

Notes: 

1 Includes initial burden estimates annualized over a 3-year period. 

2See supra table 1 regarding estimated wage rates. 


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623 5 U.S.C. 603(a). 

624See Freeman Capital Management Comment 

Letter. But see PIABA Comment Letter (stating that 

most instances of misleading fund names involve 

small and medium funds). 

625See Dechert Comment Letter; ICI Comment 

Letter; Center for American Progress Comment 

Letter. 

626See supra sections IV.D.2 and V for a 

discussion of costs associated with the final 

amendments. 

627See rule 0–10(a) under the Act [17 CFR 270.0– 

10(a)]. 

3This estimate represents the average burden for a filer on Form N–2 that is currently subject to interactive data requirements.

4This estimate included initial burden estimates annualized over a three-year period, plus 0.67 hour of ongoing annual burden hours. The estimate of 1 hour was 

based on the following calculation: ((1 initial hour/3) + 0.67 hour of additional ongoing burden hours) = 1 hour. 5The Commission estimated an incremental external cost for filers on Form N–2, as they already submit certain information using Inline XBRL. 

6Based on filing data as of December 30, 2020, the Commission estimated 626 funds, including BDCs, filing on Form N–2. Based on filing data as of December 

2022, we have adjusted that estimate to 663 funds. 7This estimate represents the average burden for a filer on Form N–8B–2 and Form S–6 that is not currently subject to interactive data requirements. 

8 Includes initial burden estimates annualized over a three-year period, plus 1 hour of ongoing annual burden hours. The estimate of 10 hours is based on the following calculation: ((27 initial hours/3) + 1 hour of additional ongoing burden hours) = 10 hours. 9This estimate assumes an external cost for filers on Form N–8B–2 and Form S–6 of $900 to reflect one-time compliance and initial set-up costs. Because these 

filers have not been previously been subject to Inline XBRL requirements, this estimate reflects that these funds would experience additional burdens related to one 

time-costs associated with becoming familiar with Inline XBRL reporting. These costs would include, for example, the acquisition of new software or the services of 

consultants. 10The Commission estimated 49 non-separate account and non-ETF UITs registered with the Commission. However, the Commission based the proposed estimate on the belief that the number of filings instead of registrants would form a more accurate estimate of annual burdens. The Commission estimated 1,047 filings 

based on the average number of filings made on Form S–6 from 2018 to 2020, and therefore estimated that there are approximately 785 filings for funds that have 

names that would have been covered by the proposed rule amendments, or 75% of the filings for UITs covered by the rule amendments (1,047 filings × 75% = 785 

filings). 11With respect to the proposed estimate, 3,766 hours = (626 funds × 1 hour = 626 hours) + (785 filings × 4 hours = 3,140 hours). With respect to the final estimate, 

3,847 hours = (663 funds × 1 hours = 663 hours) + (796 filings × 4 hours = 3,184 hours). 12With respect to the proposed estimate, $1,340,696 internal time cost = (626 funds × $356 = $222,856) + (785 filings × $1,424 = $1,117,840). With respect to the 

final estimate, $1,562,678 internal time cost = (663 funds × $406 = $269,178) + (796 filings × $1,625 = $1,293,500). 13With respect to the proposed estimate, $737,800 annual external cost = (626 funds × $50 = $31,300) + (785 filings × $900 = $706,500). With respect to the final 

estimate, $749,550 annual external cost = (663 funds × $50 = $33,150) + (796 filings × $900 = $716,400). 14Based on our current analysis, we estimate that 76% of funds will be subject to rule 35d–1 under the final amendments, and therefore estimate that 796 filings 

for funds that have names that will be covered by the final amendments (1,047 filings × 76% = 796 filings). 

VI. Final Regulatory Flexibility 

Analysis 

The Commission has prepared the 

following Final Regulatory Flexibility 

Analysis (‘‘FRFA’’) in accordance with 

section 604 of the Regulatory Flexibility 

Act (‘‘RFA’’).623 It relates to final 

amendments to rule 35d–1 and Forms 

N–1A, N–2, N–8B–2, S–6, and N–PORT, 

as well as final conforming amendments 

to rules 11 and 405 of Regulation S–T 

and rules 485 and 497 under the 

Securities Act (collectively, ‘‘final 

amendments’’). 

A. Need for and Objectives of the Rule 

and Form Amendments 

Section 35(d) of the Act prohibits a 

registered investment company from 

adopting as part of its name or title any 

word or words that the Commission 

finds are materially deceptive or 

misleading. Rule 35d–1 addresses 

certain broad categories of investment 

company names that are likely to 

mislead an investor about a company’s 

investments and risks. We are adopting 

final amendments designed to increase 

investor protection by improving, and 

broadening the scope of, the 

requirement for certain funds to adopt a 

policy to invest at least 80% of their 

assets in accordance with the 

investment focus that the fund’s name 

suggests, updating the rule’s notice 

requirements, and establishing 

recordkeeping requirements. The 

Commission also is adopting enhanced 

prospectus disclosure requirements for 

terminology used in fund names and 

additional requirements for funds to 

report information on Form N–PORT 

regarding compliance with the namesrelated regulatory requirements. The 

reasons for, and objectives of, the final 

amendments are discussed in more 

detail in sections I and II above. 

B. Significant Issues Raised by Public 

Comments 

In the Proposing Release, the 

Commission requested comment on 

every aspect of the Initial Regulatory 

Flexibility Analysis (‘‘IRFA’’), including 

the number of small entities that would 

be affected by the proposed rule and 

form amendments, the existence or 

nature of the potential impact of the 

proposals on small entities discussed in 

the analysis, and how to quantify the 

impact of the proposed amendments. 

The Commission also requested 

comment on the proposed compliance 

burdens and the effect these burdens 

would have on small entities. 

Although the Commission did not 

receive comments specifically 

addressing the IRFA, one commenter 

stated that many small or innovative 

funds would be ‘‘disproportionately’’ 

burdened by the legal and compliance 

costs of the expanded scope of fund 

names that would be subject to the 

proposed amendments.624 In addition, 

the Commission received comments 

stating that the proposed requirement 

that funds use a derivatives instrument’s 

notional amount to determine the fund’s 

compliance with its 80% investment 

policy would create costly technical and 

operational challenges for small fund 

groups.625

Smaller funds may incur costs 

associated with the final amendments as 

funds comply with all aspects of the 

final amendments, including the 

specific aspects that commenters 

discussing small entities highlighted.626

As discussed above, compliance costs 

associated with the final amendments, 

particularly those that expand the 

current scope of the names rule, would 

vary based on a fund’s current practices 

with respect to adopting policies to 

invest a particular percentage of fund 

assets in investments that have, or 

whose issuers have, particular 

characteristics. With respect to potential 

costs incurred to comply with other 

aspects of the amendments that 

commenters discussing small entities 

identified, we expect that funds would 

incur costs to review the final 

amendments’ requirements and modify, 

as necessary, their investing practices, 

policies and procedures, and 

recordkeeping practices to comply with 

these requirements, or may decide to 

instead change their names. 

C. Small Entities Subject to Rule 

Amendments 

For purposes of Commission 

rulemaking in connection with the 

Regulatory Flexibility Act, an 

investment company is a small entity if, 

together with other investment 

companies in the same group of related 

investment companies, it has net assets 

of $50 million or less as of the end of 

its most recent fiscal year (‘‘small 

fund’’).627 Commission staff estimates 

that, as of December 2022, 

approximately 34 registered open-end 

mutual funds (including one money 

market fund), 9 registered ETFs, 27 

registered closed-end funds, 3 UITs, and 


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628This estimate is derived from an analysis of 

data obtained from Morningstar Direct as well as 

data reported to the Commission for the period 

ending June 2022. 

629While the final rule amendments will add 

BDCs to the definition of ‘‘fund’’ under the rule, we 

do not anticipate that this addition will have a 

significant impact on small entities. BDCs are 

currently subject to the requirements of section 

35(d) pursuant to section 59 of the Act. We 

understand that BDCs currently comply with the 

names rule because they are subject to the 

requirements of section 35(d). See also supra 

footnote 13. 

630See supra section VI.C for a discussion of the 

number of small entities subject to the amendments. 

631As discussed above, under the final 

amendments such funds will be permitted to make 

changes to their 80% policies without this vote if 

the fund conducts a tender or repurchase offer in 

advance of the change, the fund provides at least 

60 days’ prior notice of any change in the policy 

in advance of that offer, and that offer is not 

oversubscribed, and in the event of a tender offer, 

the fund purchases shares at their net asset value. 

632The final amendments’ approach that permits 

unlisted registered closed-end funds and BDCs to 

make changes to their 80% investment policies 

without a shareholder vote under certain 

circumstances could, however, result in fewer costs 

to smaller unlisted registered closed-end funds and 

BDCs, to the extent that this additional permissible 

approach to changing their 80% investment policies 

is less costly than obtaining a shareholder vote. See 

supra sections II.A.4; IV.D.2. 

10 BDCs (collectively, 83 funds) are 

small entities.628

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The final amendments include 

reporting, recordkeeping, and other 

compliance requirements. First, the 

final amendments expand the types of 

fund names subject to the names rule’s 

80% investment policy requirement, 

and any fund that has or adopts a newly 

covered name will need to adopt an 

80% investment policy.629 The final 

amendments also include other changes 

to the current names rule, such as 

permitting a fund to engage in 

temporary departures from an 80% 

investment requirement for a limited 

period of time under other than normal 

circumstances, which will also 

necessitate an update to funds’ existing 

practices regarding names rule 

compliance. Funds will be required to 

review their portfolio investments to 

determine whether they continue to be 

consistent with the fund’s 80% 

investment policy at least quarterly. The 

final amendments also specify that a 

fund’s name may be materially 

deceptive or misleading under section 

35(d) even if the fund adopts an 80% 

investment policy and otherwise 

complies with the rule’s requirement to 

adopt and implement the policy. The 

final amendments further require a fund 

that is required to adopt an 80% 

investment policy to maintain certain 

records documenting its compliance 

with the rule, including, the fund’s 

record of which assets are invested in 

accordance with the investment focus 

that the fund’s name suggests (or 

consistent with the tax-exempt 

treatment its name suggests). 

The final amendments also require 

disclosure in the fund’s prospectus 

regarding the definitions of terms used 

in the fund’s name, including a 

requirement that funds must tag new 

information that will be included using 

Inline XBRL. Under the final 

amendments, funds (other than money 

market funds and BDCs) that are 

required to adopt an 80% investment 

policy also newly must report certain 

information on Form N–PORT regarding 

names rule matters. This will 

necessitate that certain funds either 

must change their names or adjust their 

investment strategies, and thus 

potentially their portfolio investments, 

to ensure compliance. Lastly, the final 

amendments include exceptions for 

certain UITs. We discuss the specifics of 

these burdens in the Economic Analysis 

and Paperwork Reduction Act sections 

above. These sections also discuss the 

professional skills that we believe 

compliance with the final amendments 

will require. 

1. 80% Investment Policy 

Requirements—Scope Expansion and 

Other Amendments 

All funds, including small funds, that 

have names that include terms 

suggesting that the fund focuses its 

investments in investments that have, or 

whose issuers have, particular 

characteristics will be required to adopt 

an 80% investment policy under the 

final amendments.630 Further, in order 

to comply with this element of the final 

amendments, a fund may have to engage 

in a name change or change its portfolio 

investments so that the fund’s name 

reflects its 80% basket or vice-versa. 

Funds that have an existing 80% 

investment policy will need to change 

their practices to comply with the 

names rule to address other aspects of 

the final amendments: (1) changes to 

how the rule addresses temporary 

departures from the 80% investment 

requirement, (2) changes to address 

derivatives in calculating compliance 

with the 80% investment policy 

requirement, (3) the plain English/ 

established industry use requirement, 

and (4) updates to the rule’s notice 

requirement. Lastly, a fund that is an 

unlisted registered closed-end fund or 

BDC may be required to amend its 

existing 80% investment policy so that 

it is a fundamental policy and, on a 

going-forward basis, engage in 

shareholder votes to change its 80% 

investment policy.631

These requirements are designed to 

help ensure that a fund’s investment 

activity is consistent with the 

investment focus its name 

communicates and, thus, the investor 

expectations the name creates. These 

requirements will impose burdens on all 

funds, including those that are small 

entities. 

While we expect larger funds or funds 

that are part of a large fund complex to 

incur higher costs related to these 

requirements in absolute terms relative 

to a smaller fund or a fund that is part 

of a smaller fund complex, we generally 

expect a smaller fund to find it more 

costly, per dollar managed, to comply 

with the final requirements because it 

will not be able to benefit from a larger 

fund complex’s economies of scale. 

Smaller funds may be more likely than 

larger funds with significant in-house 

resources to hire outside assistance in 

connection with understanding and 

assisting in compliance with the final 

amendments—for example, retaining 

outside counsel to analyze the 

implications of the final amendments’ 

scope expansion on existing fund 

names. And a larger fund complex may 

be able to develop a process with inhouse or outside counsel or utilize 

existing systems to make these changes 

more efficiently across all of their funds 

that a smaller fund with less resources 

may find too costly. For example, a 

larger unlisted BDC or closed-end fund 

may be able to use existing procedures 

to develop a method of soliciting 

shareholder votes regarding name 

changes that smaller unlisted BDCs or 

closed-end funds do not have.632

Notwithstanding the economies of scale 

experienced by larger versus smaller 

funds, we generally do not expect the 

costs of compliance associated with the 

new requirements to be meaningfully 

different for smaller versus larger funds. 

The costs of compliance will vary only 

based on fund characteristics tied to 

their name. That is, whether a fund 

would now need to adopt, or change, its 

80% investment policy, or its practices 

to comply with the names rule, will be 

as a consequence of that fund having a 

name that suggests an investment focus 

under the final amendments, not based 

upon the size of the fund. 

2. Effect of Compliance With an 80% 

Investment Policy 

We are adopting a new provision in 

the names rule providing that a fund’s 

name may be materially deceptive or 

misleading under section 35(d) even if 

the fund adopts an 80% investment 


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policy and otherwise complies with the 

rule’s requirement to adopt and 

implement the policy. The final 

provision makes clear that a fund name 

may be materially deceptive or 

misleading even where the fund 

complies with its 80% investment 

policy, for example, potentially where a 

fund complies with its 80% investment 

policy but invests in a way such that the 

source of a substantial portion of the 

fund’s risks or returns is materially 

different from that which an investor 

reasonably would expect based on the 

fund’s name. This new provision is 

consistent with prior Commission 

statements that the 80% investment 

requirement under the names rule is not 

intended to create a safe harbor from 

liability under section 35(d) for 

materially deceptive or misleading fund 

names. 

This provision applies to all funds 

subject to the names rule’s 80% 

investment policy requirement, 

including those that are small entities. 

However, because this provision restates 

section 35(d), we believe that it will not 

result in any additional costs beyond 

those already attendant on compliance 

with the Act itself. 

3. Recordkeeping Requirements 

The recordkeeping requirements are 

designed to help ensure compliance 

with the rule’s requirements and aid in 

oversight. A fund that will be required 

to adopt an 80% investment policy 

under the final amendments will be 

required to maintain a written record 

documenting its compliance under the 

80% investment policy provisions of the 

rule. Specifically, the written records 

documenting the fund’s compliance that 

these funds will be required to maintain 

include: (1) the fund’s record of which 

assets are invested in accordance with 

the investment focus the fund’s name 

suggests (or, as applicable, consistent 

with the tax treatment suggested by a 

tax-exempt fund’s name) and the basis 

for including each such asset in the 80% 

basket; (2) the value of the fund’s 80% 

basket, as a percentage of the value of 

the fund’s assets; (3) the reasons for any 

departures from the 80% investment 

policy; (4) the dates that the fund 

identifies any departures from the 80% 

investment policy; and (5) any notice 

sent to the fund’s shareholders pursuant 

to the rule. The records under this 

requirement must be maintained for at 

least six years following the creation of 

each required record (or, in the case of 

notices, following the date the notice 

was sent), the first two years in an easily 

accessible place. 

These requirements impose burdens 

on all funds, including those that are 

small entities. We expect that smaller 

funds—and more specifically, smaller 

funds that are not part of a fund 

complex—may not have recordkeeping 

systems that will meet all the elements 

that will be required under the final 

amendments. Also, while we expect 

larger funds or funds that are part of a 

large fund complex to incur higher costs 

related to the requirements in absolute 

terms relative to a smaller fund or a 

fund that is part of a smaller fund 

complex, we expect a smaller fund to 

find it more costly, per dollar managed, 

to comply with the requirements 

because it will not be able to benefit 

from a larger fund complex’s economies 

of scale. 

4. Disclosure and Reporting 

Requirements 

The requirement for a fund that is 

subject to the 80% investment policy 

requirement to define the terms used in 

the fund’s name, including the specific 

criteria the fund uses to select the 

investments the term describes, if any, 

in the fund’s prospectus is designed to 

help investors better understand how 

the fund’s investment strategies 

correspond with the investment focus 

that the fund’s name suggests as well as 

to provide additional information about 

how the fund’s management seeks to 

achieve the fund’s objective. The final 

amendments require funds to tag this 

disclosure in Inline XBRL. 

The final amendments also require 

funds (other than money market funds 

and BDCs) that will be required to adopt 

an 80% investment policy to report 

certain new information on Form N– 

PORT: (1) the percentage of the value of 

the fund’s assets that are invested in 

accordance with the investment focus 

that the fund’s name suggests (or 

consistent with the tax treatment 

suggested by a taxexempt fund’s name); 

(2) with respect to each portfolio 

investment, whether the investment is 

included in the fund’s calculation of 

assets in the fund’s 80% basket; and (3) 

the definitions of the terms used in the 

fund’s name, including the specific 

criteria the fund uses to select the 

investments that the term describes, if 

any. These Form N–PORT reporting 

requirements are designed to provide 

investors with information that may 

allow them to make better investment 

choices consistent with their investment 

preferences, as well as to increase the 

effectiveness of the Commission’s 

oversight of a fund’s compliance with 

the names rule. 

These requirements will impose 

burdens on all funds, including those 

that are small entities. While we expect 

larger funds or funds that are part of a 

large fund complex to incur higher costs 

related to these requirements in absolute 

terms relative to a smaller fund or a 

fund that is part of a smaller fund 

complex, we expect a smaller fund to 

find it more costly, per dollar managed, 

to comply with these requirements 

because it would not be able to benefit 

from a larger fund complex’s economies 

of scale. Notwithstanding the economies 

of scale experienced by larger versus 

smaller funds, we do not expect the 

costs of compliance associated with the 

new Form N–PORT requirements to be 

meaningfully different for smaller 

versus larger funds. The costs of 

compliance vary only based on fund 

characteristics tied to their name. For 

example, a fund whose investments 

move relatively more frequently in and 

out of the fund’s 80% basket may incur 

a higher burden to comply with the 

requirement to report whether each 

portfolio investment is included in the 

fund’s 80% basket, than a fund whose 

investments’ inclusion in the 80% 

basket is relatively more stable. 

Furthermore, based on our experience 

implementing tagging requirements that 

use the XBRL, we recognize that some 

funds that will be affected by the 

requirement, particularly filers with no 

Inline XBRL tagging experience, likely 

will incur initial costs to acquire the 

necessary expertise and/or software as 

well as ongoing costs of tagging required 

information in Inline XBRL. The 

incremental effect of any fixed costs, 

including ongoing fixed costs, of 

complying with the Inline XBRL 

requirement may be greater for smaller 

filers. However, we believe that smaller 

funds in particular may benefit more 

from any enhanced exposure to 

investors that could result from these 

requirements. If reporting the 

disclosures in structured data language 

increases the availability of, or reduces 

the cost of collecting and analyzing, key 

information about funds, smaller funds 

may benefit from improved coverage by 

third-party information providers and 

data aggregators. 

5. Treatment of UITs 

The final rule amendments provide 

that the 80% investment policy and 

recordkeeping requirements will apply 

to UITs only at the time of initial 

deposit. This modification is designed 

to accommodate the practical realities 

that UITs would encounter if required to 

comply with the new provisions in the 

final amendments that require periodic 

review and potential rebalancing of a 

fund’s portfolio. As a result, UITs that 

have names that are implicated by the 

final amendments and whose initial 

deposit occurs after the compliance date 


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70506 Federal Register / Vol. 88, No. 195 / Wednesday, October 11, 2023 / Rules and Regulations 

633See supra footnotes 468 and 469. 

of the final amendments will need to 

adopt an appropriate 80% investment 

policy, including making such a policy 

fundamental or providing notice to 

investors in the event of a change of the 

policy, if appropriate. However, such 

UITs will not be required to engage in 

the monitoring and other requirements 

associated with the final amendments’ 

temporary departure requirements nor 

will they be required to keep records 

under the final amendments beyond the 

initial deposit. All UITs will be subject 

to the rule’s other requirements under 

the final amendments, as applicable, as 

well as those of the Federal securities 

laws generally, including section 35(d) 

of the Investment Company Act. This 

treatment will be available to UITs of all 

sizes, including smaller UITs. 

E. Agency Action To Minimize Effect on 

Small Entities 

The Regulatory Flexibility Act directs 

the Commission to consider significant 

alternatives that would accomplish our 

stated objective, while minimizing any 

significant economic impact on small 

entities. We considered the following 

alternatives for small entities in relation 

to our proposal: (1) exempting funds 

that are small entities from the proposed 

reporting, recordkeeping, and other 

compliance requirements, to account for 

resources available to small entities; (2) 

establishing different reporting, 

recordkeeping, and other compliance 

requirements or frequency, to account 

for resources available to small entities; 

(3) clarifying, consolidating, or 

simplifying the compliance and 

reporting requirements under the 

proposal for small entities; and (4) using 

performance rather than design 

standards. 

We do not believe that exempting 

small funds from the provisions of the 

final amendments will permit us to 

achieve our stated objectives. Only 

those investment companies that have 

certain names, such as those suggesting 

an investment focus or particular tax 

treatment, will be required to comply 

with most of the aspects of the final 

amendments. Further, consistent with 

the current rule, the 80% investment 

requirement in the final amendments 

allows a fund to maintain up to 20% of 

its assets in other investments. A fund 

seeking maximum flexibility with 

respect to its investments will continue 

to be free to use a name that does not 

require the fund to adopt an 80% 

investment policy. 

We estimate that 82% of funds have 

investment policies specifying a 

minimum percentage of investments 

consistent with a certain investment 

focus and, of these, approximately 67% 

have an investment policy requiring at 

least 80% of fund investments be 

consistent with a certain investment 

focus.633 This estimate indicates that 

some funds, including some small 

funds, will not bear the costs of 

adopting a new 80% investment policy, 

though such funds will likely need to 

update existing policies to account for 

elements of the final amendments. 

However, for small funds that will be 

more significantly affected by the final 

amendments, providing an exemption 

for them could subject investors in 

small funds to a higher degree of risk 

than investors to large funds that will be 

required to comply with the 80% 

investment policy and related elements 

of the final amendments. 

We also do not believe, as a general 

matter, that it is appropriate to subject 

small funds to different reporting, 

recordkeeping, and other compliance 

requirements or frequency. Similar to 

the concerns discussed above, if the 

final rules were to include different 

requirements for small funds, this could 

raise investor protection concerns for 

investors in small funds in that a small 

fund would not be subject to 

requirements addressing materially 

deceptive and misleading fund names 

that are as robust as those requirements 

on a large fund. Also, this would result 

in the Commission and other market 

participants having less transparency 

and insight with respect to those smaller 

funds’ 80% investment policies and 

related investments. However, as 

discussed in detail above, we do agree 

that additional time for smaller entities, 

which would include small funds, to 

come into compliance with the final 

rules would be appropriate to the extent 

that these entities may face additional or 

different challenges in coming into 

compliance with the amendments than 

larger entities. As result, small funds 

will have an additional six months to 

come into compliance with the final 

rules relative to larger entities. 

We do not believe that clarifying, 

consolidating, or simplifying the 

compliance requirements under the 

final amendments for small funds, 

beyond that already required for all 

funds, would permit us to achieve our 

stated objectives. Again, this approach 

would raise investor protection 

concerns for investors in small funds 

and, as discussed above, the final 

amendments apply most of the rule’s 

requirements and corresponding 

compliance burdens—only to certain 

fund names that are required to adopt 

an 80% investment policy. 

The costs associated with the final 

amendments will vary depending on the 

fund’s particular circumstances, and 

thus the amendments may result in 

different burdens on funds’ resources. In 

particular, we expect that a fund that 

has a name that will be required to 

adopt an 80% investment policy under 

the final amendments will have higher 

costs than those that do not. Thus, to the 

extent a fund that is a small entity has 

a name that will not require the fund to 

adopt an 80% investment policy under 

the final amendments, we believe it will 

incur relatively low compliance costs. 

Further, some funds with names that 

will be newly subject to the 80% 

investment policy requirement may 

already have adopted an investment 

policy that requires them to invest 80% 

or more of the value of their assets in 

investments consistent with the name, 

or otherwise may already have 

investments that reflect the name’s 

focus totaling 80% or more of the value 

of the fund’s assets. These funds will 

not have to bear the burden of adjusting 

their portfolios or changing their name, 

and the burden of adopting an 

investment policy consistent with the 

names rule’s requirements also could be 

relatively lower for these funds. 

However, we believe that it is 

appropriate for the costs associated with 

the final amendments to correlate with 

the costs of ensuring that the fund’s 

name reflects its investments (and thus 

the expectations fostered with 

investors), as opposed to adjusting these 

costs to account for a fund’s size, in 

light of how the final amendments are 

designed to further our investor 

protection objectives. 

Finally, with respect to the use of 

performance rather than design 

standards, the final amendments 

generally use performance standards for 

all funds subject to the amendments, 

regardless of size. We believe that 

providing funds with the flexibility 

permitted in the final amendments with 

respect to designing 80% investment 

policies is appropriate because of the 

fact-specific nature of the investment 

focus of funds. 

Statutory Authority 

The Commission is adopting the 

amendments to rule 35d–1 under the 

authority set forth in sections 8, 30, 31, 

34, 35, 38, 59, and 64 of the Investment 

Company Act of 1940 [15 U.S.C. 80a–8, 

80a–29, 80a–30, 80a–33, 80a–34, 80a– 

37, 80a–58, and 80a–63]. The 

Commission is adopting amendments to 

Form N–1A, Form N–2, Form N–8B–2, 

Form S–6, and Form N–PORT under the 

authority set forth in sections 8, 30, 35, 

and 38 of the Investment Company Act 


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Federal Register / Vol. 88, No. 195 / Wednesday, October 11, 2023 / Rules and Regulations 70507 

of 1940 [15 U.S.C. 80a–8, 80a–18, 80a– 

34, and 80a–37], sections 5, 6, 7, 8, 10, 

and 19 of the Securities Act of 1933 [15 

U.S.C. 77e, 77f, 77g(a), 77h, 77j, and 

77s(a)], and sections 10, 13, 15, 23, and 

35A of the Exchange Act [15 U.S.C. 78j, 

78m, 78o, 78w, and 78ll]. The 

Commission is adopting amendments to 

rules 11 and 405 of Regulation S–T 

under the authority set forth in section 

23 of the Exchange Act [15 U.S.C. 78w]. 

The Commission is adopting 

amendments to rules 485 and 497 under 

the authority set forth in sections 10 and 

19 of the Securities Act [15 U.S.C. 77j 

and 77s]. 

List of Subjects 

17 CFR Part 230 

Investment companies, Reporting and 

recordkeeping requirements, Securities. 

17 CFR Part 232 

Administrative practice and 

procedure, Reporting and recordkeeping 

requirements, Securities. 

17 CFR Part 239 

Reporting and recordkeeping 

requirements, Securities. 

17 CFR Parts 270 and 274 

Investment companies, Reporting and 

recordkeeping requirements, Securities. 

Text of Rule and Form Amendments 

For the reasons set out in the 

preamble, title 17, chapter II of the Code 

of Federal Regulations is amended as 

follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

Sections 230.400 to 230.499 issued under 

secs. 6, 8, 10, 19, 48 Stat. 78, 79, 81, and 85, 

as amended (15 U.S.C. 77f, 77h, 77j, 77s). 

* * * * * 

■ 2. Amend § 230.485 by revising 

paragraph (c)(3) to read as follows: 

§ 230.485 Effective date of post-effective 

amendments filed by certain registered 

investment companies. 

* * * * * 

(c) * * * 

(3) A registrant’s ability to file a posteffective amendment, other than an 

amendment filed solely for purposes of 

submitting an Interactive Data File, 

under paragraph (b) of this section is 

automatically suspended if a registrant 

fails to submit any Interactive Data File 

(as defined in § 232.11 of this chapter) 

required by the registration form on 

which the registrant is filing the posteffective amendment. A suspension 

under this paragraph (c)(3) shall become 

effective at such time as the registrant 

fails to submit an Interactive Data File 

as required by the relevant registration 

form. Any such suspension, so long as 

it is in effect, shall apply to any posteffective amendment that is filed after 

the suspension becomes effective, but 

shall not apply to any post-effective 

amendment that was filed before the 

suspension became effective. Any 

suspension shall apply only to the 

ability to file a post-effective 

amendment pursuant to paragraph (b) of 

this section and shall not otherwise 

affect any post-effective amendment. 

Any suspension under this paragraph 

(c)(3) shall terminate as soon as a 

registrant has submitted the Interactive 

Data File required by the relevant 

registration form. 

* * * * * 

■ 3. Amend § 230.497 by revising 

paragraphs (b), (c), (d), and (e) to read 

as follows: 

§ 230.497 Filing of investment company 

prospectuses—number of copies. 

* * * * * 

(b) For unit investment trusts filing on 

§ 274.12 of this chapter (Form N–8B–2) 

or § 239.16 of this chapter (Form S–6), 

within five days after the effective date 

of a registration statement or the 

commencement of a public offering after 

the effective date of a registration 

statement, whichever occurs later, 10 

copies of each form of prospectus used 

after the effective date in connection 

with such offering shall be filed with 

the Commission in the exact form in 

which it was used. A registrant must 

submit an Interactive Data File (as 

defined in § 232.11 of this chapter) if 

required by the form on which it files 

its registration statement. 

(c) For investment companies filing 

on §§ 239.15A and 274.11A of this 

chapter (Form N–1A), §§ 239.17a and 

274.11b of this chapter (Form N–3), 

§§ 239.17b and 274.11c of this chapter 

(Form N–4), or §§ 239.17c and 274.11d 

of this chapter (Form N–6), within five 

days after the effective date of a 

registration statement or the 

commencement of a public offering after 

the effective date of a registration 

statement, whichever occurs later, 10 

copies of each form of prospectus and 

form of Statement of Additional 

Information used after the effective date 

in connection with such offering shall 

be filed with the Commission in the 

exact form in which it was used. A 

registrant must submit an Interactive 

Data File (as defined in § 232.11 of this 

chapter) if required by the form on 

which it files its registration statement. 

(d) After the effective date of a 

registration statement no prospectus 

which purports to comply with section 

10 of the Act and which varies from any 

form of prospectus filed pursuant to 

paragraph (b) or (c) of this section shall 

be used until 10 copies thereof have 

been filed with, or mailed for filing to, 

the Commission. A registrant must 

submit an Interactive Data File (as 

defined in § 232.11 of this chapter) if 

required by the Form on which it files 

its registration statement. 

(e) For investment companies filing 

on Form N–1A, Form N–3, Form N–4, 

or Form N–6, after the effective date of 

a registration statement, no prospectus 

that purports to comply with Section 10 

of the Act (15 U.S.C. 77j) or Statement 

of Additional Information that varies 

from any form of prospectus or form of 

Statement of Additional Information 

filed pursuant to paragraph (c) of this 

section shall be used until five copies 

thereof have been filed with, or mailed 

for filing to the Commission. A 

registrant must submit an Interactive 

Data File (as defined in § 232.11 of this 

chapter) if required by the Form on 

which it files its registration statement. 

* * * * * 

PART 232—REGULATION S–T— 

GENERAL RULES AND REGULATIONS 

FOR ELECTRONIC FILINGS 

■ 4. The general authority citation for 

part 232 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n, 

78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29, 

80a–30, 80a–37, 80b–4, 80b–6a, 80b–10, 80b– 

11, 7201 et seq.; and 18 U.S.C. 1350, unless 

otherwise noted. 

* * * * * 

■ 5. Amend § 232.11 by revising the 

definition of ‘‘Related Official Filing’’ to 

read as follows: 

§ 232.11 Definition of terms used in this 

part. 

* * * * * 

Related Official Filing. The term 

Related Official Filing means the ASCII 

or HTML format part of the official 

filing with which all or part of an 

Interactive Data File appears as an 

exhibit or, in the case of a filing on 

Form N–1A (§§ 239.15A and 274.11A of 

this chapter), Form N–2 (§§ 239.14 and 

274.11a–1 of this chapter), Form N–3 


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(§§ 239.17a and 274.11b of this chapter), 

Form N–4 (§§ 239.17b and 274.11c of 

this chapter), Form N–6 (§§ 239.17c and 

274.11d of this chapter), Form N–8B–2 

(§ 274.12 of this chapter), Form S–6 

(§ 239.16 of this chapter), and Form N– 

CSR (§ 274.128 of this chapter), and, to 

the extent required by § 232.405 (Rule 

405 of Regulation S–T) for a business 

development company as defined in 

Section 2(a)(48) of the Investment 

Company Act of 1940 (15 U.S.C. 80a– 

2(a)(48)), Form 10–K (§ 249.310 of this 

chapter), Form 10–Q (§ 249.308a of this 

chapter), and Form 8–K (§ 249.308 of 

this chapter), the ASCII or HTML format 

part of an official filing that contains the 

information to which an Interactive Data 

File corresponds. 

* * * * * 

■ 6. Amend § 232.405 by: 

■ a. Revising the introductory text; 

■ b. Revising paragraphs (a)(2), (a)(3)(i) 

introductory text, (a)(3)(ii), and (a)(4); 

■ c. Revising paragraphs (b)(1) 

introductory text, (b)(2) introductory 

text, and (b)(2)(iv) and (v); 

■ d. Adding paragraph (b)(2)(vi); and 

■ e. Revising the last sentence in Note 

1 to § 232.405. 

The revision and addition read as 

follows. 

§ 232.405 Interactive Data File 

submissions. 

This section applies to electronic 

filers that submit Interactive Data Files. 

Section 229.601(b)(101) of this chapter 

(Item 601(b)(101) of Regulation S–K), 

General Instruction F of § 249.311 (Form 

11–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

§ 239.40 of this chapter (Form F–10), 

§ 240.13a–21 of this chapter (Rule 13a– 

21 under the Exchange Act), paragraph 

101 of the Instructions as to Exhibits of 

§ 249.220f of this chapter (Form 20–F), 

paragraph B.(15) of the General 

Instructions to § 249.240f of this chapter 

(Form 40–F), paragraph C.(6) of the 

General Instructions to § 249.306 of this 

chapter (Form 6–K), § 240.17Ad–27(d) 

of this chapter (Rule 17Ad–27(d) under 

the Exchange Act), Note D.5 of 

§ 240.14a–101 of this chapter (Rule 14a– 

101 under the Exchange Act), Item 1 of 

§ 240.14c–101 of this chapter (Rule 14c– 

101 under the Exchange Act), General 

Instruction I of § 249.333 of this chapter 

(Form F–SR), General Instruction C.3.(g) 

of §§ 239.15A and 274.11A of this 

chapter (Form N–1A), General 

Instruction I of §§ 239.14 and 274.11a– 

1 of this chapter (Form N–2), General 

Instruction C.3.(h) of §§ 239.17a and 

274.11b of this chapter (Form N–3), 

General Instruction C.3.(h) of §§ 239.17b 

and 274.11c of this chapter (Form N–4), 

General Instruction C.3.(h) of §§ 239.17c 

and 274.11d of this chapter (Form N–6), 

General Instruction 2.(l) of § 274.12 of 

this chapter (Form N–8B–2), General 

Instruction 5 of § 239.16 of this chapter 

(Form S–6), and General Instruction C.4 

of §§ 249.331 and 274.128 of this 

chapter (Form N–CSR) specify when 

electronic filers are required or 

permitted to submit an Interactive Data 

File (§ 232.11), as further described in 

note 1 to this section. This section 

imposes content, format, and 

submission requirements for an 

Interactive Data File, but does not 

change the substantive content 

requirements for the financial and other 

disclosures in the Related Official Filing 

(as defined in § 232.11 of this chapter). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by Item 601(b)(101) of 

Regulation S–K, General Instruction F of 

§ 249.311 (Form 11–K), paragraph (101) 

of Part II—Information Not Required to 

be Delivered to Offerees or Purchasers of 

§ 239.40 of this chapter (Form F–10), 

§ 240.13a–21 of this chapter (Rule 13a– 

21 under the Exchange Act), paragraph 

101 of the Instructions as to Exhibits of 

§ 249.220f of this chapter (Form 20–F), 

paragraph B.(15) of the General 

Instructions to § 249.240f of this chapter 

(Form 40–F), paragraph C.(6) of the 

General Instructions to § 249.306 of this 

chapter (Form 6–K), Rule 17Ad–27(d) 

under the Exchange Act, Note D.5 of 

Rule 14a–101 under the Exchange Act), 

Item 1 of Rule 14c–101 under the 

Exchange Act, General Instruction I to 

§ 249.333 of this chapter (Form F–SR), 

General Instruction C.3.(g) of §§ 239.15A 

and 274.11A of this chapter (Form N– 

1A), General Instruction I of §§ 239.14 

and 274.11a–1 of this chapter (Form N– 

2), General Instruction C.3.(h) of 

§§ 239.17a and 274.11b of this chapter 

(Form N–3), General Instruction C.3.(h) 

of §§ 239.17b and 274.11c of this 

chapter (Form N–4), General Instruction 

C.3.(h) of §§ 239.17c and 274.11d of this 

chapter (Form N–6), General Instruction 

2.(l) of § 274.12 of this chapter (Form N– 

8B–2), General Instruction 5 of § 239.16 

of this chapter (Form S–6), or General 

Instruction C.4 of §§ 249.331 and 

274.128 of this chapter (Form N–CSR), 

as applicable; 

(3) * * * 

(i) If the electronic filer is not a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, and 

is not within one of the categories 

specified in paragraph (f)(1)(i) of this 

section, as partly embedded into a filing 

with the remainder simultaneously 

submitted as an exhibit to: 

* * * * * 

(ii) If the electronic filer is a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account (as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, and 

is not within one of the categories 

specified in paragraph (f)(1)(ii) of this 

section, as partly embedded into a filing 

with the remainder simultaneously 

submitted as an exhibit to a filing that 

contains the disclosure this section 

requires to be tagged; and 

(4) Be submitted in accordance with 

the EDGAR Filer Manual and, as 

applicable, § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), General Instruction F of § 249.311 

of this chapter (Form 11–K), paragraph 

(101) of Part II—Information Not 

Required to be Delivered to Offerees or 

Purchasers of § 239.40 of this chapter 

(Form F–10), § 240.13a–21 of this 

chapter (Rule 13a–21 under the 

Exchange Act), paragraph 101 of the 

Instructions as to Exhibits of § 249.220f 

of this chapter (Form 20–F), paragraph 

B.(15) of the General Instructions to 

§ 249.240f of this chapter (Form 40–F), 

paragraph C.(6) of the General 

Instructions to § 249.306 of this chapter 

(Form 6–K), Rule 17Ad–27(d) under the 

Exchange Act, Note D.5 of Rule 14a–101 

under the Exchange Act, Item 1 of Rule 

14c–101 under the Exchange Act, 

General Instruction I to § 249.333 of this 

chapter (Form F–SR), General 

Instruction C.3.(g) of §§ 239.15A and 

274.11A of this chapter (Form N–1A), 

General Instruction I of §§ 239.14 and 

274.11a–1 of this chapter (Form N–2), 

General Instruction C.3.(h) of §§ 239.17a 

and 274.11b of this chapter (Form N–3), 

General Instruction C.3.(h) of §§ 239.17b 


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and 274.11c of this chapter (Form N–4), 

General Instruction C.3.(h) of §§ 239.17c 

and 274.11d of this chapter (Form N–6); 

Instruction 2.(l) of § 274.12 of this 

chapter (Form N–8B–2); General 

Instruction 5 of § 239.16 of this chapter 

(Form S–6); or General Instruction C.4 

of §§ 249.331 and 274.128 of this 

chapter (Form N–CSR). 

(b) * * * 

(1) If the electronic filer is not a 

management investment company 

registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a et 

seq.), a separate account (as defined in 

Section 2(a)(14) of the Securities Act (15 

U.S.C. 77b(a)(14)) registered under the 

Investment Company Act of 1940, a 

business development company as 

defined in Section 2(a)(48) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–2(a)(48)), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, an 

Interactive Data File must consist of 

only a complete set of information for 

all periods required to be presented in 

the corresponding data in the Related 

Official Filing, no more and no less, 

from all of the following categories: 

* * * * * 

(2) If the electronic filer is an openend management investment company 

registered under the Investment 

Company Act of 1940, a separate 

account (as defined in section 2(a)(14) of 

the Securities Act) registered under the 

Investment Company Act of 1940 (15 

U.S.C. 80a et seq.), a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), or a clearing agency that 

provides a central matching service, an 

Interactive Data File must consist of 

only a complete set of information for 

all periods required to be presented in 

the corresponding data in the Related 

Official Filing, no more and no less, 

from the information set forth in: 

* * * * * 

(iv) Items 2, 4, 5, 10, 11, and 18 of 

§§ 239.17c and 274.11d of this chapter 

(Form N–6); 

(v) Any disclosure provided in 

response to Item 18 of §§ 249.331 and 

274.128 of this chapter (Form N–CSR), 

or 

(vi) Item 11 of § 274.12 of this chapter 

(Form N–8B–2) pursuant to Instruction 

2, including to the extent required by 

§ 239.16 of this chapter (Form S–6); as 

applicable. 

* * * * * 

Note 1 to § 232.405: 

* * * For an issuer that is a management 

investment company or separate account 

registered under the Investment Company 

Act of 1940 (15 U.S.C. 80a et seq.), a business 

development company as defined in Section 

2(a)(48) of the Investment Company Act of 

1940 (15 U.S.C. 80a–2(a)(48)), or a unit 

investment trust as defined in Section 4(2) of 

the Investment Company Act of 1940 (15 

U.S.C. 80a–4), General Instruction C.3.(g) of 

Form N–1A (§§ 239.15A and 274.11A of this 

chapter), General Instruction I of Form N–2 

(§§ 239.14 and 274.11a–1 of this chapter), 

General Instruction C.3.(h) of Form N–3 

(§§ 239.17a and 274.11b of this chapter), 

General Instruction C.3.(h) of Form N–4 

(§§ 239.17b and 274.11c of this chapter), 

General Instruction C.3.(h) of Form N–6 

(§§ 239.17c and 274.11d of this chapter), 

General Instruction 2.(l) of Form N–8B–2 

(§ 274.12 of this chapter), General Instruction 

5 of Form S–6 (§ 239.16 of this chapter), and 

General Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), as 

applicable, specifies the circumstances under 

which an Interactive Data File must be 

submitted. 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 7. The general authority citation for 

part 239 continues to read as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a13, 80a–24, 80a–26, 80a–29, 80a–30, 

80a–37, and sec. 71003 and sec. 84001, Pub. 

L. 114–94, 129 Stat. 1321, unless otherwise 

noted. 

* * * * * 

■ 8. Amend Form S–6 (referenced in 

§§ 239.16) by adding General Instruction 

5. 

Note: Form S–6 is attached as Appendix A 

to this document. Form S–6 will not appear 

in the Code of Federal Regulations. 

* * * * * 

PART 270—RULES AND 

REGULATIONS, INVESTMENT 

COMPANY ACT OF 1940 

■ 9. The general authority citation for 

part 270 continues to read as follows: 

Authority: 15 U.S.C. 80a–1 et seq., 80a– 

34(d), 80a–37, 80a–39, and Pub. L. 111–203, 

sec. 939A, 124 Stat. 1376 (2010), unless 

otherwise noted. 

* * * * * 

■ 10. Section 270.35d–1 is revised to 

read as follows: 

§ 270.35d–1 Investment company names. 

(a) Materially deceptive and 

misleading fund names. For purposes of 

section 35(d) of the Act (15 U.S.C. 80a– 

34(d)), a materially deceptive and 

misleading name of a fund includes: 

(1) Names suggesting guarantee or 

approval by the United States 

Government. A name suggesting that the 

fund or the securities issued by it are 

guaranteed, sponsored, recommended, 

or approved by the United States 

Government or any United States 

Government agency or instrumentality, 

including any name that uses the words 

‘‘guaranteed’’ or ‘‘insured’’ or similar 

terms in conjunction with the words 

‘‘United States’’ or ‘‘U.S. Government.’’ 

(2) Names suggesting an investment 

focus. A name that includes terms 

suggesting that the fund focuses its 

investments in: a particular type of 

investment or investments; a particular 

industry or group of industries; 

particular countries or geographic 

regions; or investments that have, or 

whose issuers have, particular 

characteristics (e.g., a name with terms 

such as ‘‘growth’’ or ‘‘value,’’ or terms 

indicating that the fund’s investment 

decisions incorporate one or more 

environmental, social, or governance 

factors), unless: 

(i) The fund has adopted a policy to 

invest, under normal circumstances, at 

least 80% of the value of its assets in 

investments in accordance with the 

investment focus that the fund’s name 

suggests. For a name suggesting that the 

fund focuses its investments in a 

particular country or geographic region, 

investments that are in accordance with 

the investment focus that the fund’s 

name suggests are investments that are 

tied economically to the particular 

country or geographic region suggested 

by its name; 

(ii) The policy described in paragraph 

(a)(2)(i) of this section is a fundamental 

policy, or the fund has adopted a policy 

to provide the fund’s shareholders with 

at least 60 days’ prior notice of any 

change in the policy described in 

paragraph (a)(2)(i) of this section, and 

any change in the fund’s name that 

accompanies the change, that meets the 

provisions of paragraph (e) of this 

section; and 

(iii) Any terms used in the fund’s 

name that suggest that the fund focuses 

its investments as described in 

paragraph (a)(2)(i) of this section are 

consistent with those terms’ plain 

English meaning or established industry 

use. 

(3) Tax-exempt funds. A name 

suggesting that the fund’s distributions 

are exempt from Federal income tax or 

from both Federal and State income tax, 

unless: 

(i) The fund has adopted a 

fundamental policy: 

(A) To invest, under normal 

circumstances, at least 80% of the value 

of its assets in investments the income 

from which is exempt, as applicable, 


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from Federal income tax or from both 

Federal and State income tax; or 

(B) To invest, under normal 

circumstances, its assets so that at least 

80% of the income that it distributes 

will be exempt, as applicable, from 

Federal income tax or from both Federal 

and State income tax; and 

(ii) Any terms used in the fund’s 

name that suggest that the fund invests 

its assets as described in paragraph 

(a)(3)(i) of this section are consistent 

with those terms’ plain English meaning 

or established industry use. 

(b) Operation of policies and related 

recordkeeping. (1) The requirements of 

paragraph (a)(2)(i) and (a)(3)(i) of this 

section apply at the time a fund invests 

its assets, provided that: 

(i) The fund must review its portfolio 

investments’ inclusion in the fund’s 

80% basket, as defined in paragraph (g) 

of this section, at least quarterly. If, 

subsequent to an investment, the fund 

identifies that the requirements of 

paragraph (a)(2)(i) or (a)(3)(i) of this 

section, as applicable, are no longer met, 

the fund must make future investments 

in a manner that will bring the fund into 

compliance with those paragraphs as 

soon as reasonably practicable, and in 

all circumstances within 90 consecutive 

days of the fund’s identification that 

those requirements are no longer met; 

(ii) If the fund departs from the 

requirements of paragraph (a)(2)(i) or 

(a)(3)(i) of this section, as applicable, in 

other-than-normal circumstances, the 

fund must come back into compliance 

with the requirements of those 

paragraphs within 90 consecutive days, 

measured from the time of the initial 

departure; and 

(iii) A fund may temporarily invest 

less than 80% of the value of its assets 

in accordance with the fund’s 

investment focus as otherwise required 

by paragraph (a)(2)(i) or (a)(3)(i) of this 

section, as applicable, to reposition or 

liquidate the fund’s assets in connection 

with a reorganization, to launch the 

fund, or when notice of a change in a 

fund’s policy as described in paragraph 

(a)(2)(ii) of this section has been 

provided to fund shareholders. 

(2) For the purpose of determining the 

fund’s compliance with an investment 

policy adopted under paragraph (a)(2)(i) 

or (a)(3)(i)(A) of this section, in addition 

to any derivatives instrument that the 

fund includes in its 80% basket because 

the derivatives instrument provides 

investment exposure to investments 

suggested by the fund’s name, a fund 

may include in its 80% basket a 

derivatives instrument that provides 

investment exposure to one or more of 

the market risk factors associated with 

the investment focus that the fund’s 

name suggests. 

(3) A fund must maintain written 

records documenting its compliance 

under paragraphs (a) and (b) of this 

section, as applicable. A fund must 

maintain written records, at the time a 

fund invests its assets, documenting: 

whether the investment the fund makes 

is included in the fund’s 80% basket 

and, if so, the basis for including such 

investment in the fund’s 80% basket; 

and the value of the fund’s 80% basket, 

as a percentage of the value of the fund’s 

assets. A fund must maintain written 

records documenting its review of its 

portfolio investments’ inclusion in the 

fund’s 80% basket, as described in 

paragraph (b)(1)(i) of this section, 

including whether each investment is 

included in the fund’s 80% basket and 

the basis for including such investment 

in the 80% basket. If during the review 

of portfolio investments’ inclusion in 

the fund’s 80% basket or otherwise, the 

fund identifies that the requirements of 

paragraph (a)(2)(i) or (a)(3)(i) of this 

section, as applicable, are no longer met, 

the fund must maintain written records 

documenting: the date this was 

identified; and the reason for any 

departure from the policies described in 

paragraphs (a)(2)(i) and (a)(3)(i) of this 

section. If the fund departs from the 

requirements of paragraph (a)(2)(i) or 

(a)(3)(i) of this section, as applicable, in 

other-than-normal circumstances as 

described in paragraph (b)(1)(ii) of this 

section, or as described in paragraph 

(b)(1)(iii) of this section, the fund must 

keep records documenting: the date of 

any departure from the policies 

described in paragraphs (a)(2)(i) and 

(a)(3)(i) of this section; and the reason 

for any such departure (including why 

the fund determined that circumstances 

are other-than-normal). A fund must 

maintain records of any notice sent to 

the fund’s shareholders pursuant to 

paragraph (d) of this section. Written 

records documenting the fund’s 

compliance under paragraphs (a) and (b) 

of this section must be maintained for 

a period of not less than six years 

following the creation of each required 

record (or, in the case of notices, 

following the date the notice was sent), 

the first two years in an easily accessible 

place. 

(c) Effect of compliance with policy 

adopted under paragraph (a)(2)(i) or 

(a)(3)(i). A fund name may be materially 

deceptive or misleading under section 

35(d) of the Act even if the fund adopts 

and implements a policy under 

paragraph (a)(2)(i) or (a)(3)(i) of this 

section and otherwise complies with the 

requirements of paragraph (a)(2) or (a)(3) 

of this section, as applicable. 

(d) Notice. A policy to provide a 

fund’s shareholders with notice of a 

change in a fund’s policy as described 

in paragraph (a)(2)(ii) of this section 

must provide that: 

(1) The notice will be provided in 

plain English separately from any other 

documents (provided, however, that if 

the notice is delivered in paper form, it 

may be provided in the same envelope 

as other written documents); 

(2) The notice will contain the 

following prominent statement, or 

similar clear and understandable 

statement, in bold-face type: ‘‘Important 

Notice Regarding Change in Investment 

Policy [and Name]’’, provided that: 

(i) If the notice is provided in paper 

form, the statement also will appear on 

the envelope in which the notice is 

delivered; and 

(ii) If the notice is provided 

electronically, the statement also will 

appear on the subject line of the email 

communication that includes the notice 

or an equivalent indication of the 

subject of the communication in other 

forms of electronic media; and 

(3) The notice must describe, as 

applicable, the fund’s policy adopted 

under paragraph (a)(2)(i) of this section, 

the nature of the change to the policy, 

the fund’s old and new names, and the 

effective date of any policy and/or name 

changes. 

(e) Unit investment trusts. The 

requirements of paragraphs (a)(2)(i), 

(a)(3)(i), and (b)(3) of this section shall 

apply to any unit investment trust (as 

defined in section 4(2) of the Act (15 

U.S.C. 80a–4(2)) only at the time of 

initial deposit of portfolio securities. 

(f) Unlisted registered closed-end 

funds and business development 

companies. Notwithstanding the 

requirements of paragraph (a)(2)(ii) of 

this section, if the fund is a closed-end 

company or business development 

company, and the fund does not have 

shares that are listed on a national 

securities exchange, any policy adopted 

pursuant to paragraph (a)(2) of this 

section can be changed only if 

authorized by the vote of the majority of 

the outstanding voting securities of such 

fund unless: 

(1) The fund conducts a tender or 

repurchase offer to allow shareholders 

to redeem shares, in accordance with all 

applicable Commission rules, in 

advance of any change in such policy; 

(2) The fund provides the fund’s 

shareholders with at least 60 days’ prior 

notice of any change in such policy in 

advance of the tender or repurchase 

offer described in paragraph (f)(1) of this 

section; 


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(3) The tender or repurchase offer 

described in paragraph (f)(1) of this 

section is not oversubscribed; and 

(4) In the event of a tender offer, the 

fund purchases shares at their net asset 

value. 

(g) Definitions. For purposes of this 

section: 

Assets means net assets, plus the 

amount of any borrowings for 

investment purposes. In determining the 

value of a fund’s assets for purposes of 

this section, a fund must value each 

derivatives instrument using the 

instrument’s notional amount (which 

must be converted to 10-year bond 

equivalents for interest rate derivatives 

and delta adjusted for options contracts) 

and must value each physical short 

position using the value of the asset sold 

short. The fund may reduce the value of 

its assets by excluding any cash and 

cash equivalents, and U.S. Treasury 

securities with remaining maturities of 

one year or less, up to the notional 

amount of the derivatives instrument(s) 

and the value of asset(s) sold short, and 

also exclude any closed-out derivatives 

positions if those positions result in no 

credit or market exposure to the fund. 

A fund must exclude from this 

calculation derivatives instruments used 

to hedge currency risks associated with 

one or more specific foreign-currencydenominated equity or fixed-income 

investments held by the fund, provided 

that such currency derivatives are 

entered into and maintained by the fund 

for hedging purposes and that the 

notional amounts of such derivatives do 

not exceed the value of the hedged 

investments (or the par value thereof, in 

the case of fixed-income investments) 

by more than 10 percent. 

Derivatives instrument means any 

swap, security-based swap, futures 

contract, forward contract, option, any 

combination of the foregoing, or any 

similar instrument. 

Eighty percent (80%) basket means 

investments that are invested in 

accordance with the investment focus 

that the fund’s name suggests (or as 

described in paragraph (a)(3)(i) of this 

section). 

Fund means a registered investment 

company or a business development 

company, including any separate series 

thereof. 

Fundamental policy means a policy 

that a fund adopts under section 8(b)(3) 

of the Act (15 U.S.C. 80a–8(b)(3)) or, in 

the case of a business development 

company, a policy that is changeable 

only if authorized by the vote of a 

majority of the outstanding voting 

securities of the fund. 

Launch means a period, not to exceed 

180 consecutive days, starting from the 

date the fund commences operations. 

Oversubscribed means shareholders 

have tendered or requested repurchase 

of a greater number of shares than the 

fund has offered to purchase in 

accordance with applicable Commission 

rules. 

PART 274—FORMS PRESCRIBED 

UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

■ 11. The authority for part 274 

continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 

78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 80a–24, 

80a–26, 80a–29, and 80a–37 unless otherwise 

noted. 

■ 12. Amend Form N–1A (referenced in 

§§ 239.15A and 274.11A) by revising 

paragraph (a)(1) of Item 4 and adding 

new instruction 8 to paragraph (b)(1) of 

Item 9. 

Note: Form N–1A is attached as Appendix 

B to this document. Form N–1A will not 

appear in the Code of Federal Regulations. 

■ 13. Amend Form N–2 (referenced in 

§§ 239.14 and 274.11a–1) by revising 

Item 8. 

Note: Form N–2 is attached as Appendix C 

to this document. Form N–2 will not appear 

in the Code of Federal Regulations. 

■ 14. Amend Form N–8B–2 (referenced 

in § 274.12) by adding new General 

Instruction 2.(l) and by revising the 

Instruction to Item 11. 

Note: Form N–8B–2 is attached as 

Appendix D to this document. Form N–8B– 

2 will not appear in the Code of Federal 

Regulations. 

■ 15. Amend Form N–PORT (referenced 

in § 274.150) by revising General 

Instruction A, Part B, and Part C. 

Note: Form N–PORT is attached as 

Appendix E to this document. Form N–PORT 

will not appear in the Code of Federal 

Regulations. 

By the Commission. 

Dated: September 20, 2023. 

Vanessa A. Countryman, 

Secretary. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix A—Form S–6 

Form S–6 

* * * * * 

General Instructions 

* * * * * 

Instruction 5. Interactive Data 

(a) An Interactive Data File (as defined in 

§ 232.11 of this chapter) is required to be 

submitted to the Commission in the manner 

provided by § 232.405 of this chapter (Rule 

405 of Regulation S–T) for any registration 

statement or post-effective amendment 

thereto filed on Form S–6 that includes or 

amends information provided in response to 

Instruction 2 to Item 11 of Form N–8B–2 (as 

provided on this Form pursuant to 

Instruction 1(a) of the Instructions as to the 

Prospectus of this Form). 

(1) Except as required by paragraph (a)(2), 

the Interactive Data File must be submitted 

as an amendment to the registration 

statement to which the Interactive Data File 

relates. The amendment must be submitted 

on or before the date the registration 

statement or post-effective amendment that 

contains the related information becomes 

effective. 

(2) In the case of a post-effective 

amendment to a registration statement filed 

pursuant to paragraphs (b)(1)(i), (ii), (v), or 

(vii) of § 230.485 of this chapter (Rule 485 

under the Securities Act), the Interactive Data 

File must be submitted either with the filing, 

or as an amendment to the registration 

statement to which the Interactive Data Filing 

relates that is submitted on or before the date 

the post-effective amendment that contains 

the related information becomes effective. 

(b) An Interactive Data File is required to 

be submitted to the Commission in the 

manner provided by Rule 405 of Regulation 

S–T for any form of prospectus filed pursuant 

to paragraphs (b) or (d) of Rule 497 under the 

Securities Act that includes information 

provided in response to Instruction 2 to Item 

11 of Form N–8B–2 (as provided on this 

Form pursuant to Instruction 1(a) of the 

Instructions as to the Prospectus of this 

Form) that varies from the registration 

statement. The Interactive Data File must be 

submitted with the filing made pursuant to 

Rule 497. 

(c) All interactive data must be submitted 

in accordance with the specifications in the 

EDGAR Filer Manual. 

* * * * * 

Appendix B—Form N–1A 

Form N–1A 

* * * * * 

Item 4. Risk/Return Summary: Investments, 

Risks, and Performance 

Include the following information, in plain 

English under rule 421(d) under the 

Securities Act, in the order and subject 

matter indicated: 

(a) Principal Investment Strategies of the 

Fund. 

(1) Based on the information given in 

response to Item 9(b), summarize how the 

Fund intends to achieve its investment 

objectives by identifying the Fund’s principal 

investment strategies (including the type or 

types of securities in which the Fund invests 

or will invest principally) and any policy to 

concentrate in securities of issuers in a 

particular industry or group of industries. 

Instruction: If the Fund is subject to 

paragraph (a)(2)(i) or (a)(3)(i) of rule 35d–1 

[17 CFR 270.35d–1], the Fund’s disclosure 

provided in response to Item 4(a)(1) must 

summarize the definitions of the terms used 


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in its name, including the specific criteria the 

Fund uses to select the investments the term 

describes, if any. For purposes of this 

instruction, ‘‘terms’’ means any word or 

phrase used in a Fund’s name, other than any 

trade name of the Fund or its adviser, related 

to the Fund’s investment focus or strategies. 

* * * * * 

Item 9. Investment Objectives, Principal 

Investment Strategies, Related Risks, and 

Disclosure of Portfolio Holdings 

* * * * * 

(b) * * * Instructions 

* * * * * 

8. If the Fund is subject to paragraph 

(a)(2)(i) or (a)(3)(i) of rule 35d–1 [17 CFR 

270.35d–1], the Fund’s disclosure provided 

in response to Item 9(b)(1) must include the 

definitions of the terms used in its name, 

including the specific criteria the Fund uses 

to select the investments the term describes, 

if any. For purposes of this instruction, 

‘‘terms’’ means any word or phrase used in 

a Fund’s name, other than any trade name of 

the Fund or its adviser, related to the Fund’s 

investment focus or strategies. 

Appendix C—Form N–2 

Form N–2 

* * * * * 

Part A—Information Required in a 

Prospectus 

* * * * * 

Item 8. General Description of the Registrant 

* * * * * 

2. * * * 

b. * * * 

Instructions 

1. Concentration, for purposes of this Item, 

is deemed 25 percent or more of the value 

of the Registrant’s total assets invested or 

proposed to be invested in a particular 

industry or group of industries. The policy 

on concentration should not be inconsistent 

with the Registrant’s name. 

2. If the Fund is subject to paragraph 

(a)(2)(i) or (a)(3)(i) of rule 35d–1 [17 CFR 

270.35d–1], the Fund’s disclosure provided 

in response to Item 8(2)(b)(2) must include 

definitions of the terms used in its name, 

including the specific criteria the Fund uses 

to select the investments the term describes, 

if any. For purposes of this instruction, 

‘‘terms’’ means any word or phrase used in 

a Fund’s name, other than any trade name of 

the Fund or its adviser, related to the Fund’s 

investment focus or strategies. 

* * * * * 

Appendix D—Form N–8B–2 

Form N–8B–2 

* * * * * 

General Instructions for Form N–8B–2 

* * * * * 

2. Preparation and Filing of Registration 

Statement 

(l) Interactive Data 

(1) An Interactive Data File as defined in 

rule 11 of Regulation S–T [17 CFR 232.11] is 

required to be submitted to the Commission 

in the manner provided by rule 405 of 

Regulation S–T [17 CFR 232.405] for any 

registration statement on Form N–8B–2 that 

includes information provided in response to 

Item 11 pursuant to Instruction 2 of that Item. 

The Interactive Data File must be submitted 

with the filing to which it relates on the date 

such filing becomes effective. 

(2) All interactive data must be submitted 

in accordance with the specifications in the 

EDGAR Filer Manual. 

* * * * * 

II. General Description of the Trust and 

Securities of the Trust 

* * * * * 

Information Concerning the Securities 

Underlying the Trust’s Securities 

* * * * * 

Instructions: 

1. The registrant need disclose information 

only with respect to an issuer that derived 

more than 15% of its gross revenues from the 

business of a broker, a dealer, an underwriter, 

or an investment adviser during its most 

recent fiscal year. If the registrant has issued 

more than one class or series of securities, 

the requested information must be disclosed 

for the class or series that has securities that 

are being registered. 

2. If the trust is subject to paragraph 

(a)(2)(i) or (a)(3)(i) of rule 35d–1 [17 CFR 

270.35d–1], the trust’s disclosure provided in 

response to item 11 must include definitions 

of the terms used in its name, including the 

specific criteria used to select the 

investments the term describes, if any. For 

purposes of this instruction, ‘‘terms’’ means 

any word or phrase used in a trust’s name, 

other than any trade name of the trust or its 

depositor, related to the trust’s investment 

focus. 

* * * * * 

Appendix E—Form N–PORT 

Form N–PORT 

* * * * * 

General Instructions 

A. Rule as To Use of Form N–PORT 

Form N–PORT is the reporting form that is 

to be used for monthly reports of Funds other 

than money market funds and SBICs under 

section 30(b) of the Act, as required by rule 

30b1–9 under the Act (17 CFR 270.30b1–9). 

Funds must report information quarterly 

about their portfolios and each of their 

portfolio holdings as of the last business day, 

or last calendar day, of each month, other 

than the information reported in Items B.9 

and C.2.e, which Funds must report quarterly 

about their portfolios and each of their 

portfolio holdings as of the last business day, 

or calendar day, of the third month of the 

quarter. A registered investment company 

that has filed a registration statement with 

the Commission registering its securities for 

the first time under the Securities Act of 1933 

is relieved of this reporting obligation with 

respect to any reporting period or portion 

thereof prior to the date on which that 

registration statement becomes effective or is 

withdrawn. 

Reports on Form N–PORT must disclose 

portfolio information as calculated by the 

fund for the reporting period’s ending net 

asset value (commonly, and as permitted by 

rule 2a–4, the first business day following the 

trade date). A Fund must maintain in its 

records the information that is required to be 

included on Form N–PORT no later than 30 

days after the end of each month, other than 

the information reported in Items B.9 and 

C.2.e which is required to be maintained no 

later than 30 days after the end of each 

quarter. Such information shall be treated as 

a record under section 31(a)(1) of the Act and 

rule 31a–1(b) thereunder subject to the 

requirements of rule 31a–2(a)(2). Reports on 

Form N–PORT for each month in each fiscal 

quarter of a fund must be filed with the 

Commission no later than 60 days after the 

end of such fiscal quarter. If the due date falls 

on a weekend or holiday, the filing deadline 

will be the next business day. 

A Fund may file an amendment to a 

previously filed report at any time, including 

an amendment to correct a mistake or error 

in a previously filed report. A Fund that files 

an amendment to a previously filed report 

must provide information in response to all 

items of Form N–PORT, regardless of why 

the amendment is filed. 

* * * * * 

Part B: Information About the Fund 

* * * * * 

Item B.9 Investment Company Act Names 

Rule Investment Policy. If the Fund is 

required to adopt a policy as described in 

rule 35d–1(a)(2)(i) or (a)(3)(i) [17 CFR 

270.35d–1(a)(2)(i) or (3)(i)], provide the 

following: 

a. The definitions of the terms used in the 

Fund’s name, including the specific criteria 

the Fund uses to select the investments the 

term describes, if any; and 

b. The value of the Fund’s 80% basket, as 

defined in rule 35d–1(g)(1), as a percentage 

of the value of the Fund’s assets. 

Instruction to Item B.9: 

Consistent with rule 35d–1(g)(2), if the 

Fund uses a derivatives instrument’s notional 

amount (which must be converted to 10-year 

bond equivalents for interest rate derivatives 

and delta adjusted for options contracts) and/ 

or values a physical short position using the 

value of the asset sold short, for purposes of 

determining the fund’s compliance with an 

investment policy adopted under rule 35d– 

1(a)(2)(i) or (a)(3)(i)(A), the percentage that 

the Fund reports in response to Item B.9.b 

must reflect the use of notional amounts with 

certain adjustments (and/or the value of the 

asset sold short) as set forth above. This 

percentage also must reflect any reduction of 

the value of the Fund’s assets resulting from, 

as applicable, the fund’s exclusion of cash 

and cash equivalents and U.S. Treasury 

securities with remaining maturities of one 

year or less, closed-out derivatives positions, 


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Federal Register / Vol. 88, No. 195 / Wednesday, October 11, 2023 / Rules and Regulations 70513 

and currency derivatives instruments, each 

as provided in rule 35d–1(g)(2). 

* * * * * 

Part C: Schedule of Portfolio Investments 

* * * * * 

Item C.2. Amount of each investment. 

* * * * * 

e. If the Fund is required to adopt a policy 

as described in rule 35d–1(a)(2)(i) or (a)(3)(i) 

[17 CFR 270.35d–1(a)(2)(i) or (3)(i)], is the 

investment included in the Fund’s 80% 

basket, as defined in rule 35d–1(g), as 

applicable? [Y/N] 

* * * * * 

[FR Doc. 2023–20793 Filed 10–10–23; 8:45 am] 

BILLING CODE 8011–01–P 


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