36594 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230, 232, 239, 270 and 

274 

[Release No. 33–11067; 34–94981; IC– 

34593; File No. S7–16–22] 

RIN 3235–AM72 

Investment Company Names 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Securities and Exchange 

Commission (the ‘‘Commission’’) is 

proposing to amend the rule under the 

Investment Company Act of 1940 (the 

‘‘Investment Company Act’’ or the 

‘‘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 

proposed amendments to this rule are 

designed to increase investor protection 

by improving and clarifying 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 proposing 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 proposed 

names-related regulatory requirements. 

DATES: Comments should be received on 

or before August 16, 2022. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

16–22 on the subject line; 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–16–22. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

website (http://www.sec.gov/rules/ 

proposed.shtml). Comments are also 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Operating conditions 

may limit access to the Commission’s 

public reference room. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this rulemaking. A notification of 

the inclusion in the comment file of any 

such materials will be made available 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Pamela Ellis, Mykaila DeLesDernier, 

Bradley Gude, Senior Counsels; 

Amanda Hollander Wagner, Branch 

Chief; 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 proposing for public 

comment: 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 239.13 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. Overview of Section 35(d) of the Act 

and the Names Rule 

B. Challenges Regarding Application of the 

Names Rule and Need for Modernization 

C. Overview of Rule 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 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. Materially Deceptive and Misleading 

Use of ESG Terminology in Certain Fund 

Names 

E. Modernizing the Rule’s Notice 

Requirement 

F. N–PORT Reports 

1. Investment Company Act Names Rule 

Investment Policy 

2. Investments To Be Included in a Fund’s 

80% Basket 

G. Recordkeeping 

1. Funds Required To Adopt an 80% 

Investment Policy 

2. Funds That Do Not Adopt an 80% 

Investment Policy 

H. Unit Investment Trusts 

I. Transition Period and Compliance Date 

III. Economic Analysis 

A. Introduction 

B. Broad Economic Considerations 

C. Economic Baseline 

1. Fund Industry Overview 

D. Benefits, Costs, and Effects on 

Efficiency, Competition and Capital 

Formation 

1. Benefits 

2. Costs 

E. Reasonable Alternatives Considered 

1. Returns-Based Requirement 

2. Permit the Use of Derivatives’ Notional 

Values for Purposes of Names Rule 

Compliance 

3. Modify Requirements for Tagging 

Prospectus Disclosure 

4. Board Approval or Notification of 

Temporary Departures 

5. Require a Higher Percentage of Assets 

Invested in Accordance With the 

Investment Focus 

6. Unlisted Closed-End Funds and BDCs 

F. General Request for Comment 

IV. 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. N–PORT Reporting Requirements 

E. Investment Company Interactive Data 

F. Request for Comments 

V. Initial Regulatory Flexibility Analysis 

A. Reasons for and Objectives of the 

Proposed Actions 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36595 

1This release refers to registered investment 

companies and BDCs collectively as ‘‘funds.’’ 

2See Investment Company Names, Investment 

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

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

Release’’); see also 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’’), at n.11 and accompanying 

text. The comment letters on the 2020 Request for 

Comment (File No. S7–04–20) are available at 

https://www.sec.gov/comments/s7-04-20/ 

s70420.htm. All references to comment letters in 

this release are available in this comment file. 

3Names Rule Adopting Release, supra footnote 2. 

4See id. at n.3 and accompanying text (‘‘In 

amending section 35(d), Congress reaffirmed its 

concern that investors may focus on an investment 

company’s name to determine the company’s 

investments and risks, and recognized that investor 

protection would be improved by giving the 

Commission rulemaking authority to address 

potentially misleading investment company 

names.’’). 

5See id. at text preceding n.48; see also, e.g., 

Comment Letter of the CFA Institute (May 5, 2020) 

(‘‘CFA Institute Comment Letter’’); Comment Letter 

of Chris Barnard (Mar. 9, 2020) (‘‘Barnard Comment 

Letter’’); Comment Letter of the University of Miami 

School of Law Investor Rights Clinic (Apr. 27, 2020) 

(‘‘IRC Comment Letter’’). But see ICI Comment 

Letter I (emphasizing that the Commission noted 

when it adopted the names rule that investors 

should not rely on a fund’s name as the sole source 

of information about that fund). 

6See Comment Letter of Allianz Global Investors 

U.S. Holdings LLC (May 27, 2020) (‘‘AllianzGI 

Comment Letter’’); see also Comment Letter of the 

Consumer Federation of America (May 12, 2020) 

(‘‘CFA Comment Letter’’) (arguing that funds 

‘‘clearly understand both how important fund 

names can be in communicating and advertising to 

investors and that fund names can influence 

investor decisions,’’ and, as a result, funds ‘‘are very 

careful to choose names that are appealing to 

investors’’). 

7 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]. 

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

9 (1996). 

9 ‘‘Assets’’ is currently defined in the names rule 

as net assets, plus the amount of any borrowings for 

investment purposes; see also section 2(a)(41) of the 

Act [15 U.S.C 80a–2(a)(41)] (defining ‘‘value’’). 

10Such a fund must adopt a fundamental policy: 

(1) to invest at least 80% of the value of its assets 

in investments whose income is exempt from 

federal income tax or from both federal and state 

Continued 

B. Legal Basis 

C. Small Entities Subject to Proposed Rule 

Amendments 

D. Projected Reporting, Recordkeeping, and 

Other Compliance Requirements 

1. 80% Investment Policy Requirements— 

Proposed Scope Expansion and Other 

Proposed Amendments 

2. Effect of Compliance With an 80% 

Investment Policy 

3. Recordkeeping Requirements 

4. Disclosure and Reporting Requirements 

5. Materially Deceptive and Misleading 

Use of ESG Terminology in Certain Fund 

Names 

6. Exceptions for Certain UITs 

E. Duplicative, Overlapping, or Conflicting 

Federal Rules 

F. Significant Alternatives 

G. Request for Comment 

VI. Consideration of Impact on the Economy 

VII. Statutory Authority 

I. Introduction and Background 

The name of a registered investment 

company or business development 

company (‘‘BDC’’) is a means of 

communicating information about the 

fund to investors and is also an 

important marketing tool for the fund.1

While the Commission has often 

cautioned against investors relying on a 

fund’s name as the sole source of 

information about the fund’s 

investments and risks, it has also 

recognized that the name of a fund may 

communicate a great deal to an 

investor.2 A fund’s name is often the 

first piece of fund information investors 

see and, while investors should go 

beyond the name itself and look closely 

at a fund’s underlying disclosures, a 

fund’s name can have a significant 

impact on their investment decisions. 

These considerations provided the 

policy basis underlying the 

Commission’s adoption of rule 35d–1 

under the Act, the ‘‘names rule,’’ in 

2001.3

Congress provided the Commission 

with rulemaking authority to address 

materially deceptive or misleading fund 

names, recognizing the concern that 

investors may rely inordinately on a 

fund’s name to determine its 

investments and risks.4 The names rule, 

in turn, helps ensure that a fund’s name 

does not misrepresent the fund’s 

investments and risks. Consequently, 

the rule helps to ensure that investors’ 

assets in funds are invested in 

accordance with their reasonable 

expectations based on the fund’s name.5

The role of this rule remains important 

and distinct from other disclosure 

requirements, in that fund names are 

subject to the unique practical 

constraint of being concise by necessity, 

but still convey significant information 

to an investor. However, as the fund 

industry has developed, and practices 

regarding names rule compliance have 

continued to evolve over the past two 

decades, we believe that improvements 

to the names rule are appropriate for the 

rule to continue to meet this purpose.6

For example, interpretive issues as to 

when a fund is subject to the names rule 

have raised questions about the rule’s 

application with respect to particular 

fund names that could mislead investors 

about the fund’s investment focus, such 

as when a fund’s name suggests 

investment in companies that meet 

certain environmental, social, or 

governance (‘‘ESG’’) criteria. 

Competitive market pressures create 

incentives for asset managers to include 

terminology in their funds’ names 

designed to attract investor assets. We 

believe it is critical that fund names that 

suggest certain information about a 

fund’s investments and attendant risks 

do so accurately. Under certain 

circumstances, the current structure of 

the rule also may permit funds to depart 

from the investment focus suggested by 

their name over time, which can deprive 

investors of the protections of the rule. 

The rule also is not currently wellsuited to address ways in which the 

fund industry has evolved since its 

adoption, both in terms of funds’ 

increasing use of derivatives to further 

their investment strategies and 

investors’ increasing election for the 

electronic delivery of fund documents, 

such as prospectuses and shareholder 

reports. We are proposing to amend the 

names rule to address these and other 

concerns. 

A. Overview of Section 35(d) of the Act 

and the Names Rule 

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.7 This section of the Act 

further authorizes the Commission to 

define such names or titles as are 

materially deceptive or misleading. 

Congress adopted this provision due to 

concerns that investors may focus on an 

investment company’s name to 

determine the company’s investment 

objectives and level of risk, and 

recognized that investor protection 

would be improved by giving the 

Commission rulemaking authority to 

address potentially misleading fund 

names.8

The names rule generally requires that 

if a fund’s name suggests a focus in a 

particular type of investment (e.g., ABC 

Stock Fund, the XYZ Bond Fund, or the 

QRS U.S. Government Fund), or in 

investments in a particular industry 

(e.g., the ABC Utilities Fund or the XYZ 

Health Care Fund), or geographic focus 

(e.g., the ABC Japan Fund or XYZ Latin 

America Fund), 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.9 The names rule imposes 

a similar 80% investment policy 

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 (‘‘taxexempt funds’’).10 Under the rule, a 


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36596 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

income tax, or (2) to 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. 

11Under the Act, a fund may not depart 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 currently 

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 proposing a parallel definition of 

‘‘80% basket’’ in the proposed amendments to the 

names rule, and when referring to the proposed 

rule, references to a fund’s ‘‘80% basket’’ refer to 

the proposed definition of this term. See proposed 

rule 35d–1(g)(1). 

12 July 31, 2002 was the compliance date of the 

rule. See Names Rule Adopting Release, supra 

footnote 2. Based upon a review of Morningstar data 

as of October 2021, 222 currently-active UIT series 

were formed before this date. 

13See Names Rule Adopting Release, supra 

footnote 2, at n.16 and accompanying text. 

14See, e.g., 15 U.S.C. 77q(a) and 17 CFR 240.10b– 

5(b) (prohibiting making untrue statements of 

material fact or making material omissions to obtain 

money or property in the offer or sale of securities 

or in connection with the purchase or sale of a 

security); 17 CFR 230.156 (prohibiting sales 

literature that is materially misleading in 

connection with the offer or sale of securities issued 

by an investment company); and 17 CFR 

275.206(4)–8 (prohibiting investment advisers to 

pooled investment vehicles from making untrue 

statements of material fact or making material 

omissions to an investor or prospective investor in 

the pooled investment vehicle); see also In re 

Ambassador Capital Management, LLC, and Derek 

H. Oglesby, Initial Decision Rel. No. 672 (Sep. 19, 

2014) (made final in Investment Company Act 

Release No. 31371 (Dec. 11, 2014)) (determining an 

adviser caused violations by a fund of sections 34(b) 

and 35(d) of the Act by causing violations of 17 CFR 

270.2a–7 while still holding the fund out as a 

money market fund); Names Rule Adopting Release, 

supra footnote 2, at n.44 and accompanying text. 

15Names Rule Adopting Release, supra footnote 

2, at nn.16 and 44 and accompanying text; see also 

In the Matter of the Private Investment Fund for 

Governmental Personnel, Inc., Investment Company 

Act Release No. 2474 (Jan. 18, 1957) (‘‘[The 

Commission] must take into account the effect 

which the name may have not only on the 

sophisticated and informed investor, but also on the 

unwary and the ignorant. . . . Actual deception of 

investors need not be shown; it is sufficient that the 

name of the company or its securities be found to 

have a tendency or capacity to deceive or mislead. 

Nor is it necessary that we sample public opinion 

to determine what the name in question may mean 

to investors. . .’’). 

16See 17 CFR 270.38a–1 (‘‘rule 38a–1’’). 

17See rule 38a–1(a)(4)(iii). 

18 2020 Request for Comment, supra footnote 2. 

19See, e.g., Comment Letter of Aaron Cantrell, 

Head of Economic Research, Record Currency 

Management and Isabel Estevez, Ph.D. Candidate, 

University of Cambridge (May 5, 2020) (‘‘Cantrell 

and Estevez Comment Letter’’); CFA Comment 

Letter; ICI Comment Letter I; AllianzGI Comment 

Letter. 

20See, e.g., Comment Letter of Invesco Ltd. (May 

5, 2020) (‘‘Invesco Comment Letter’’); Comment 

Letter of the Public Investors Advocate Bar 

Association (Apr. 15, 2020) (‘‘PIABA Comment 

Letter’’); CFA Institute Comment Letter. 

21See ICI Comment Letter I; see also SIFMA AMG 

Comment Letter (stating that there have been 

significant evolution and innovation in the asset 

management industry since 2001); Comment Letter 

of T. Rowe Price (May 21, 2020) (‘‘T. Rowe Price 

Comment Letter’’) (stating that since the adoption 

of the names rule, funds have ‘‘expanded their 

strategies, increased the use of derivatives and new 

types of financial instruments, and expanded the 

diversity of products available to investors’’); and 

Comment Letter of State Street Global Advisors 

(May 5, 2020) (‘‘SSGA Comment Letter’’) (‘‘[t]he 

investment management industry has changed 

considerably since the Names Rule was adopted in 

2001’’). 

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.11 However, 

an 80% investment policy relating to a 

tax-exempt fund name must be a 

fundamental policy. Further, unit 

investment trusts (‘‘UITs’’) that have 

made their initial deposit prior to July 

31, 2002 are not required to comply 

with the rule’s requirements to adopt an 

80% investment policy.12

Under the rule, a fund is required to 

invest in accordance with its 80% 

investment policy ‘‘under normal 

circumstances.’’ In addition, the rule 

provides that a fund must apply its 80% 

investment 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 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. These notices are 

required to be provided in plain English 

in a separate written document. A fund 

must also include a prominent 

statement reading ‘‘Important Notice 

Regarding Change in Investment 

Policy,’’ or a similar clear and 

understandable statement, in bold-face 

type. 

In adopting the names rule, the 

Commission made clear that it is not 

intended to be a safe harbor for 

materially deceptive or misleading 

names.13 The prohibitions of section 

35(d) and, indeed, 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.14 A name that would 

lead a reasonable investor to conclude 

that the fund invests in a manner that 

is inconsistent with the fund’s actual or 

intended investments or the risks of 

those investments would be deceptive 

or misleading even if the fund is in 

compliance with its 80% investment 

policy.15 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 

would include section 35(d) and the 

names rule.16 Fund compliance officers 

are required to include a discussion of 

any material compliance matter 

involving the names rule in their 

required annual reports to the board 

addressing the operation of funds’ 

compliance policies and procedures.17

B. Challenges Regarding Application of 

the Names Rule and Need for 

Modernization 

The names rule has not been amended 

following its adoption in 2001, and 

since that time, the staff, members of the 

fund industry, and investor advocacy 

groups have identified a number of 

challenges regarding the application of 

the names rule that could have investor 

protection implications. The 

Commission published a Request for 

Comment on Fund Names in March 

2020, which sought public comment on 

the framework for addressing funds’ 

names, particularly in light of market 

and other developments since the rule’s 

adoption.18

Commenters generally agreed that a 

fund’s name is an 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 in light of their goals 

in communicating to investors.19 They 

also agreed that the names rule provides 

important investor protections and 

stated that it has been largely effective 

in regulating misleading and deceptive 

fund names, but some commenters 

suggested further improvements.20

Some provided context as to just how 

much the investment management 

industry has changed in the twenty 

years since the names rule was adopted 

and suggested updates may be 

appropriate. For example, commenters 

stated that registered investment 

companies manage considerably more 

assets than they did in 2001 ($22.8 

trillion total net assets as of March 2020 

compared to $7.2 trillion in 2001) and 

that the variety of fund types and fund 

strategies has increased since 2001, with 

exchange-traded funds (‘‘ETFs’’) and 

funds of funds having grown since then 

and funds such as emerging market, 

international, and alternative strategy 

funds having attracted substantial 

amounts of investment.21 The 

Commission staff have also observed an 

increase in filings by funds with 

investment focuses in ESG or 

‘‘thematic’’ areas such as cybersecurity, 

blockchain, and artificial intelligence. 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36597 

22 2020 Request for Comment, supra footnote 2, 

at n.22; see also Investment Company Institute, 

2021 Fact Book: A Review of Trends and Activities 

in the Investment Company Industry, at 48–49, 

available at https://www.ici.org/system/files/2021- 

05/2021_factbook.pdf (‘‘2021 ICI Fact Book’’) 

(stating that at the end of 2020, index mutual funds 

and index ETFs together had $9.9 trillion in total 

net assets and accounted for 40% of assets in longterm funds, as compared to 19% at the end of 2010). 

23Names Rule Adopting Release, supra footnote 

2, at n.43 and accompanying text. (‘‘In addition, the 

rule does not apply to fund names that incorporate 

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

types of investment strategies as opposed to types 

of investments.’’) 

24See 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) (‘‘ESG Proposing 

Release’’), published elsewhere in this issue of the 

Federal Register. 

25See infra footnote 124 and accompanying text. 

26This drift, however, currently may be limited 

in that any future investment must be made in a 

manner that will bring the fund into compliance 

with the 80% investment requirement. See rule 

35d–1(b). 

27See 2020 Request for Comment, supra footnote 

2, at 7–8; see also, e.g., Use of Derivatives by 

Registered Investment Companies and Business 

Development Companies; Required Due Diligence 

by Broker-Dealers and Registered Investment 

Advisers Regarding Retail Customers’ Transactions 

in Certain Leveraged/Inverse Investment Vehicles, 

Investment Company Act Release No. 33704 (Nov. 

25, 2019) [85 FR 446 (Jan. 24, 2020)] 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 Rule 

Adopting Release’’). 

28Names Rule Adopting Release, supra footnote 

2, at section II.A.1. 

29See, e.g., Fidelity Comment Letter; Invesco 

Comment Letter; ICI Comment Letter I. 

30See infra footnote 136. 

Further, as highlighted in the 2020 

Request for Comment, since the 

Commission adopted the names rule 

there has been significant growth in 

‘‘passive management’’ funds that seek 

to replicate the return on a particular 

index.22

The current scope of the rule has 

created interpretive issues. 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 requirement.23

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. Certain funds with 

names that may raise the same types of 

concerns as those that the rule’s current 

scope directly addresses may therefore 

not have adopted an 80% investment 

policy. 

The potential investor protection 

issues that these interpretive scoping 

considerations raise are particularly 

evident in the treatment of funds with 

names that suggest an investment focus 

in companies that meet certain ESG 

standards. Investors may reasonably 

expect funds with these names to invest 

in companies with policies, practices, or 

characteristics that are consistent with 

these standards, particularly when the 

fund’s name contains the term ‘‘ESG’’ or 

similar terminology (such as 

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

responsible’’).24 As discussed in more 

detail below, this type of terminology 

may be particularly powerful in fund 

names, as funds can attract significant 

interest and stand out to investors by 

using these terms in their names.25 The 

proposed amendments to the names rule 

would address fund names with ESG 

and similar terminology by providing 

that funds whose names include these 

terms are subject to the rule’s 80% 

investment policy requirement, and by 

defining certain uses of ESG 

terminology in fund names as materially 

deceptive and misleading. This would 

help to prevent potential 

‘‘greenwashing’’ in fund names by 

requiring a fund’s investment activity to 

support the investment focus its name 

communicates so that investors will not 

be deceived or misled by the fund’s 

name. Interpretive positions taken by 

funds that these kinds of names are not 

subject to the rule have resulted in 

investors in these funds not receiving 

these protections. 

The 2020 Request for Comment also 

asked questions exploring whether the 

names rule is as effective as it could be 

at addressing changes to funds’ 

portfolios over time, for example by 

asking whether compliance with the 

rule’s 80% investment policy 

requirements should continue to be 

determined as of the time of investment, 

as opposed to a fund maintaining the 

required level of investment at all times. 

A fund in some circumstances can drift 

away over time from the type of 

investment focus that the fund’s name 

suggests.26 The current names rule may 

not be as effective as it could be at 

addressing changes in funds over time, 

both due to possible ‘‘drift’’ and the 

current rule’s allowing a fund to comply 

with its 80% investment policy only 

under ‘‘normal circumstances.’’ 

The 2020 Request for Comment also 

raised the issue that, in the years 

following the names rule’s adoption in 

2001, funds have increasingly used 

derivatives and other financial 

instruments to execute their strategies.27

The Commission has interpreted the 

names rule to permit funds to include 

synthetic instruments, such as 

derivatives, in the fund’s 80% basket if 

the instrument has economic 

characteristics similar to the securities 

included in the 80% basket.28 However, 

the Commission has not specifically 

addressed how to include a derivatives 

instrument in that calculation. This, in 

turn, may have implications for whether 

a fund’s name accurately reflects the 

economic reality of the fund’s sources of 

returns and risk. 

Lastly, the rule’s requirements for 

delivering notices of changes to a fund’s 

investment policy are worded in a way 

that could suggest that funds must 

deliver these notices in paper. For 

example, the rule includes requirements 

on the envelope in which the notice is 

delivered. A number of commenters 

raised this issue given many investors 

have elected to receive fund materials 

electronically, stating that the rule 

should provide funds with more 

flexibility on delivery method.29 We 

believe that we could provide greater 

specificity about the application of the 

notice requirement to investors who 

have elected electronic delivery.30

C. Overview of Rule Proposal 

After consideration of these issues, we 

are proposing amendments to the names 

rule to modernize and enhance the 

investor protections that it currently 

provides. 

• Expansion of Scope. We are 

proposing to 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 would 

include, for example, fund names with 

terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors. 

• Changes Over Time and Temporary 

Departures from a Fund’s 80% 

Investment Policy. To address concerns 

as to whether the rule effectively 

addresses changes to fund names and 

portfolios over time and about when a 

fund must be in compliance with its 

80% investment policy, we are 

proposing amendments to the current 

requirement that a fund’s policy apply 

at the time of investment, and ‘‘under 

normal circumstances.’’ Instead, the 

proposed amendments specify the 

particular circumstances under which a 

fund may depart from its 80% 

investment policy, including specific 

time frames for getting back into 

compliance. 


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31We are also proposing to add BDCs to the 

definition of ‘‘fund’’ in the rule. See proposed rule 

35d–1(g)(5) (defining ‘‘fund’’). 

32Proposed rule 35d–1(a)(2). The term ‘‘ESG’’ 

encompasses terms such as ‘‘socially responsible 

investing,’’ ‘‘sustainable,’’ ‘‘green,’’ ‘‘ethical,’’ 

‘‘impact,’’ or ‘‘good governance’’ to the extent they 

describe environmental, social, and/or governance 

factors that may be considered when making an 

investment decision. 

33As used in this release, consistent with 

proposed 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. As discussed in 

more detail below, under the proposed 

amendments, where a fund’s name suggests an 

investment focus that has multiple elements, the 

fund’s 80% investment policy must address each 

element. 

34See supra paragraph accompanying footnote 

23. 

35 Distinguishing whether a term connotes a 

‘‘strategy’’ versus a ‘‘type of investment’’ can be a 

subjective determination, prone to second guessing, 

and the categories of ‘‘strategy’’ versus ‘‘type of 

investments’’ are not mutually exclusive. 

Interpretive questions caused by these issues draw 

Commission resources to address. For example, the 

Division of Investment Management’s Disclosure 

Review and Accounting Office staff spends a 

significant amount of time and attention on names 

rule compliance issues. We also believe that the 

proposal would address concerns raised by 

commenters regarding inconsistent treatment across 

funds in interpreting ‘‘strategy’’ by expanding the 

rule’s coverage, rendering moot the need to 

determine whether a fund name describes a type of 

investment versus an investment strategy. See, e.g., 

SIFMA AMG Comment Letter; T. Rowe Price 

Comment Letter. 

• Derivatives. To address the rule’s 

application to derivatives investments, 

we are proposing to amend it to require 

funds to use a derivatives instrument’s 

notional amount, rather than its market 

value, for the purpose of determining 

the fund’s compliance with its 80% 

investment policy. Also, we are 

proposing to amend the names rule to 

address the derivatives instruments that 

a fund may include in its 80% basket. 

• Unlisted Closed-End Funds and 

BDCs. We are proposing to require that 

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, 

must make its 80% investment policy a 

fundamental policy in all cases. As a 

result, these funds would not be 

permitted to change their 80% 

investment policies without a 

shareholder vote. This proposed 

amendment is meant to address investor 

protection concerns regarding funds that 

can change their 80% investment 

policies without shareholders having 

the ability to vote on the change or 

readily exit the fund. 

• Enhanced Prospectus Disclosure. 

We also are proposing amendments to 

funds’ prospectus disclosure 

requirements that would 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. We are 

proposing effectively to 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. 

• Materially Deceptive and 

Misleading Use of ESG Terminology. 

The use of ESG or similar terminology 

in a fund’s name would deceive and 

mislead investors where the identified 

ESG factors do not play a central role in 

the fund’s strategy. Accordingly, we 

would define the names of ‘‘integration 

funds’’ as materially deceptive or 

misleading if the name indicates that 

the fund’s investment decisions 

incorporate one or more ESG factors. 

For purposes of this release, an 

integration fund is a fund that considers 

one or more ESG factors alongside other, 

non-ESG factors in its investment 

decisions, but such 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. 

• Modernization of Notice 

Requirement. We are further proposing 

to update the names rule’s notice 

requirement to expressly address funds 

that use electronic delivery methods to 

provide information to their 

shareholders. The proposed 

amendments also would require notices 

to describe not only a change in the 

fund’s 80% investment policy, but also 

a change to the fund’s name that 

accompanies the investment policy 

change. 

• Form N–PORT Reporting 

Requirements. We are proposing 

amendments to Form N–PORT to 

require greater transparency on how 

fund investment selection methods 

match the investment focus that the 

fund’s name suggests. These proposed 

amendments would include a new 

reporting item regarding a fund’s names 

rule compliance. They also would 

include a new reporting item requiring 

a fund 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. 

• Recordkeeping. The proposed 

amendments would require funds that 

must adopt an 80% investment policy to 

adhere to recordkeeping requirements 

that are designed to provide the 

Commission and staff, as well as the 

fund’s compliance personnel, the ability 

to evaluate the fund’s compliance with 

the rule’s requirements. 

Funds that do not adopt an 80% 

investment policy would be required to 

maintain a written record of their 

analysis that such a policy is not 

required under the names rule. 

II. Discussion 

A. 80% Investment Policy Requirement 

1. Names Suggesting an Investment 

Focus 

We are proposing to broaden the 

scope of the names rule’s current 80% 

investment policy requirement also to 

apply to fund names that include terms 

suggesting that the fund focuses in 

investments that have, or whose issuers 

have, particular characteristics.31 The 

proposed amendments provide as 

examples fund names with terms such 

as ‘‘growth’’ or ‘‘value,’’ or terms 

indicating that the fund’s investment 

decisions incorporate one or more ESG 

factors.32 This would be in addition to 

fund names that currently require an 

80% investment policy, which are funds 

whose names suggest a focus in a 

particular type of investments or 

industry, or in particular countries or 

geographic regions, or those that suggest 

certain tax treatment. 

This scope expansion is designed to 

help ensure that fund names that 

communicate to investors that the fund 

focuses its investments in a particular 

way are addressed by the rule. The 

names rule is designed to ensure that a 

fund’s investment activity supports the 

investment focus its name 

communicates and, thus, the investor 

expectations the name creates.33 The 

proposed scope expansion recognizes 

that even where a fund’s name could be 

construed as referring to an investment 

strategy, it nevertheless can also 

connote an investment focus, and we 

believe this connotation is likely to be 

materially deceptive and misleading 

unless supported by an 80% investment 

policy.34 That is, 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.35

Further, as we note below, academic 

research indicates that a significant 

number of funds follow an investment 

strategy that does not align with the 

investment strategy identified in the 

fund’s name and, thus, we believe that 

the proposed scope expansion would 


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36See infra footnote 165 and accompanying text. 37See ICI Comment Letter I. 

38See, e.g., Crowley Comment Letter; Silver 

Comment Letter; CFA Comment Letter. 

39See IRC Comment Letter; Silver Comment 

Letter; CFA Comment Letter. 

40See PIABA Comment Letter (‘‘PIABA contends 

that the Names Rule should apply to the investment 

strategy of a fund, particularly where the 

investment strategy entails a high degree of risk. 

The terms ‘‘growth’’ and ‘‘value’’ should not [be] 

used to mislead investors as to aggressive, high risk 

funds.’’); CFA Comment Letter; see also CFA 

Institute Comment Letter (stating that the rule is 

limited in its effectiveness but that it should not be 

expanded to cover strategies). 

41See Silver Comment Letter; see also PIABA 

Comment Letter (discussing funds—registered 

funds as well as hedge funds—that have been 

marketed using language such as ‘‘high-grade’’ 

although the funds employ risky (including 

leveraged) investment strategies); CFA Comment 

Letter. 

42See CFA Institute Comment Letter. 43See, e.g., SIFMA AMG Comment Letter; 

Comment Letter of Capital Research and 

Management Company (May 5, 2020) (‘‘Capital 

Group Comment Letter’’); ICI Comment Letter I. But 

see, e.g., CFA Comment Letter; Practus Comment 

Letter; PIABA Comment Letter; MSCI Comment 

Letter (arguing that names suggesting strategies 

should be subject to the 80% investment policy 

requirement). 

44See, e.g., Nia Impact Capital Comment Letter 

(stating that the terms ‘‘sustainable’’ and ‘‘ESG’’ are 

‘‘still quite subjective in nature’’); SIFMA AMG 

Comment Letter; T. Rowe Price Comment Letter; see 

also CFA Comment Letter (arguing that while the 

rule should apply to strategies, a different approach 

than an 80% investment policy should be taken). 45See, e.g., Cantrell & Estevez Comment Letter; 

Credit Suisse Comment Letter; Invesco Comment 

Letter. Some commenters also recommended 

avoiding prescriptive definitions of terms like 

‘‘ESG’’ and sustainable.’’ See, e.g., BlackRock 

Comment Letter; Cantrell & Estevez Comment 

Letter; Ceres Comment Letter. But see, e.g., 

Beirbaum Comment Letter; Global Affairs 

Associates Comment Letter; Janain Comment Letter 

(each maintaining that funds that include ESG 

terms or similar terminology in their names should 

be subject to the requirement to adopt an 80% 

investment policy). 

46See Capital Group Comment Letter; ICI 

Comment Letter I; Invesco Comment Letter; SIFMA 

AMG Comment Letter. 47See SIFMA AMG Comment Letter; Capital 

Group Comment Letter; T. Rowe Price Comment 

Letter. 

48See Names Rule Adopting Release, supra 

footnote 2, at n.42 and Division of Investment 

Management, Frequently Asked Questions about 

Rule 35d–1(Investment Company Names) (available 

at https://www.sec.gov/divisions/investment/ 

guidance/rule35d-1faq.htm) at Questions 8, 9, and 

11. These FAQs represent the views of the staff of 

the Division of Investment Management. They are 

not a rule, regulation, or statement of the 

Commission. The Commission has neither 

approved nor disapproved the FAQs’ content. The 

FAQs, like all staff statements, have no legal force 

or effect: they do not alter or amend applicable law, 

and they create no new or additional obligations for 

any person. 

49To the extent that a term used in a fund name 

could reasonably be understood to describe the 

characteristics of the portfolio as well as, or 

alternatively, the characteristics of the component 

portfolio investments—for example, the term 

‘‘global’’—we believe such a name would suggest an 

investment focus under the proposed amendments. 

Nevertheless, as discussed in more detail below, a 

‘‘global’’ fund could use any reasonable definition 

Continued 

better define and help prevent 

materially deceptive and misleading 

fund names in light of the investor 

protection concerns that this practice 

raises.36

Investors’ expectations as to the 

composition of a fund’s portfolio can 

result even when investment-focussuggesting terms used in a fund’s name 

may have more than one reasonable 

definition. For example, terms like 

‘‘green’’ or ‘‘sustainable’’ may be more 

subjective than a term like ‘‘large cap 

equity’’ and thus not always viewed as 

referring to a ‘‘type’’ of investment. But 

these terms still communicate to 

investors that the fund will concentrate 

in investments that the fund considers 

‘‘green’’ or ‘‘sustainable.’’ Current fund 

practices are mixed on how funds 

understand the scope of the names rule, 

in that some funds consider certain 

terminology in their names to require an 

80% investment policy under the rule, 

while others do not.37

Some commenters responding to the 

2020 Request for Comment supported 

an approach similar to our proposal.38

Some of these commenters asserted that 

many investors often rely on fund 

names, rather than disclosures such as 

those concerning the fund’s objective, 

strategies, and risks, when making an 

investment decision and that fund 

managers purposefully adopt names 

designed to draw interest in their 

fund.39 Some also stated that funds with 

certain names not currently required to 

adopt an 80% investment policy can 

often connote an investment focus to 

investors and, therefore, can have the 

effect of misleading or deceiving 

investors.40 Commenters similarly said 

the inclusion of ‘‘buzzwords’’ in funds’ 

names can ‘‘give the illusion of safety or 

preservation of capital as objectives.’’ 41

One commenter also stated that 

investors do not make a distinction 

between ‘‘strategies’’ and ‘‘types of 

investments’’ when making an 

investment decision and, instead, will 

assume that the fund will invest in the 

ways suggested by the name.42

Other commenters objected to any 

expansion of the rule to require an 80% 

investment policy for fund names that 

suggest an investment strategy.43 These 

commenters’ concerns generally 

centered around perceived complexity 

and subjectivity in determining what 

assets are appropriate for the 80% 

basket. Specifically, these commenters 

argued that investment strategies are too 

subjective to be quantifiably measured 

in an asset-based test like the 80% 

investment policy requirement and that 

there can often be many investment 

methods to achieve the same strategy.44

A number of commenters raised these 

points specifically in discussing an 

approach that would require funds with 

ESG terminology in their names to 

adopt an 80% investment policy.45

Some commenters also stated that 

application of the 80% investment 

policy requirement to a strategy could 

lead to standardization in funds’ 

investment portfolios that is not marketdriven and limit fund flexibility to 

change strategies in response to market 

changes or events.46 For these reasons, 

a number of commenters suggested that 

fund disclosure would be a more 

appropriate tool for investors to educate 

themselves about the strategy better, 

rather than requiring funds whose 

names describe a strategy to adopt an 

80% investment policy.47

As discussed above, we believe that 

fund names included in the proposed 

expanded scope—such as names with 

terms like ‘‘growth,’’ ‘‘value,’’ or 

‘‘sustainable’’ where a fund may not 

have adopted an 80% investment policy 

under the current rule—communicate to 

investors that the fund will concentrate 

in investments that the fund believes 

have those particular characteristics. 

The proposed amendment also would 

apply to other fund names that 

historically may have not required an 

80% investment policy (depending on 

the context), such as names that include 

terms like ‘‘global,’’ ‘‘international,’’ 

‘‘income,’’ or ‘‘intermediate term (or 

similar) bond.’’ 48

Conversely, 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 under the 

proposal. For example, these would 

include names that reference 

characteristics of a fund’s portfolio as a 

whole, or that reference elements of an 

investment thesis without specificity as 

to the particular characteristics of the 

component portfolio investments. We 

do not believe that such names suggest 

that the fund focuses its investments in 

any of the ways covered under the 

proposed expanded scope, though such 

names would continue to be subject to 

section 35(d)’s prohibition on materially 

misleading or deceptive names, and 

funds with these names would continue 

to be subject to the anti-fraud provisions 

of the federal securities laws regarding 

disclosures to investors. These names 

would include, for instance, names that 

suggest characteristics of the fund’s 

overall portfolio, such as a name 

indicating the fund seeks to achieve a 

certain portfolio ‘‘duration’’ or that the 

fund is ‘‘balanced.’’ 49 They also include 


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of ‘‘global’’ as we are not proposing to mandate any 

particular test for what this term means. 

50See supra footnote 16 and accompanying text. 

51This hypothetical fund would be subject to the 

80% investment requirement because of the 

inclusion of the term ‘‘equity,’’ which suggests a 

type of investment, and not because of the term 

‘‘long/short,’’ which does not suggest an investment 

focus. 

52Cf. Names Rule Adopting Release, supra 

footnote 2, at n.43 (‘‘As a general matter, an 

investment company may use any reasonable 

definition of the terms used in its name and should 

define the terms used in its name in discussing its 

investment objectives and strategies in the 

prospectus.’’). 

names that reference a particular 

investment technique, such as ‘‘long/ 

short.’’ We also believe that names that 

suggest a possible result to be achieved, 

such as ‘‘real return,’’ or a name that 

references a retirement target date, 

similarly do not suggest a focus in a 

particular type of investment or 

investments that have particular 

characteristics. In these cases the name 

indicates the fund’s objectives but 

without specifying the fund’s 

investments or intended investments. 

Regardless 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 include section 35(d) and the 

names rule.50

Where a fund’s name suggests an 

investment focus that has multiple 

elements, the fund’s 80% investment 

policy must address all of the elements 

in the name. Take, for example, the fund 

name ‘‘ABC Wind and Solar Power 

Fund.’’ The fund’s investment policy 

could provide that each security 

included in the 80% basket must be in 

both the wind and solar industries, or 

instead that 80% of the value of the 

fund’s assets will be invested in a mix 

of investments, with some solar 

investments, some wind investments, 

and some investments in both 

industries. Similarly, the ‘‘XYZ 

Preferred Securities and Income Fund’’ 

could adopt a policy to invest at least 

80% of the value of its assets in 

preferred securities and securities that 

meet the fund’s standards for being 

income-producing. A fund’s 80% 

investment policy must address each 

element in the fund name that suggests 

an investment focus, but permits the 

fund to take a reasonable approach in 

specifying how the fund’s investments 

will incorporate each such element in 

the name. For example, the ‘‘XYZ 

Environmental, Social, and Governance 

Fund’’ must adopt an 80% investment 

policy to address all three of those 

elements, and we recognize that there 

are multiple reasonable ways the policy 

could address these elements. 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. 

In some cases, what would be 

appropriate to include in the fund’s 

80% basket would be context-specific. 

For example, we understand that funds 

currently do not include the value of 

short positions, including shortexposure derivatives, related to the 

investment focus suggested by a fund’s 

name in their 80% baskets, absent some 

terminology in the fund’s name such as 

‘‘inverse,’’ ‘‘hedged,’’ or ‘‘long/short’’ 

that suggests to investors that short 

activity is or may be part of the fund’s 

investment approach (e.g., the ‘‘XYZ 

Long/Short Equity Fund’’).51 We request 

comment below on funds’ current 

practices regarding including or 

excluding short positions in their 80% 

baskets and whether any changes in this 

area would be appropriate. 

Consistent with the current names 

rule, funds would be able to define 

terms used in their names in a 

reasonable way, but, in a change from 

the current rule, would be subject to the 

proposed requirement that any terms 

used in the fund’s name that suggest an 

investment focus must be consistent 

with those terms’ plain English meaning 

or established industry use.52 What 

constitutes ‘‘reasonable’’ in this context 

could vary depending on the fund 

name, but requires a meaningful nexus 

between the given investment and the 

focus suggested by the name. For 

instance, when the investment focus 

relates to an industry, 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. For 

example, we believe it would be 

reasonable for a fund to define securities 

in a given industry as securities issued 

by companies that derive more than 

50% of their revenue or income from, or 

own significant assets in, the industry. 

In such cases, there 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). A fund’s compliance 

policies and procedures could address 

its processes to allocate portfolio 

companies in its 80% basket, for 

example, by reference to a specific test 

based on the source of the companies’ 

revenue. 

We understand that some funds also 

use text analytics to assign issuers to 

industries based on the frequency of 

particular terms in an issuer’s 

disclosures. For example, if an issuer’s 

public disclosure documents repeatedly 

use a term like ‘‘blockchain,’’ some 

funds would assign the issuer to the 

blockchain or fintech industry without 

further analysis. Although text analysis 

may be a helpful component of a fund’s 

analysis, we do not believe it is 

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. 

Further, we believe 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. 

We request comment on the proposed 

requirement for funds with names that 

suggest an investment focus to adopt 

and implement an 80% investment 

policy. 

1. Should we expand the requirement 

for certain funds to adopt an 80% 

investment policy, as proposed, to cover 

names that include terms suggesting an 

investment focus in investments or 

issuers that have particular 

characteristics? Is it clear what types of 

names would subject a fund to the 

expanded scope of this requirement 

under the proposed rule? Should we 

only require certain fund names that 

suggest an investment focus, such as 

those that ‘‘reasonably suggest’’ an 

investment focus, to adopt an 80% 

investment policy? Would the proposed 

amendments address all types of names 

that connote an investment focus to 

investors, or otherwise create investor 

expectations regarding the composition 

of the fund’s portfolio? Conversely, are 

there certain names that would be 


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53See infra section II.A.3 (addressing the 

valuation of derivatives instruments for the purpose 

of determining a fund’s compliance with its 80% 

investment policy). 

included under the expanded scope for 

which investors would not have these 

types of expectations? 

2. Is it appropriate to retain, as 

proposed, the requirement for fund 

names that suggest a focus in a 

particular type of investment or 

investments, investments in a particular 

industry or group of industries, or 

particular countries or geographic 

regions to adopt an 80% investment 

policy? Should we eliminate or add to 

these types of names in the rule text, 

given the proposed expanded scope of 

the requirement (i.e., including within 

the scope names that include terms 

suggesting a focus in investments or 

issuers that have particular 

characteristics)? 

3. Should we, as proposed, adopt a 

scoping requirement that does not 

distinguish between types of 

investments and investment strategies? 

Do investors make a distinction between 

investment strategies and types of 

investments when assessing fund names 

in making an investment decision? 

4. Should the names rule’s 80% 

investment policy requirement apply, as 

proposed, to fund names with terms 

such as ‘‘ESG’’ and ‘‘sustainable’’ that 

reflect certain qualitative characteristics 

of an investment? Why or why not? Are 

investors relying on these terms as 

indications of the kinds of companies in 

which the fund invests or does not 

invest? Would this be the case even to 

the extent that funds with ESG and 

similar terminology in their names may 

use disparate means to select their 

portfolio investments? Should there be 

any additional requirements for funds 

that use ESG or similar terminology in 

their names? 

5. As an alternative to basing the 

calculation of the 80% basket on the 

fund’s assets, should we instead use a 

different method of calculation? As 

discussed in more detail below, we 

considered, as a reasonable alternative 

to the proposal, whether to require 

funds’ historical returns to exhibit 

minimum exposures to certain risk 

factors in lieu of the percentage of assets 

test. Should we instead adopt this sort 

of method of calculation that assesses 

the returns that a fund’s investments 

contribute to the fund’s overall 

performance, or that requires a fund 

with a name suggesting a particular 

investment focus to exhibit minimum 

exposures to certain risk factors that 

correlate with the investment focus its 

name suggests? 

6. Will funds be able to reasonably 

determine what investments qualify for 

their 80% baskets under the proposed 

rule? What steps and tools will funds 

use to make these determinations? If 

not, what steps should we take to clarify 

this, particularly given the proposed 

expanded scope of the 80% investment 

policy requirement? Is it likely that 

funds with similar names will come to 

different reasonable determinations as 

to what investments qualify for 

inclusion in their 80% baskets? If so, 

will investors be confused by these 

names? 

7. Should funds with names with 

multiple elements be required to 

address all of those elements? Should 

this be required at all times or, if not, 

what limits, if any, should there be 

regarding fund names with multiple 

elements in light of the prohibition 

against materially deceptive or 

misleading names under the Act? 

Should a fund whose name includes 

multiple elements be required to invest 

some specific minimum percentage 

(e.g., 5%, 10%, 25%) in each element? 

8. Is there any particular topic or issue 

that funds encounter in complying with 

the 80% investment policy currently, or 

that they would encounter in complying 

with the proposed amendments to the 

80% investment policy requirement, 

that should be addressed by 

Commission guidance? For example, 

would funds benefit from guidance 

about what procedures might be 

reasonable for a fund whose name 

indicates a focus in a particular industry 

to select its 80% basket investments? 

9. As discussed above, we understand 

that, absent a term in a fund’s name 

such as ‘‘inverse,’’ funds do not 

currently include short positions in the 

fund’s 80% basket. Should the 

Commission address by guidance or a 

provision in the names rule the 

inclusion of short positions in a fund’s 

80% basket related to the fund’s 

investment focus, and if so, what 

practices with respect to the inclusion 

or exclusion of short positions would be 

appropriate in light of section 35(d) and 

the policy goals of the names rule’s 80% 

investment policy requirement? For 

example, assume a fund with ‘‘equity’’ 

in its name and nothing in the name 

suggesting that the fund also engages in 

short sales, such as the phrase ‘‘long/ 

short.’’ If the fund had $100 and 

invested it all in equity securities, then 

were to sell short equity securities with 

a value of $50, how should that short 

sale affect the fund’s compliance with 

its 80% investment policy? Should the 

short sale reduce the value of the equity 

investments included in the 80% 

basket, and are there specific 

circumstances where a short sale should 

not reduce the value of the fund’s 80% 

basket securities? How should we 

address short sales where the returns of 

the assets sold short are correlated with 

returns of securities (or the asset class) 

in the fund’s 80% basket, but the assets 

sold short are not identical to any of the 

securities in the 80% basket (or are not 

in the same asset class as the securities 

in the 80% basket)? If the short sale 

should reduce the value of the equity 

investment in the 80% basket in the 

example above, what reduction would 

be appropriate—e.g., should the 

reduction be $50, the value of the equity 

securities sold short? 53

10. Should we provide a specific 

provision in the rule requiring funds 

with ESG (or similar terminology) in 

their names only to attribute a particular 

type of investment towards their 80% 

basket, or guidance that addresses this? 

Why or why not? Are there other types 

of guidance regarding ESG investing and 

the names rule that we should provide? 

11. Should we adopt any specific 

requirements with regards to the portion 

of the fund’s assets not included in the 

80% basket? For fund names that 

suggest an investment focus that has 

multiple elements, should we adopt any 

specific requirements, such as a specific 

minimum percentage (e.g., 20%, 25%, 

etc.) of assets invested, with regards to 

how each element must be accounted 

for in the fund’s 80% investment 

policy? 

12. Are there any other particular 

types of fund names we have not 

specifically addressed above, for which 

we should require a specific treatment 

under the names rule as we propose to 

amend it? Should those particular 

names be subject to the requirement to 

adopt an 80% investment policy or not? 

13. Should we codify any of the 

guidance provided above? For example, 

should we add an exception to the rule 

that permits funds of funds, and other 

acquiring funds, to include the entire 

value of their investment in an 

appropriate acquired fund in calculating 

their 80% basket without looking 

through to the acquired fund’s 

underlying investments? 

14. With respect to certain name 

terms that could connote both an 

investment focus and the characteristics 

of the fund’s overall portfolio (e.g., 

‘‘global’’), should we, as proposed, 

require funds with names including 

these terms to adopt an 80% investment 

policy? If not, how should we 

differentiate when these terms are being 

used to suggest an investment focus and 

when they are not? 

15. Consistent with the current names 

rule, the proposed amendments would 


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54The proposed temporary departure provision 

would be applicable not only to funds whose names 

suggest a particular investment focus, but also to 

tax-exempt funds that are required to invest their 

assets in accordance with the provisions of 

proposed rule 35d–1(a)(3)(i). 

55 ‘‘Reorganization’’ is defined in section 2(a)(33) 

of the Act and includes actions such as voluntary 

liquidations. 

56Proposed rule 35d–1(b)(1) and (g)(7) (defining 

‘‘launch’’ as a period, not to exceed 180 consecutive 

days, starting from the date the fund commences 

operations). 

57 ‘‘As soon as reasonably practicable’’ would not 

strictly mean ‘‘as soon as possible’’ in all cases and 

is intended to allow for consideration by the adviser 

of how to return to compliance in a manner that 

best serves the interest of the fund and its 

shareholders (but in no case longer than the 

proposed 30-day limit where applicable). For 

example, a fund need not return to compliance 

within 2 days, even if doing so is technically 

possible, if such an approach would harm the fund 

or its shareholders by, for instance, causing the 

fund to purchase illiquid assets at a premium. 

58See Names Rule Adopting Release, supra 

footnote 2, at nn.37–40 and accompanying text. 

59See Investment Company Names, Investment 

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

FR 10955 (Mar. 10, 1997)] at n.28 and 

accompanying text. 

60See also Names Rule Adopting Release, supra 

footnote 2, at n.39 and accompanying text. 

61Based on data obtained from Morningstar 

Direct, in 2001 there were approximately 432 

mutual fund and ETF index funds. As of the end 

of 2019, there were approximately 2,311 index 

funds. 2020 Request for Comment, supra footnote 

2, at n.22. At the end of 2020, index mutual funds 

and index ETFs together had $9.9 trillion in total 

net assets and accounted for 40% of assets in longterm funds, as compared to 19% at the end of 2010. 

See 2021 ICI Fact Book. 

62See CFA Comment Letter (stating that when 

funds deviate from their 80% investment policy for 

extended periods of time, this can affect asset 

allocation programs some investors use to 

determine which funds to buy or sell by changing 

the nature of the investment). 

generally apply to money market funds. 

17 CFR 270.2a–7 (‘‘rule 2a–7’’) also 

requires funds that use the term ‘‘money 

market’’ in their names to comply with 

the requirements of that rule. Are the 

requirements of rule 2a–7 sufficient to 

prevent materially misleading or 

deceptive money market funds names, 

or should we continue to apply the 

names rule to those funds? 

2. Temporary Departures From the 80% 

Investment Requirement 

The proposed amendments would 

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 or 

tax treatment its name suggests (‘‘80% 

investment requirement’’) only under 

certain specified circumstances.54 These 

temporary departures would be 

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.55 Under each of these 

circumstances except fund launches 

(where accompanying temporary 

departures could not exceed a period of 

180 consecutive days), reorganizations 

(for which the proposed rule does not 

specify a required time frame for 

accompanying temporary departures), or 

where the 60-day notice has been 

provided to shareholders, a fund would 

have to bring its investments back into 

compliance with the 80% investment 

requirement within 30 consecutive 

days.56 In all cases, a fund would have 

to come back into compliance as soon 

as reasonably practicable.57

In contrast, the names rule currently 

provides that a fund’s 80% investment 

policy applies ‘‘under normal 

circumstances,’’ leaving it to funds to 

determine what constitutes something 

other than a normal circumstance. This 

aspect of the current rule was designed 

to provide funds flexibility to manage 

their portfolios while requiring that they 

normally invest 80% of their assets 

consistent with their 80% investment 

policy.58 In addition, under the current 

rule, compliance with the 80% 

investment requirement is determined 

at the time a fund invests its assets. This 

provision was designed 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.59 The rule currently 

requires that if, subsequent to an 

investment, the 80% investment 

requirements of the rule are no longer 

met, the fund’s future investments must 

be made in a manner that will bring the 

fund into compliance with those 

requirements. 

The new approach we are proposing 

is designed 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. The new approach 

continues to address, for instance, 

certain circumstances in a fund’s life 

cycle in which it might not be invested 

fully in its 80% basket, as well as 

circumstances in which external events 

could cause the portfolio to ‘‘drift’’ in a 

way that causes the fund to depart 

temporarily from the 80% investment 

requirement. For example, a new fund 

may need a reasonable amount of time 

after commencing operations to comply 

with the 80% investment requirement, 

or a fund with ‘‘small cap’’ in its name 

may see certain of its investments grow 

such that they are no longer ‘‘small cap’’ 

and need to re-invest in relative short 

order.60 An investor choosing to invest 

in a fund with a name conveying a 

particular investment focus may expect 

that the fund will not stray from this 

investment focus for a protracted period 

of time in these and similar examples. 

While the current rule includes a 

requirement that a fund must make 

future investments in a manner to bring 

the fund into compliance with the 80% 

investment requirement, this provision 

does not address situations where the 

fund is not investing its assets in a given 

period of time. 

Moreover, the parameters we are 

including in the proposal reflect our 

belief that investors’ expectations for 

funds’ investment focuses may not 

depend on whether market events 

negatively affect the investment in the 

fund’s portfolio. For example, investors 

increasingly seek out funds that are 

structured as passive investment 

vehicles, such as index-based mutual 

funds and ETFs, in order to obtain 

specific types of investment exposure 

for their portfolios.61 These investors are 

specifically seeking a return tied to the 

investment focus suggested in the fund’s 

name.62 These investors may expect the 

fund to invest in a manner that is 

consistent with its stated investment 

focus with the understanding that 

investors may rebalance their own 

portfolios if desired rather than 

expecting the fund to do so. 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 


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63See id.; see also Names Rule Adopting Release, 

supra footnote 2, at n.8 and accompanying text. 

64See Janain Comment Letter (recommending 

limiting the amount of time funds can engage in 

temporary defensive positions as they believe that 

some funds have taken liberties and that ‘‘[a]t some 

point, temporary becomes normal’’); see also CFA 

Comment Letter (highlighting concerns about 

‘‘drift’’); Crowley Comment Letter (expressing 

concerns about extended departures from the 80% 

investment requirement). 

65Some commenters highlighted these sorts of 

challenges while expressing concerns regarding 

changing the rule to include a maintenance test for 

the 80% investment requirement. See, e.g., 

BlackRock Comment Letter; Capital Group 

Comment Letter; ICI Comment Letter I. 

66See also Names Rule Adopting Release, supra 

footnote 2, at n.39 and accompanying text. 

67See, e.g., SIFMA AMG Comment Letter; 

BlackRock Comment Letter; T. Rowe Price 

Comment Letter. 

68See, e.g., Registration Form Used by Open-End 

Management Investment Companies, Investment 

Company Act Release No. 23064 (Mar. 13, 1998) [63 

FR 13916 (Mar. 23, 1998)]. The proposed provision 

permitting temporary departures to avoid losses in 

response to adverse market, economic, political, or 

other conditions in the names rule reflects the 

formulation of temporary defensive positions from 

Form N–1A. See Form N–1A, Instruction 6 to Item 

9(b)(1). As a result, funds should understand this 

provision as consistent with this disclosure 

requirement and any related disclosure the fund 

provides. Further, we believe that context dictates 

that ‘‘other conditions’’ is not all-encompassing, but 

rather would be other conditions similar to an 

adverse market, economic, or political condition. 

69See Names Rule Adopting Release, supra 

footnote 2, at section II.A.4 (describing ways in 

which funds might use the ‘‘under normal 

circumstances’’ standard to engage in temporary 

departures). 

money market instruments.63 As a 

result, consistency with the investment 

focus suggested by the fund’s name 

would seem to be a primary concern for 

these investors. 

To address these concerns, the 

proposed rule amendments specify that 

a fund departing from the 80% 

investment requirement must bring its 

investments back into compliance as 

soon as reasonably practicable, and that 

the maximum amount of time for the 

departure would be 30 consecutive 

days, other than in the case of a fund 

launch (which would be limited to 180 

consecutive days starting from the day 

the fund commences operations) or a 

reorganization (for which the proposed 

rule does not specify a required time 

frame for accompanying temporary 

departures). We are proposing this ‘‘as 

soon as reasonably practicable’’ 

standard because we anticipate that 

most temporary departures would last 

substantially less than 30 days, though 

this could depend on the specific facts 

and circumstances. We recognize that 

some investors may prefer for a fund to 

be permitted 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. We believe, 

however, that, at some point, departures 

may begin to change the nature of the 

fund fundamentally, which would 

undermine investor expectations 

created by the fund’s name.64 The 

proposed time limits are designed to 

prevent such a fundamental change. 

A shorter required time period to 

come back into compliance, for example 

seven days, would ensure a fund rapidly 

rebalances its portfolio, but could result 

in forced sales at depressed prices or in 

a tax-disadvantaged manner, to the 

detriment of investors.65 As another 

example, purchasing less liquid 

securities in a compressed timeframe in 

order to comply with the fund’s 80% 

investment policy could drive up the 

price for those securities, also 

potentially adversely affecting investors. 

While there is still the possibility that 

these adverse effects could occur with 

the proposed, longer periods, we believe 

that it is a lessened concern in those 

time frames given the increased 

flexibility that a longer period of time 

would provide to rebalance the portfolio 

and for any market-wide issue to 

resolve. 

We are proposing to give fund 

launches a longer period, 180 

consecutive days, in recognition of 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.66 We acknowledge that 

establishing a set time frame to return to 

the 80% investment requirement may 

result in operational changes for some 

funds, in order to assess the new time 

limits on temporary departures relative 

to the current rule’s requirement to 

assess compliance with the 80% 

investment requirement at the time of 

investment. However, we anticipate 

many funds, particularly open-end 

funds, already assess their names rule 

compliance daily or intra-daily (for 

example, those that trade portfolio 

assets daily). Therefore we anticipate 

that for many funds, the proposed new 

approach, which would require 

compliance with the 80% investment 

requirement except under the rule’s 

specified limited circumstances, would 

not result in significant operational 

changes although we acknowledge that 

may not be the case for all funds. 

While we continue to believe that 

there are circumstances where a fund’s 

temporary departure from the 80% 

investment requirement would be 

appropriate, we believe that specifying 

these circumstances in the rule, as 

opposed to a more principles-based 

approach, would help ensure that these 

departures are temporary in nature and 

limited in scope.67 Thus, in place of the 

rule’s current standard that a fund’s 

80% investment policy applies ‘‘under 

normal circumstances,’’ we are 

proposing four specific exceptions that 

address circumstances where such 

departures would be limited in time, 

have investor protection benefits, and/or 

involve circumstances where an 

investor is unlikely to be materially 

misled or deceived. 

First, the proposed rule would permit 

temporary departures that occur 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. This recognizes that a fund 

may not be in compliance with the 80% 

investment requirement for a short 

period of time while the fund addresses 

such an event. For example, the 

investments in a fund’s 80% basket may 

decline in value such that they fall 

below 80% of the fund’s assets. Further, 

the underlying index of an index fund 

could rebalance, which may cause the 

fund to have less than 80% of its assets 

invested in the reconstituted index until 

the fund has the opportunity to realign 

its investments. 

The proposed rule also would permit 

funds experiencing unusually large cash 

inflows or outflows in response to 

redemption requests to depart 

temporarily from the 80% investment 

requirement. This would provide a fund 

the opportunity to depart temporarily 

from the fund’s 80% investment 

requirement in order to invest the 

incoming cash, or sell investments to 

meet the outflow, in an orderly way. 

Similarly, the proposed rule would 

permit temporary departures for funds 

to take temporary defensive positions in 

cash, cash equivalents, or government 

securities to react to adverse 

conditions.68 These generally reflect 

prior Commission statements regarding 

some circumstances in which 

departures from the 80% investment 

requirement would be appropriate 

under the current rule.69

We are also proposing to permit funds 

temporarily to invest less than 80% of 

their assets in the 80% basket to 

reposition or liquidate assets in 

connection with a reorganization or to 

launch the fund. For fund launches, the 

temporary period would not be 

permitted to exceed 180 consecutive 

days starting from the day the fund 

commences operations. Both 

reorganizations and launches may result 

in a fund holding assets in a way that 

is inconsistent with its 80% investment 


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70For example, when the board of an open-end 

fund determines to approve a reorganization, the 

fund would supplement its prospectus. 

71See Names Rule Adopting Release, supra 

footnote 2, at n.39 and accompanying text. 

72Cf. id. at n.40 (stating that, in very limited 

circumstances, it may be appropriate for a closedend fund that invests in securities whose supply is 

limited to take longer than six months to invest 

offering proceeds). 

policy in order to complete the action. 

For example, at start-up it may take time 

for a new fund to find and purchase 

available investments consistent with 

the fund’s investment focus and hold 

cash in the interim. In the case of a 

merger, a target fund may need to 

rebalance its portfolio to more closely 

mirror the investments held by the 

acquiring fund. 

Unlike the other circumstances in 

which the proposed rule amendments 

would permit temporary departures, the 

proposed rule amendments would not 

limit the time of departures associated 

with fund reorganizations or where the 

fund has provided notice it intends to 

change its 80% investment policy, and 

additionally the time for departures 

associated with fund launches could 

last for 180 consecutive days from the 

date the fund commences operations. 

Planned reorganizations may take longer 

to complete than 30 days or even 180 

days. Moreover, the planned action will 

be disclosed and the reorganization is 

likely to be a permanent change to the 

nature of the investor’s investment.70

Similarly, a change to a fund’s 80% 

investment policy is a permanent 

change to the fund’s investments, about 

which funds notify investors pursuant 

to the provisions of the rule. Thus, we 

do not believe that changes in the fund’s 

investment portfolio to support the 

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, like all of the proposed 

departures, would still be required to be 

resolved as soon as reasonably 

practicable. 

In the case of the launch of a new 

fund, it may be better for investors if the 

fund takes additional time to invest in 

a manner consistent with the fund’s 

80% investment policy in order to avoid 

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 

believe that, consistent with current 

guidance, such a period should not 

exceed 180 consecutive days.71 The 

proposed amendments therefore would 

not permit any fund to exceed 180 

consecutive days to invest its assets 

consistent with the 80% investment 

requirements when launching a fund.72

Further, in effect, the proposed 

amendments would generally require 

open-end funds to be fully invested 

within a much shorter time than 180 

days, consistent with the proposed 

requirement to do so ‘‘as soon as 

reasonably practicable.’’ These funds 

should be able to fully invest in their 

investment focus relatively quickly 

because they invest in relatively liquid 

assets and because they receive cash 

from share purchases on an ongoing 

basis. Accordingly, if a new open-end 

fund were to acquire assets at the time 

of launch that largely mirrored the 

assets in another pre-existing fund in 

the fund family, but with a different 

name that reflects a different set of 

investment parameters that would be 

applied to that portfolio in the future, 

the manager should generally adjust the 

new fund’s portfolio to the new 

parameters in a much shorter time than 

180 days in accordance with an 80% 

investment policy based on the 

investment focus the fund’s name 

suggests. 

We request comment on the proposed 

treatment of temporary departures from 

the 80% investment requirement. 

16. To what extent do funds currently 

‘‘drift’’ away from the investment focus 

suggested by their name? If they do, to 

what extent is this attributable to the 

provisions of the current names rule, 

such as the time of investment test? In 

general, how effective is this provision, 

and the ‘‘under normal circumstances’’ 

provision, at addressing materially 

deceptive or misleading names over 

time? 

17. Should we limit the exceptions for 

market fluctuations, unusually large 

cash flows, and temporary defensive 

positions to 30 days as proposed or 

some other amount of time? Does the 

proposed 30-day limit raise any 

interpretive questions or potential 

compliance concerns the Commission 

should address in the rule text or as 

guidance? Are we correct in our belief 

that it will be unusual for funds to need 

to engage in these activities past that 

period? At what point can it be 

reasonably said that the nature of the 

fund has changed in these 

circumstances? 

18. Should funds be limited, as 

proposed, to taking positions in cash 

and cash equivalents or government 

securities outside of their 80% 

investment policies in the case of a 

temporary defensive position? Are there 

other investments that funds use to 

protect the fund in the case of adverse 

market, economic, political, or other 

conditions? For example, should the 

rule allow funds to invest in securities 

that are similar to these investments? 

What kinds of investments do funds 

hold currently when taking defensive 

positions? 

19. Is the requirement to bring a fund 

back into compliance with the 80% 

investment requirement as soon as 

reasonably practicable appropriate? Is it 

sufficient to protect against concerns 

about portfolio drift? 

20. Is ‘‘as soon as reasonably 

practicable’’ readily understood? Would 

funds benefit from additional guidance 

on what would (or would not) satisfy 

this standard? How long would it 

typically take for a fund to come back 

into compliance with its 80% 

investment policy where a fund asset 

has increased or decreased in value? 

21. Under the proposed amendments, 

the 30-day period runs from the time the 

fund invests less than 80% of the value 

of its assets in accordance with its 80% 

investment policy. Should the rule 

instead specify that it run from the 

beginning of one of the precipitating 

sets of circumstances that the rule 

describes? 

22. Under what circumstances do 

funds currently depart from the 80% 

investment requirement? Are there any 

circumstances not covered by the 

proposed rule amendments that an 

investor would expect? For example, 

should we also exempt departures 

relating to a name or investment policy 

change? If so, how long do these actions 

typically take? Should we limit such 

departures to 30 days? To what extent 

do these actions typically fall within the 

definition of ‘‘reorganization’’ under the 

Act, for example, by resulting in the sale 

of 75% or more in value of the assets of 

a fund? 

23. Instead of specifying the 

circumstances in which a fund may 

depart from the 80% investment 

requirement, should we retain the 

current provision that an 80% 

investment policy applies under normal 

circumstances but specify that, in any 

event, departures may not persist for 

more than 30 days? Would investor 

expectations be met under these 

circumstances? 

24. Instead of limiting temporary 

departures (except in the context of 

fund reorganizations or launches) to 30 

days, should the rule instead provide 

that, if a temporary departure persists 

past 30 days, the fund’s board must 

approve, or be informed in writing 

about, the temporary departure? If we 


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73See supra footnote 17. 

74See proposed rule 35d–1(g)(2). 

75See proposed rule 35d–1(b)(2). 

76See, e.g., Capital Markets Comment Letter 

(stating that ‘‘[i]n practice, however, funds have 

been inconsistent in how derivative investments 

apply towards the 80% investment requirement: 

while some funds assert that a derivative’s notional 

value is more appropriate than its market value for 

purposes of complying with the 80% investment 

policy, many funds employ a derivative’s market 

value for the asset-based test’’). 

were to require board approval, should 

we require that a majority of the 

independent directors also approve of 

the departure? Should the approval or 

written report be required to be given 

by, or provided to, the board 

immediately, or no later than its next 

regularly scheduled board meeting? To 

the extent that the rule were to include 

board reporting, should we also require 

the report to include a recommendation 

from the fund’s adviser about whether 

to rebalance the fund’s holdings over a 

longer period of time, or to initiate a 

name change? Should we include a 

recordkeeping requirement for the 

report? Should we also require reporting 

to the Commission on a non-public 

basis regarding a departure that lasts 

longer than 30 days, the reasons for the 

departure, and the adviser’s plan to 

resolve the departure, with a follow-up 

report to the Commission once the 

departure has been resolved? Should we 

require a fund to notify the board about 

temporary departures even if they do 

not persist beyond 30 days? For 

example, while funds would be required 

to include a discussion of material 

compliance matters involving the names 

rule in their annual reports required 

under rule 38a–1, should we further 

require that these reports, or board 

reports in connection with regularly 

scheduled board meetings, identify the 

number of and reason for temporary 

departures during the period covered by 

the report? 73

25. Does the proposed 30-day 

limitation create any compliance issues 

with other provisions of the federal 

securities laws? For example, how 

would a fund address a situation where, 

in order to meet the 30-day limit, it had 

to invest more than 15% of its net assets 

in illiquid investments, contrary to 17 

CFR 270.22e–4 (‘‘rule 22e–4,’’ or the 

‘‘liquidity rule’’)? Should we permit 

temporary departures to exceed the 30- 

or 180-day limits where meeting the 

80% investment requirement would 

conflict with the requirements of the 

liquidity rule, and if so, how should we 

address any attendant investor 

protection concerns? Are there any 

circumstances when the investments 

suggested by a fund’s name become 

illiquid for more than 30 days? 

26. Should we provide a specific time 

limit on temporary departures relating 

to fund reorganizations? If so, how long 

should it be? 

27. Similarly, should we provide a 

specific time limit on the temporary 

departure where the fund has provided 

notice to shareholders under the rule? If 

so, should it be 60 days consistent with 

the rule’s notice requirements or some 

other time? Should we extend a similar 

provision to funds with redeemable 

securities that have suspended 

redemptions under section 22(e) of the 

Act, or under analogous circumstances, 

such as market closures, for funds that 

do not issue redeemable securities? 

28. Is 180 consecutive days the 

appropriate time to permit temporary 

departures relating to fund launches? If 

not, what would be a more appropriate 

time? Should we generally provide 

different time frames depending on the 

type of fund? For example, should we 

require a shorter period than 180 days 

for launches of open-end funds, which 

typically invest in relatively liquid 

assets and which receive cash from 

share purchases on an ongoing basis, to 

avoid harm to early investors in those 

funds? Is the proposed definition of 

‘‘launch’’ appropriate, or would a 

different definition (e.g., the date that a 

fund’s registration statement becomes 

effective) be more appropriate? 

29. To what extent do portfolio 

managers keep funds close to the 80% 

investment requirement currently, or do 

they typically retain some buffer above 

that amount? 

30. How often do different types of 

funds currently assess compliance with 

an 80% investment policy? Are we 

correct in our assessment that many 

funds already review their names rule 

compliance daily or on an intraday 

basis? How does this compliance 

assessment take into account whether 

characteristics of an investment may 

have changed (e.g., changes in market 

capitalization of equity holdings, or 

changes with respect to whether a 

particular holding continues to be an 

investment in a particular industry)? To 

the extent that certain funds generally 

assess compliance at least daily, does 

the proposed alternative approach to the 

current time of investment test increase 

investor protection, both for these funds 

specifically and across the fund 

industry? 

31. Should we make any changes to 

the proposed temporary departure 

provisions to more specifically address 

tax-exempt funds? For example, should 

the provisions’ 30-day limit specifically 

address tax-exempt funds that adopt a 

policy to invest their assets so that at 

least 80% of the income they distribute 

is tax-exempt, given that income 

distributions can be less frequent than 

monthly? How often do such funds 

engage in temporary departures under 

the current rule? 

3. Considerations Regarding Derivatives 

in Assessing Names Rule Compliance 

We are proposing to address both the 

valuation of derivatives instruments for 

purposes of determining compliance 

with its 80% investment policy, as well 

the derivatives that a fund may include 

in its 80% basket. Specifically, the 

proposed amendments would 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 discussed 

below, and reduce the value of its assets 

by excluding cash and cash equivalents 

up to the notional amounts of the 

derivatives instrument(s).74 The 

proposed amendments also would 

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 

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 investments suggested by the fund’s 

name.75 Accordingly, when a fund 

determines its compliance with its 80% 

investment policy, all derivatives 

instruments would be included in the 

denominator in the calculation, as well 

as any derivatives in the fund’s 80% 

basket, i.e., the numerator in the 

calculation. We designed these 

proposed amendments to reflect the 

investment exposure derivatives 

investments create better 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.76 The amendments are designed 

both to allow funds to use names that 

may more effectively communicate their 

investments and risks to investors 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. 

Funds currently are permitted to 

include synthetic instruments, such as 

derivatives instruments, in the fund’s 

80% basket if the synthetic instrument 


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77Names Rule Adopting Release, supra footnote 

2, at 8511, n.13 (stating that the rule’s reference to 

‘‘investments,’’ rather than ‘‘securities’’ as 

proposed, would permit a fund in appropriate 

circumstances to include a synthetic instrument in 

the 80% basket if it has economic characteristics 

similar to the securities included in that basket). 

78 15 U.S.C 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). 

79A fund’s use of notional amounts when 

determining the value of the fund’s assets in the 

80% basket would not affect the fund’s valuation 

practices under rule 2a–5 under the Act [17 CFR 

270.2a–5]. 

80See Derivatives Rule Adopting Release, supra 

footnote 27, at section II.E.1. 

81 Id. 

82 Id. 83Our proposed approach to value derivatives 

instruments using their notional amounts does not 

distinguish between derivatives instruments that 

are assets versus derivatives that are liabilities of 

the fund. For example, assume a fund enters into 

a total return swap based on an index with a 

notional amount of $100 million, and that index 

declines a very small amount. The total return swap 

would be a liability of the fund until the fund 

extinguishes that liability through the payment of 

variation margin. The notional amount of the swap 

would still reflect the magnitude of the fund’s 

investment exposure notwithstanding the fund’s 

then-current loss on the investment. For this reason, 

the proposal would require funds, in measuring 

their assets for purposes of names rule compliance, 

to include the notional amount of any derivatives 

instrument, regardless of whether it is an asset or 

liability of the fund. 

has economic characteristics similar to 

the securities included in the 80% 

basket.77 A fund, therefore, currently 

could include derivatives with these 

characteristics along with cash market 

investments in assessing whether 80% 

of the value of its assets is invested in 

accordance with the investment focus 

that the fund’s name suggests. A 

derivatives instrument’s ‘‘value,’’ as 

defined in the Act, however, may bear 

no relation to the investment exposure 

created by the derivatives instrument.78

For example, a total return swap on a 

market index generally will have a zero 

market value at inception, and will 

change in market value based on any 

appreciation or depreciation in the 

index, not on the fund’s investment 

exposure. A fund entering into a swap 

or other derivative referencing a market 

index with a notional amount of $1 

million would achieve the same 

economic exposure as investing $1 

million in the underlying securities 

directly, but the swap’s market value 

therefore generally would be far smaller 

than $1 million and would not reflect 

the swap’s investment exposure. 

Further, using a 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. Take, for example, a fund 

with the term ‘‘emerging market debt’’ 

in its name. While the fund could 

directly own emerging market debt 

securities, this could be inefficient due 

to transaction and custody costs, foreign 

regulatory requirements, and reduced 

liquidity. It may be most efficient for the 

fund to enter into a total return swap 

that provides economic exposure to the 

emerging market debt securities. 

However, the swap’s market value may 

be a small percentage of the fund’s net 

assets such that the fund’s emerging 

market debt investments would not be 

sufficient to comply with the fund’s 

80% investment policy. 

Moreover, 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. For example, a fund 

with emerging market debt in its name 

could invest 80% of its assets in 

emerging market debt, but also could 

use derivatives to obtain substantial 

investment exposure to U.S. equities. 

The fund might satisfy its 80% 

investment policy using the derivatives’ 

market values for this purpose because 

the market value of a fund’s derivatives 

investment can be small and unrelated 

to its investment exposure, as discussed 

above. But this fund’s name could be 

deceptive and misleading if the 

performance of U.S. equities and not 

emerging market debt were the primary 

driver of the fund’s risk and returns. 

Use of Derivatives’ Notional Amounts 

The names rule is designed to ensure 

that a fund’s investment activity 

supports the investment focus its name 

communicates, and for funds that use 

derivatives instruments, the investment 

exposure of those derivatives 

instruments is generally better reflected 

by a derivatives instrument’s notional 

amount than by its market value. 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. A total return swap, for 

example, can provide a return that is the 

economic equivalent of a direct 

investment in the derivative’s reference 

asset. Accordingly, we are proposing 

that for purposes of determining a 

fund’s compliance with its 80% 

investment policy, the fund must value 

a derivatives instrument using its 

notional amount with certain 

adjustments.79

In calculating notional amounts for 

these purposes, a fund would be 

required to convert interest rate 

derivatives to their 10-year bond 

equivalents and to delta adjust the 

notional amounts of options contracts. 

The proposed 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.80 We believe that, 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.81 Further, the 

proposed 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.82 We 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. 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. 

Scope of the Proposed Approach 

Our proposed approach would apply 

to all of a fund’s derivatives 

instruments. That is, when assessing 

compliance with a fund’s 80% 

investment policy, the fund would be 

required to value all of its derivatives 

positions using notional amounts. The 

proposed approach would apply to both 

the numerator and the denominator in 

the calculation that the fund would use 

to determine compliance with its 80% 

investment policy.83

Deduction From Assets of Cash and 

Cash Equivalents Up to Notional 

Amounts 

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. For purposes of 

determining such a fund’s compliance 

with its 80% investment policy, our 

proposed approach would require the 

deduction of cash and cash equivalents 

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


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84See proposed rule 35d–1(g)(2). 

85Cf. Invesco Comment Letter (recommending 

that a fund electing to include derivatives in its 

80% investment policy be required to deduct the 

value of cash and cash equivalents when 

determining the denominator for its 80% test). 

86See, e.g., Derivatives Rule Adopting Release, 

supra footnote 27, at text accompanying n.749 

(stating that ‘‘[t]he Commission has also stated that 

items commonly considered to be cash equivalents 

include Treasury bills, agency securities, bank 

deposits, commercial paper, and shares of money 

market funds’’). 

87See, e.g., BlackRock Comment Letter; Capital 

Group Comment Letter; ICI Comment Letter I; T. 

Rowe Price Comment Letter. 

88See Invesco Comment Letter (suggesting that a 

fund should generally value a derivatives 

instrument included in its 80% basket using the 

derivatives instrument’s notional value, ‘‘gross up’’ 

the denominator in the 80% test to include these 

derivatives’ notional amounts, and suggesting 

adjustments for interest rate derivatives and 

involving the ‘‘delta adjustments’’ of the notional 

value of options positions; also suggesting that the 

fund deduct the value of cash and cash equivalents 

when determining the denominator for its 

compliance with the 80% investment policy 

requirement); see also BlackRock Comment Letter 

Continued 

80% calculation) up to the notional 

amounts of the fund’s derivatives 

instruments.84 This aspect of the 

proposed approach is designed to 

remove from the calculation cash and 

cash equivalents, which do not 

themselves provide market exposure, 

where they effectively function as lowrisk collateral for the derivatives 

instruments whose notional amounts 

already are included in the denominator 

and thus including this collateral would 

effectively ‘‘double-count’’ the fund’s 

exposure.85 That is, where a fund holds 

derivatives and cash and cash 

equivalents, the fund is obtaining its 

investment exposure through the 

derivatives, not the cash and cash 

equivalents, and including both the 

derivatives measured at their notional 

amounts and the value of the cash and 

cash equivalents would overstate the 

scale of the fund’s market exposure 

obtained through the derivatives 

instruments. If a fund held derivatives 

and cash market securities, like 

investments in equity securities or 

bonds, both the notional amounts of the 

derivatives and the value of the 

securities would be required to be 

included because the fund would be 

obtaining market exposure through both 

kinds of investments. 

Using an example, assume an equity 

fund enters into an equity swap with a 

notional amount of $80 and holds $80 

in U.S. Treasury bills and $20 in other 

securities.86 Assume the swap has a 

market value of $0. If the equity fund 

were to include the notional amount of 

the swap in numerator and in the 

denominator when determining the 

fund’s compliance with its 80% 

investment policy without excluding 

the U.S. Treasury bills, the fund would 

not be in compliance with the 80% 

investment requirement ($80 swap 

notional amount/$180 = 44%). This 

would be the case even though, 

economically, the fund is achieving an 

investment exposure akin to investing 

$80 in equity securities directly (i.e., the 

swap could be viewed as a synthetic 

position in equity securities). If the 

equity fund were to deduct the $80 in 

U.S. Treasury bills from the 

denominator when determining the 

fund’s compliance with its 80% 

investment policy, the fund would 

satisfy that requirement ($80 swap 

notional amount/$100 = 80%). By way 

of contrast, however, assume that the 

fund invests the $80 in corporate debt 

instead. Now, the fund would fail the 

80% investment requirement: $80 swap 

notional amount/$180, composed of $80 

swap notional + $80 corporate debt + 

$20 other investments = 44%. The 

equity fund would not predominately 

have the equity exposure that its name 

would suggest. 

Derivatives Instruments Included in the 

80% Basket 

We recognize 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, credit spread risk, and 

foreign currency risk). Those 

instruments may have very high 

notional amounts. For example, a 

foreign equity or bond fund may hold 

substantial currency forwards or swaps 

to hedge foreign currency risk. 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. For example, if ABC 

Foreign Equity Fund invested $100 in 

foreign equity securities, $100 in 

currency forwards, and held no other 

assets, the fund would not satisfy its 

80% investment policy if the currency 

forwards were not included in the 

fund’s 80% basket ($100 in foreign 

equity securities/$100 in foreign equity 

securities + $100 currency forwards = 

50%). 

Thus, in addition to any derivatives 

instrument that the fund includes in its 

80% basket because it provides 

investment exposure to the investments 

suggested by the fund’s name, our 

proposed approach would 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 investments suggested by the fund’s 

name. As a result, 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 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. We believe that our 

proposed approach would help ensure 

that the fund’s use of derivatives would 

not be inconsistent with investors’ 

reasonable expectations of the fund’s 

investment activity. 

As illustrated in the example above 

regarding ABC Foreign Equity Fund, a 

foreign equity fund may hedge currency 

risks by entering in currency forwards 

with high notional amounts. If these 

notional amounts were not included in 

the fund’s 80% basket, the fund might 

not be able to comply with its 80% 

investment policy even though the 

currency forwards relate to the foreign 

equity securities suggested by the fund’s 

name. Accordingly, we believe it would 

be reasonable for a fund to include a 

derivatives instrument in its 80% basket 

where the derivatives instrument 

provides investment exposure to one or 

more of the market risk factors 

associated with the investments 

suggested by the fund’s name. As 

another example, the XYZ Corporate 

Bond Fund, whose portfolio includes 

corporate bonds as well as interest rate 

swaps to manage the portfolio’s overall 

duration, could include the interest rate 

derivatives in its 80% basket. 

Comments Received 

Several commenters responding to the 

2020 Request for Comment addressed 

the valuation of derivatives in 

measuring a fund’s compliance with its 

80% investment policy. Many 

commenters urged the Commission to 

permit funds to use notional amounts to 

value derivatives instruments because a 

derivatives instrument’s market value 

may bear little relation to the fund’s 

investment exposure to the kinds of 

investments suggested by the fund’s 

name.87 Further, one commenter 

suggested amendments to the names 

rule that generally would require a fund 

that includes derivatives in its 80% 

basket to use the notional value of 

derivatives instruments, adjusted as this 

proposal reflects, when measuring its 

compliance with its 80% investment 

policy.88 We agree with commenters 


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(requesting clarification that the market value of 

cash and cash equivalents should be deemed an 

eligible asset that is included in a fund’s 80% 

basket and considered part of the derivatives 

exposure in determining compliance with a fund’s 

80% investment policy). 

89See, e.g., Council of Institutional Investors 

Comment Letter; Nuckolls Comment Letter. 

90 Id. 

91See infra section II.F; see also proposed Item 

C.2.e of Form N–PORT. 

92Consumer Federation of America Comment 

Letter. 

93 Id. 

94CFA Institute Comment Letter. 

95See Derivatives Rule Adopting Release, supra 

footnote 27. 

that notional amounts better reflect the 

fund’s investment exposure. For the 

reasons discussed above, our proposed 

approach would require a fund to use 

the notional amounts of its derivatives 

instruments when measuring the fund’s 

compliance with its 80% investment 

policy. 

In contrast, other commenters 

suggested that a fund’s derivatives 

investments generally should be valued 

at market value for these purposes.89

Some commenters stated that this 

approach better indicates price 

sensitivity, the risks to a fund’s 

portfolio, and comparability across 

funds.90 A derivative’s market value 

reflects profits and losses that the fund 

has incurred on any given date, and we 

agree that the concerns that commenters 

discuss are important for funds to 

consider as part of their valuation and 

risk management processes. However, 

we believe these topics are less relevant 

to the names rule’s policy goal of 

ensuring that a fund’s investments, and 

the sources of the fund’s returns, are in 

line with the investment focus that the 

fund’s name reflects. This is because, as 

discussed above, a fund’s gains and 

losses on a derivatives investment do 

not reflect the investment exposure the 

derivatives create. We also believe that 

transparency regarding a fund’s 

compliance with its 80% investment 

policy and the investments a fund 

includes in its 80% basket are 

important. Our proposal would provide 

transparency, which in turn would 

permit additional comparability, in the 

proposed Form N–PORT reporting 

requirements that would require funds 

to identify each investment that is 

included their 80% baskets.91 Current 

Form N–PORT reporting requirements 

would continue to provide transparency 

regarding the market value of each of 

these investments. 

Another commenter addressed the use 

of derivatives instruments more 

generally. This commenter suggested 

that the Commission ‘‘limit’’ an 

approach that would permit funds to 

use notional values for purposes of 

names rule compliance, stating that 

derivatives instruments have risks that 

differentiate them from cash market 

holdings.92 That commenter also stated 

that it would be misleading or deceptive 

for a fund to gain significant exposure 

through a derivative to a particular asset 

class but use a name that reflects 

exposure to a different asset class.93

Alternatively, a commenter suggested 

that a fund’s name should reflect the use 

of derivatives when a fund uses 

derivatives frequently or when the fund 

uses derivatives for frequent, nontactical uses and creates exposures 

equal to or greater than one-third of the 

total exposures for all investment 

vehicles in the fund’s portfolio.94

We agree that funds’ use of 

derivatives presents unique risks. After 

the compliance date of rule 18f–4 (17 

CFR 270.18f–4), funds that enter into 

derivatives under that rule will be 

required to satisfy that rule’s 

conditions.95 We do not believe that a 

fund’s name generally would provide 

such specific information about fund 

risks—such as differences in risks 

between derivatives and cash-market 

investments—which instead must be 

disclosed in a fund’s prospectus. 

Particularly where a fund name refers to 

asset classes like ‘‘equity’’ or ‘‘credit,’’ 

investors might not form specific 

expectations about how the fund would 

obtain that investment exposure—in 

contrast to fund names that refer to 

categories of instruments like ‘‘stock’’ 

that may result in these types of investor 

expectations. 

However, we do agree that it could be 

misleading or deceptive for a fund to 

gain significant exposure through a 

derivatives instrument to a particular 

asset class but use a name that reflects 

exposure to a different asset class. Our 

proposed approach is designed to 

address this concern, in requiring a fund 

to value all of its derivatives 

instruments using their notional 

amounts for purposes of determining 

names rule compliance as this would 

better reflect the investment exposure of 

all of the fund’s derivatives investments. 

We request comment on our proposed 

approach with regard to the valuation of 

derivatives instruments when assessing 

the fund’s compliance with its 80% 

investment policy, as well as the 

derivatives that a fund may include in 

its 80% basket: 

32. Is it appropriate to require a fund 

to use a derivatives instrument’s 

notional amount, with certain 

adjustments, and to reduce the value of 

its assets for this purpose by excluding 

any cash and cash equivalents up to the 

notional amount of the derivatives 

instrument, as proposed? Are there 

circumstances in which the use of 

market values would be more 

appropriate, and if so, what are these 

circumstances? Should we restrict the 

use of notional amounts in cases where 

investors place importance on the fund 

holding the underlying assets, as 

opposed to cases where investors place 

importance on the exposures that the 

fund’s investments create? How would 

we identify those cases? For example, 

should we limit the extent to which an 

ESG-focused fund, or some subset of 

ESG-focused funds, may use derivatives’ 

notional amounts? Alternatively, rather 

than focusing on the fund’s financial 

exposure, should we, for example, focus 

on measures of risk? If so, which risk 

measures would be most effective for 

this purpose and why? 

33. Is it appropriate to require a fund 

to convert the notional amounts of 

interest rate derivatives into 10-year 

bond equivalents and to delta adjust the 

notional amounts of options contracts 

for purposes of determining compliance 

with the 80% investment policy, as 

proposed? Are there compliance or 

other challenges associated with the 

proposed approach for interest rate 

derivatives and options contracts? Are 

there additional adjustments that should 

be made for purposes of assessing a 

fund’s compliance with its 80% 

investment policy? Should we permit 

these adjustments rather than require 

them? Is it sufficiently clear that funds 

would eliminate from the 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 should the rule address these 

positions? What positions do funds treat 

as closed-out currently when 

determining compliance with the names 

rule? 

34. For purposes of determining a 

fund’s compliance with its 80% 

investment policy, we are proposing 

that the fund reduce the value of its 

assets by excluding any cash and cash 

equivalents up to the notional amount 

of the derivatives instruments. Is this 

reduction appropriate? Does this 

exclusion of cash and cash equivalents 

up to the notional amount of the 

derivatives instruments reduce the 

value of the fund’s assets by too much 

or too little? Are there other low-risk 

collateral investments that may be used 

for cash management, such as shortterm bonds, that also should be 

excluded for this purpose? Should only 

assets that may be used as collateral for 


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derivatives instruments be excluded for 

this purpose? If so, how should we 

determine if those assets may be used as 

collateral for derivatives instruments? 

Alternatively, rather than excluding 

cash and cash equivalents from the 

value of assets, should we permit a fund 

to include in its 80% basket cash and 

cash equivalents used as collateral for 

derivatives instruments that provide 

synthetic exposure to the type of 

investment(s) in which the fund’s name 

suggests a focus? 

35. As proposed, the derivatives 

valuation approach would apply not 

only to non-tax-exempt funds that are 

required to adopt an 80% investment 

policy, but also to funds that have 

adopted a policy to invest at least 80% 

of the value of their assets in 

investments the income from which is 

exempt, as applicable, from federal 

income tax or from both federal or state 

income tax. We are not aware of 

circumstances in which the returns of a 

derivatives instrument referencing a taxfree security are themselves tax-free. Are 

there such circumstances? If not, should 

we specifically exclude tax-exempt 

funds from the requirement to use 

derivative instruments’ notional 

amounts for purposes of determining 

their assets under the names rule? 

36. Should we permit, rather than 

require as proposed, a fund to use 

notional amounts of derivatives 

instruments for purposes of determining 

the fund’s compliance with its 80% 

investment policy? If so, are there any 

limits that the rule should include—or 

guidance the Commission should 

provide—on funds’ ability to use 

notional amounts for these purposes, or 

to switch between notional and market 

values? For example, should a fund that 

chooses to use notional amounts to 

value derivatives instruments for 

purposes of determining names rule 

compliance, but then later chooses to 

use their market value for these 

purposes, be required to provide prior 

notice to investors, for example, 60 days 

before the change were effected? Would 

investors find such information helpful? 

Should the fund’s board be informed of, 

or approve, such a change? 

37. Would permitting the use of 

notional amounts, rather than requiring 

this approach, as proposed, result in a 

fund valuing similar derivatives 

instruments differently for purposes of 

complying with the fund’s 80% 

investment policy? Should a fund be 

permitted to value similar derivatives 

instruments differently for purposes of 

complying with the fund’s 80% 

investment policy as long as the fund 

discloses that difference in its 

prospectus? Would an investor find that 

disclosure helpful? 

38. Are there operational or 

interpretive challenges associated with 

the proposed approach to addressing 

derivatives instruments in the names 

rule, and if so, what are these and how 

should the Commission’s rules and/or 

guidance address those challenges? 

39. If a fund were to use derivatives 

instruments to obtain exposure to short 

positions in one or more reference 

assets, the proposed amendments would 

require a fund to use these derivatives 

instruments’ notional amounts for 

purposes of determining compliance 

with its 80% investment policy. These 

investments therefore 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. Is this treatment appropriate, 

or would the use of market values for 

short positions in the context of 

assessing names rule compliance be 

more appropriate? If funds currently 

subject to the 80% investment policy 

requirement include short positions in 

their 80% baskets, how are these 

positions valued for these purposes 

(e.g., using the value of the short 

position, the value of the asset sold 

short, or if the fund obtains short 

exposure using derivatives, the 

derivatives’ notional amounts)? Should 

the names rule address the valuation of 

physical short sales, and if so, how 

should these be valued for purposes of 

assessing names rule compliance? 

Should we provide in the rule that, for 

purpose of the names rule, a short sale’s 

value is the value of the security or 

other asset sold short? Would that 

provide reasonably comparable 

treatment for physical short sales and 

derivatives that provide short 

investment exposure? Should the rule 

prohibit a fund from including 

derivatives instruments in its 80% 

basket when those instruments provide 

inverse exposure to the investments 

suggested by the fund’s name? 

40. In addition to any derivatives 

instrument that the fund includes in its 

80% basket because it provides 

investment exposure to the investments 

suggested by the fund’s name, we are 

proposing to permit a fund to include in 

its 80% basket derivatives instruments 

that provide investment exposure to one 

or more of the market risk factors 

associated with the investments 

suggested by the fund’s name. What 

types of funds, and derivatives use, 

would be implicated by our proposed 

approach? Would this proposed 

approach raise investor protection 

issues? Alternatively, should we 

require, rather than permit, a fund to 

include in its 80% basket derivatives 

instruments that provide investment 

exposure to one or more of the market 

risk factors associated with those 

investments? Are there circumstances in 

which exposure to associated risk 

factors provided by the derivatives 

instruments may be contrary to, or 

otherwise different from, the 

investments suggested by the fund’s 

name and should not be permitted? 

41. Are there limits to the derivatives 

instruments that a fund should be 

permitted to include in its 80% basket 

because they provide investment 

exposure to one or more of the market 

risk factors associated with the 

investments suggested by a fund’s 

name? For example, should the rule 

permit a fund only to include 

derivatives instruments in its 80% 

basket when they hedge currency or 

interest rate risks associated with one or 

more specific investments that the fund 

holds in its 80% basket? 

42. A fund’s name generally does not 

provide investors with specific 

information about fund risks, such as 

differences in risks between derivatives 

and cash-market investments—which 

instead must be disclosed in a fund’s 

prospectus. However, where a fund’s 

name refers to certain asset classes, for 

example ‘‘stocks’’ and ‘‘bonds,’’ do 

investors form specific expectations 

about how the fund would obtain that 

investment exposure? In those cases, 

should we prohibit a fund from 

including derivatives in its 80% basket 

on the basis that investors expect the 

fund to invest directly in those kinds of 

securities in the cash markets? 

Alternatively, should we require a fund 

that includes derivatives instruments in 

the fund’s 80% basket to include 

‘‘derivatives’’ (or similar terminology) in 

its name? Are there other cases where 

we should require a fund that includes 

derivatives instruments in the fund’s 

80% basket to include this type of 

terminology in its name? 

43. In addition to derivatives, are 

there other asset types or instruments 

that would benefit from more 

clarification about how they should be 

valued for purposes of determining 

compliance with the fund’s 80% 

investment policy? 

4. Unlisted Closed-End Funds and BDCs 

We are proposing to require that a 

fund’s 80% investment policy must 

always be a fundamental investment 

policy if the fund is a registered closedend investment company or BDC that 

does not have shares that are listed on 

a national securities exchange (together, 


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96See proposed rule 35d–1(a)(2)(ii). 

97Proposed rule 35d–1(g)(6). Section 8(b)(3) of 

the Act requires a registered investment company 

to recite all of its policies that it deems matters of 

fundamental policy in its registration statement. For 

a registered investment company, section 13(a)(1) of 

the Act requires a vote of a majority of its 

outstanding voting securities for changes to policies 

adopted under section 8(b)(3). The proposed 

amendments would only permit BDCs to change 

such policies if authorized by the vote of a majority 

of the outstanding voting securities of the BDC. 

98Names Rule Adopting Release, supra footnote 

2, at n.19 and accompanying text. 

99While unlisted closed-end funds and BDCs 

often offer a periodic issuer repurchase tender offer, 

these can be discretionary on behalf of the issuer 

or adviser, only offered at specific intervals (e.g., 

quarterly), and limited to a certain percentage or 

amount to repurchase, such as participation in the 

issuer’s dividend re-investment program. See, e.g., 

FS Energy and Power Fund, SEC Staff No-Action 

Letter (Jan. 10, 2012), available at https:// 

www.sec.gov/divisions/marketreg/mr-noaction/ 

2012/fsenergy-011012.pdf (discussing one such 

BDC’s repurchase program). These share 

repurchases can take an extended period of time, 

and shareholders may be unable to fully divest their 

shares. 

100Proposed rule 35d–1(c). 

101Names Rule Adopting Release, supra footnote 

2 (‘‘We note, however, that the 80% investment 

requirement is not intended to create a safe harbor 

for investment company names. A name may be 

materially deceptive and misleading even if the 

investment company meets the 80% requirement.’’). 

‘‘unlisted closed-end funds and 

BDCs’’).96 A ‘‘fundamental investment 

policy’’ under the proposed rule 

amendments would be a policy adopted 

under section 8(b)(3) of the Act or, if the 

fund is a BDC, a policy that is 

changeable only if authorized by the 

vote of a majority of the outstanding 

voting securities of the fund.97 As a 

result, unlisted closed-end funds and 

BDCs would not be permitted to change 

their 80% investment policies without 

shareholder approval. 

Under the current rule, unless a 

fund’s name suggests that it is a taxexempt fund, an unlisted 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. The 

Commission permitted funds to provide 

shareholders advance notice, in lieu of 

adopting a fundamental policy, because 

the advance notice would provide 

shareholders sufficient time to decide 

whether to redeem their shares in the 

event that the investment company 

decides to pursue a strategy involving a 

different investment focus.98 Unlisted 

closed-end funds and BDCs, however, 

do not issue redeemable shares or list 

their shares on a national securities 

exchange. A shareholder in an unlisted 

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.99

We therefore do not believe that 

advance notice is effective in the case of 

unlisted closed-end funds and BDCs 

because their shareholders generally 

cannot use the time provided by the 

notice to exit their investments if they 

do not wish to remain invested after the 

change in the fund’s investment policy. 

For example, absent this proposed 

change, these funds could launch with 

one name and corresponding 80% 

investment policy but then change that 

policy with little to no recourse for their 

shareholders. The proposal would 

address this by ensuring that investors 

in unlisted closed-end funds and BDCs 

would be able to vote on a change in 

investment policy in light of their 

limited options to exit their investments 

if the change were made. 

We request comment on the proposed 

requirement for unlisted closed-end 

funds and BDCs that any 80% 

investment policy they adopt in 

compliance with the names rule must be 

a fundamental investment policy. 

44. Should we expand this 

requirement to any other type of fund? 

For example, secondary-market 

liquidity for some listed closed-end 

funds and BDCs may not be sufficient 

for shareholders to exit their 

investments within the 60-day notice 

period without needing to sell at a price 

that represents a significant discount 

from net asset value either because of 

the introduction of significant new sellside interest or because of an existing 

discount in the market. Should we 

require that any 80% investment policy 

that these funds adopt also be a 

fundamental investment policy? 

45. Are there any unlisted closed-end 

funds or BDCs for which our proposed 

approach may be less necessary to 

address investor protection 

considerations? For example, are there 

any unlisted closed-end funds or BDCs 

that offer shareholders liquidity through 

discretionary repurchase programs 

sufficient to allow shareholders to 

tender all of their shares within the 60- 

day notice period? 

46. As an alternative to this 

requirement, should we require longer 

advance notice than 60 days for these 

funds? If so, what length of time would 

be necessary for shareholders to exit 

their investments? Further, should we 

not require fundamental policies of 

unlisted interval funds that provide 

advance notice and make a 

discretionary repurchase offer under 17 

CFR 270.23c–3(c) for their outstanding 

shares? Would the current regulatory 

limits on interval funds’ repurchases 

affect the investor protection 

considerations of this alternative 

approach? 

47. Should potential barriers to exit be 

the primary consideration underlying 

whether we require funds’ names rule 

investment policies to be fundamental 

investment policies? For example, 

should we only require unlisted closedend funds or BDCs to adopt their names 

rule investment policies as fundamental 

investment policies, and remove the 

current requirement for tax-exempt 

funds’ names rule investment policies to 

be fundamental investment policies? 

48. Should we require any other 

protections for investors in unlisted 

closed-end funds and BDCs? For 

example, should we mandate that these 

funds must make an issuer tender offer 

or a repurchase offer when they change 

an 80% investment policy and are not 

already required to redeem their shares? 

Should we offer this as an alternative in 

the names rule to the proposed 

fundamental policy requirement? If so, 

how much should we require these 

funds to offer to repurchase, for 

example, 100% or some other 

percentage? 

5. Effect of Compliance With an 80% 

Investment Policy 

We are proposing 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 

policy and otherwise complies with the 

rule’s requirement to adopt and 

implement the policy.100 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 we are 

proposing to codify 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.101

The rule requires, and proposed rule 

amendments would continue to require, 

a fund to invest at least 80% of its assets 

consistent with its name, but do not 

prescribe how the fund invests the 

remaining 20%. A fund’s name could be 

materially deceptive or misleading for 

purposes of section 35(d) if, for 

example, a fund complies with its 80% 

investment policy but makes a 

substantial investment that is 

antithetical to the fund’s investment 

focus (e.g., a ‘‘fossil fuel-free’’ fund 

making a substantial investment in an 

issuer with fossil fuel reserves). 

Similarly, 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 


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102See Names Rule Adopting Release, supra 

footnote 2, at section II.A.1 (also stating that a UIT 

with a name indicating that its distributions are taxexempt may have a misleading name even if it 

invests 80% of its assets in tax-exempt 

investments). 

103See also, e.g., IRC Comment Letter; Silent 

Majority Comment Letter; PIABA Comment Letter 

(recommending treating names of indexes used in 

fund names the same as fund names themselves). 

But see BlackRock Comment Letter; Invesco 

Comment Letter; SIFMA AMG Comment Letter 

(recommending the Commission clarify that index 

funds can meet their 80% investment policies if 

they invest 80% of the value of their assets in the 

constituents of the underlying index). 

104See proposed instruction to Item 4(a)(1) of 

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

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

Form N–8B–2. 

105See General Instruction C.3.(g) of Form N–1A; 

General Instruction I of Form N–2; proposed 

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

proposed General Instruction 5 of Form S–6; see 

also infra footnote 114. 

106See rule 35d–1(a)(3)(ii). 

107See Names Rule Adopting Release, supra 

footnote 2, at n.15. 

108See id. at n.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). 

109Codifying these practices might especially be 

helpful for a fund that relies on rule 498 under the 

Securities Act of 1933 to send a summary 

prospectus, since such a fund would include only 

content that the form requirements specifically 

Continued 

a substantial portion of the fund’s risk 

or returns is 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 

short-term 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 short-term 

bonds). In discussing fund names that 

may be materially deceptive and 

misleading notwithstanding the fund’s 

compliance with its 80% investment 

policy, the Commission previously 

stated that index funds generally would 

be expected to invest more than 80% of 

the value of their assets in investments 

connoted by the applicable index.102 As 

noted in the 2020 Request for Comment, 

a fund may be invested 80% or more in 

an index included in the fund’s name, 

but that underlying index may have 

components that are contradictory to the 

index’s name. 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.103

As a final 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. 

We request comment on the proposed 

provision stating that technical 

compliance with an 80% investment 

policy does not cure a fund name that 

is otherwise materially deceptive or 

misleading. 

49. Should we codify in the rule, as 

proposed, the position that the names 

rule’s 80% investment policy 

requirement is not intended to create a 

safe harbor for fund names? Is the 

proposed provision clear? 

50. Under what circumstances would 

a fund’s name be misleading or 

deceptive under section 35(d) even 

where the fund complies with its 80% 

investment policy? Should we identify 

any of these circumstances in the rule? 

For example, when a fund uses 

terminology such as ‘‘XYX-free’’ in its 

name, or any similar terminology 

suggesting exclusionary screens in its 

investment selection process, would the 

fund’s name be materially deceptive or 

misleading if the fund’s portfolio were 

to include investments, in any amount, 

that contradict this terminology? As 

another example, should the rule define 

a fund’s name as materially deceptive or 

misleading if the name includes the 

term ‘‘XYX Index,’’ where the fund’s 

80% basket investments include 

components of the XYZ Index, but those 

component securities themselves are not 

closely tied to the type of investments 

suggested by the ‘‘XYZ’’ term in the 

fund’s name? Conversely, should the 

rule specify that a fund’s 80% 

investment policy meets the 

requirements of the rule if the fund 

invests 80% or more of the value of its 

assets in the components of the 

underlying index, regardless of whether 

that index has components that are not 

closely tied to the type of investments 

suggested by the ‘‘XYZ’’ term in the 

fund’s name? 

51. Should the rule require certain 

funds, such as index funds, to invest a 

greater percentage of their assets in the 

investments suggested by the fund’s 

name (e.g., 95%)? As another example, 

should ESG-focused funds be subject to 

a greater percentage (e.g., 95%) than the 

proposed 80%? Why or why not? 

B. Prospectus Disclosure Defining Terms 

Used in Fund Name 

We are proposing amendments to 

funds’ registration forms—specifically, 

Form N–1A, Form N–2, Form N–8B–2, 

and Form S–6—that would 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.104 We are also 

proposing a requirement that funds 

must tag new information that would be 

included using a structured data 

language (specifically Inline eXtensible 

Business Reporting Language or ‘‘Inline 

XBRL’’).105 For purposes of the 

proposed disclosure requirements, 

‘‘terms’’ would 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 would not need to be 

defined. The proposed 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. 

Neither the names rule nor funds’ 

registration forms currently incorporate 

a general requirement for a fund that is 

subject to the names rule to include 

disclosure in its prospectus defining the 

terms used in the fund’s name. 

However, the names rule does currently 

include this requirement for funds with 

names suggesting investment in 

particular countries or geographic 

regions.106 These funds must disclose in 

their prospectuses the specific criteria 

used by the fund to select these 

investments. 

Similarly, in adopting the names rule, 

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.107 Further, 

the Commission also stated that, 

generally, a fund may use any 

reasonable definition of the terms used 

in its name and should define the terms 

used in its name in discussing its 

investment objectives and strategies in 

the prospectus.108 Therefore, although 

there is not currently a general 

requirement for funds to define the 

terms used in their names, we 

understand that it is currently common 

practice for funds to include prospectus 

disclosure that describes their 80% 

investment policies and that defines any 

terms that their names include. The 

amendments we are proposing would 

codify certain best practices of some 

funds that currently provide disclosure 

defining terms used in a fund’s name.109


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require or permit to be included in the summary 

prospectus. The proposal would amend Item 4 of 

Form N–1A, which is one of the items that is 

required to be included in a summary prospectus 

that an open-end fund uses. See rule 498(b)(2) 

under the Securities Act of 1933 [17 CFR 

230.498(b)(2)]; see also Enhanced Disclosure and 

New Prospectus Delivery Option for Registered 

Open-End Management Investment Companies, 

Investment Company Act Release No. 28584 (Jan. 

13, 2009) [74 FR 4546 (Jan. 26, 2009)] (permitting 

the use of a summary prospectus by registered 

open-end management investment companies). 

110See proposed rule 35d–1(a)(2)(iii) and 35d– 

1(a)(3)(ii); see also infra section II.C (discussion of 

the proposed requirement that terms used in a 

fund’s name be consistent with those terms’ plain 

English meaning or established industry use). 

111See supra discussion accompanying footnote 

52. 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. 

112See supra section II.A.1 discussing how a fund 

may make determinations for what investments are 

appropriate for the 80% basket. 

113Many funds are already required to tag certain 

registration statement disclosure items using Inline 

XBRL. See infra footnote 115. However, UITs that 

register on Form N–8B–2 and file post-effective 

amendments on Form S–6 are not currently subject 

to any tagging requirements. The costs of these 

requirements for funds that are currently subject to 

tagging requirements and those that newly would 

be required to tag certain disclosure items are 

discussed in the Economic Analysis and the 

Paperwork Reduction Act Analysis sections below. 

See infra discussion in sections III.D.2 and IV.E. 

114This proposed 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 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 

proposing conforming amendments to rule 485 and 

rule 497 under the Securities Act. 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. 

115The Commission has adopted rules requiring 

funds registering on Forms N–1A and N–2 to 

submit certain information using Inline XBRL 

format. See, e.g., Interactive Data to Improve 

Financial Reporting, Release No. 33–9002 (Jan. 30, 

2009) [74 FR 6776 (Feb. 10, 2009)] as corrected by 

Release No. 33–9002A (Apr. 1, 2009) [74 FR 15666 

(Apr. 7, 2009)] (requiring, among other things, 

open-end funds to provide risk/return summary 

information from their prospectuses in XBRL 

format); Inline XBRL Filing of Tagged Data, Release 

No. 33–10514 (June 28, 2018) [83 FR 40846 (Aug. 

16, 2018)]; Securities Offering Reform for ClosedEnd Investment Companies, Release No. 33–10771 

(Apr. 8, 2020) [85 FR 33290 (Jun. 1, 2020)]; Filing 

Fee Disclosure and Payment Methods 

Modernization, Release No. 33–10997 (Oct. 13, 

2021) [86 FR 70166 (Dec. 9, 2021)]. 

The proposed disclosure requirement 

would not, however, otherwise alter or 

address disclosure that funds currently 

provide, for example in response to 

prospectus disclosure requirements 

regarding the fund’s investment 

policies. 

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. We are therefore 

proposing to replace the specific 

disclosure requirement for fund names 

focusing on particular countries or 

geographic regions with the general 

requirement to define terms used in the 

fund’s name whenever the fund’s name 

suggests an investment focus requiring 

an 80% investment policy. 

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 may not, however, 

under the proposed rule otherwise 

change the meaning of these terms to be 

inconsistent with their plain English 

meaning or established industry use.110

As discussed above, definitions should 

have a meaningful nexus between the 

term used in the fund’s name and the 

fund’s investment focus.111 However, 

there could be multiple reasonable 

definitions of the same term that 

multiple funds use in their names, so 

understanding additional detail about 

these definitions would help investors 

better distinguish among funds.112 For 

example, multiple funds may include 

the term ‘‘large-cap’’ in their name to 

indicate that they invest in ‘‘largecapitalization’’ stock. There could be 

multiple reasonable definitions of the 

term ‘‘large cap,’’ however, because 

these funds may have different ways of 

analyzing pertinent references 

(including, for example, common 

indices, classifications used by rating 

organizations, and definitions used in 

financial publications). 

We are proposing to require that all 

funds that would be subject to the 

proposed new prospectus disclosure 

requirements would have to tag the 

information we are proposing to require 

funds disclose on their registration 

forms in a structured, machine-readable 

data language.113 The proposed 

requirements would 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. Specifically, we are proposing to 

require funds to tag the disclosures in 

Inline XBRL in accordance with Rule 

405 of Regulation S–T (17 CFR 232.405) 

and the EDGAR Filer Manual.114

Many funds are already required to 

tag certain registration statement 

disclosure items using Inline XBRL.115

Requiring Inline XBRL tagging of names 

rule disclosure for all funds that would 

be subject to this disclosure requirement 

would benefit investors, other market 

participants, and the Commission by 

making the disclosures more readily 

available and easily accessible for 

aggregation, comparison, filtering, and 

other analysis, as compared to requiring 

a non-machine-readable data language 

such as ASCII or HTML. This would 

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 

would facilitate 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. We 

believe requiring structured data for the 

new names-related disclosure for all 

funds that would be subject to these 

disclosure requirements would make 

this disclosure more readily available, 

accessible, and comparable for 

investors, other market participants, and 

the Commission. 

We request comment on the proposed 

amendments to prospectus disclosure 

requirements regarding funds’ definition 

of the terms used in their names. 

52. Are the proposed new instructions 

in the applicable fund registration forms 

requiring funds to define the terms used 

in their names appropriate and clear? 

Would the proposed amendments help 

meet the needs of investors to better 

understand how the fund’s investment 

strategies correspond with the 

investment focus that the fund’s name 

suggests as well as provide additional 

information about how the fund’s 


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116See proposed rule 35d–1(a)(2)(iii) and 35d– 

1(a)(3)(ii). 

117See, e.g., Consumer Federation Comment 

Letter; Duffy Comment Letter; McPhee, Jason K. 

Comment Letter. 

118See proposed rule 35d–1(d); see also ESG 

Proposing Release, supra footnote 24; ‘‘Funds’ Use 

of ESG Integration and Sustainable Investing 

Strategies: An Introduction,’’ Investment Company 

Institute (July 2020) at 4 (discussing integration 

strategies as funds that ‘‘integrate ESG factors into 

their traditional investment process as a way to seek 

financial returns’’) available at https://www.ici.org/ 

system/files/attachments/20_ppr_esg_

integration.pdf; Morningstar Comment Letter 

(stating that Morningstar draws a distinction 

between ‘‘sustainable investment’’ and ‘‘ESG 

Consideration’’ funds where ESG Consideration 

funds are ‘‘otherwise conventional, actively 

managed funds that have added environmental, 

social, and governance criteria to their prospectuses 

but do not make the claim that they invest only in 

full-fledged sustainable investments (meaning they 

do not meet the criteria for any of the [sustainable 

investment categories of focus, impact, and 

sustainable sector])’’). 

management seeks to achieve the fund’s 

objective? 

53. Should the proposed prospectus 

disclosure requirements be applicable, 

as proposed, to registrants on Form N– 

1A, Form N–2, Form N–8B–2, and Form 

S–6? If some types of funds should be 

exempt, have different disclosure 

requirements, or not be subject to the 

proposed structured data requirement, 

which and why? 

54. Would it be helpful and 

appropriate to revise the proposed 

instruction to expressly provide that a 

fund must use a reasonable definition of 

the terms used in its name? 

55. Is the definition of ‘‘terms’’ in the 

proposed instructions sufficiently clear? 

Should these proposed instructions use 

another word instead of ‘‘terms’’ or 

define the word ‘‘terms’’ differently? If 

so, what should this alternate definition 

be and how should we define it? 

56. Should we require all funds that 

would be subject to the proposed new 

prospectus disclosure requirements to 

tag the newly-required information in 

Inline XBRL, as proposed? Why or why 

not? 

57. Should we require funds to use a 

different structured data language to tag 

the proposed disclosure on fund names? 

Why or why not? If so, what structured 

data language should we require? 

C. Plain English/Established Industry 

Use Requirement 

For funds that are required to adopt 

an 80% investment policy, we are 

proposing to require 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.116 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. 

The proposed plain English or 

established industry use requirement 

would address concerns that a fund 

sponsor may subvert an investor’s 

reasonable expectations of a fund’s 

investment focus by using terminology 

in the fund’s name in a manner that is 

inconsistent with the plain English or 

established industry use. The proposed 

amendments similarly reflect our belief 

that a name’s meaning should not be 

permitted to be materially altered by 

fund disclosure. For example a fund 

that calls itself a ‘‘solar energy fund’’ 

would not be able to use disclosure to 

qualify the name in the prospectus by 

stating that the fund’s 80% basket 

includes investments in the securities of 

any type of alternative energy company. 

While we understand that certain terms 

may be defined in multiple reasonable 

ways, we believe that defining a given 

term in a fund’s name in a way that is 

inconsistent with those terms’ plain 

English meaning or established industry 

use is misleading for investors. The 

proposed amendments would define 

these names as materially deceptive or 

misleading even if the fund’s prospectus 

disclosure defines a given term in the 

name to match the fund’s investments. 

We received comments on the 2020 

Request for Comment that identified 

this issue and stated that funds should 

not be able to use disclosure to ‘‘cure’’ 

misleading names.117 Under the 

proposed amendments, disclosure 

would not be permitted to ‘‘fix’’ or 

‘‘remedy’’ a misleading name that uses 

terms in a way that is inconsistent with 

their plain English meaning or 

established industry use, and therefore 

contrary to reasonable expectations. 

This is consistent with section 35(d), 

which addresses fund names 

specifically and without regard to other 

disclosure. It also is consistent with the 

Commission’s belief that a fund’s name 

may communicate a great deal to an 

investor, even though investors should 

not rely on the name as the sole source 

of information about the fund’s 

investments and risks. 

We seek comment on the proposed 

plain English and established industry 

use requirement: 

58. Should the names rule include the 

proposed requirement that terms used 

in a fund’s name must be consistent 

with the terms’ plain English meaning 

or established industry use? 

59. Is the proposed requirement clear? 

Is Commission guidance needed to 

clarify the requirement? If so, what 

guidance would be helpful? Are there 

standards that should be considered 

with respect to what is plain English 

and/or established industry use? 

60. Are there any terms that could be 

consistent with established industry use 

that would not be consistent with those 

terms’ plain English meaning or the 

understanding of a reasonable investor? 

If so, what terms, and how should we 

address these? 

61. Would current funds be required 

to change their names or disclosure if 

the plain English/established industry 

use requirement is adopted as 

proposed? 

62. Would the proposed plain English 

requirement encourage funds to select 

names (or cause them to have to change 

their names to new names) that could be 

less informative to investors? For 

example, would the proposed 

requirement result in overly-broad or 

neutral names that may be less helpful 

to investors? 

D. Materially Deceptive and Misleading 

Use of ESG Terminology in Certain 

Fund Names 

As approaches to ESG investing vary, 

and investment products that 

incorporate one or more ESG factors 

vary in the extent to which ESG factors 

are considered versus other factors, the 

use of ESG or similar terminology in 

fund names would deceive and mislead 

investors where the identified ESG 

factors do not play a central role in the 

fund’s strategy. Accordingly, our 

proposed amendments would address 

what we refer to in this release as 

‘‘integration funds,’’ and would define 

the names of ‘‘integration funds’’ as 

materially deceptive and misleading if 

the name includes terms suggesting that 

the fund’s investment decisions 

incorporate one or more ESG factors. 

As used in this release, integration 

funds are funds that consider one or 

more ESG factors alongside other, nonESG 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.118 Such funds may select 

investments because those investments 

met other criteria applied by the fund’s 

adviser (e.g., investments selected on 

the basis of macroeconomic trends or 

company-specific factors like a price-toearnings ratio). The proposed approach 

to integration funds targets misleading 


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119Over 35 comment letters addressed these 

issues, including: BlackRock Comment Letter; 

Consumer Federation of America Comment Letter; 

Comment Letter of Federated Hermes (May 6, 2020) 

(‘‘Federated Hermes I Comment Letter’’); 

Morningstar Comment Letter; Principles for 

Responsible Investing Comment Letter; SIFMA 

AMG Comment Letter. 

120See, e.g., Capital Group Comment Letter 

(noting that the 2020 Request for Comment includes 

an estimate that, as of December 31, 2019, nearly 

300 funds included the terms ‘‘ESG,’’ ‘‘clean,’’ 

‘‘environmental,’’ ‘‘impact,’’ ‘‘responsible,’’ ‘‘social’’ 

or ‘‘sustainable’’ in their names); Morningstar 

Comment Letter (discussing the growth of ESG); 

Practus Comment Letter (noting that ‘‘some 

observers predict that the style could command half 

of all assets under management in 2025’’ and 

expressing concerns about ‘‘greenwashing’’); 

Principles for Responsible Investment Comment 

Letter; SIFMA AMG Comment Letter; Sustainable 

Research and Analysis Comment Letter (discussing 

the growth of ESG). 

121See Abdullah Comment Letter. 

122See, e.g., Consumer Federation of America 

Comment Letter (quoting George Serafeim, a 

Harvard Business School professor, who has stated 

that there are ‘‘now stronger incentives for asset 

managers to greenwash,’’ and that ‘‘there is a false 

sense of security or satisfaction if an investor buys 

an ESG product that might not be what the investor 

thinks it is’’). 

123See, e.g., Practus Comment Letter; Principles 

for Responsible Investment Comment Letter. 

124See, e.g., Letter from Morningstar to Chair 

Gary Gensler (Jun. 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; see 

also ‘‘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/. 

125See supra footnote 118 and accompanying 

text. 

fund names; and relatedly it is designed 

to promote ‘‘truth in advertising’’ in 

fund names by making clear that we 

believe it would be 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, as 

this has the potential to overstate the 

importance of the ESG factors in the 

fund’s selection of its portfolio 

investments. 

Many commenters responding to our 

2020 Request for Comment discussed 

the role of the names rule in addressing 

concerns about funds whose names 

include ESG terms or similar 

terminology.119 A number of 

commenters noted the growth of funds 

with ESG terminology in their names 

and expressed concerns about 

‘‘greenwashing.’’ 120 Some commenters, 

in particular, urged that a fund should 

not be permitted to use ‘‘ESG’’ or 

‘‘sustainable’’ in its name if ESG inputs 

are merely one factor among many 

driving an investment decision, as this 

could mislead investors.121

We agree. Where a fund considers one 

or more ESG factors alongside other, 

non-ESG factors in its investment 

decisions but ESG factors are generally 

no more significant than other factors in 

the investment selection process, such 

that those ESG factors may not be 

determinative in deciding to include or 

exclude any particular investment in the 

portfolio, including ESG terminology in 

the fund’s name would mislead 

investors by suggesting that the ESG 

factors play a more prominent role.122

For example, consider a fund with 

‘‘sustainable’’ in its name that selects 

investments based on the adviser’s 

holistic analysis of a company, 

including conventional financial 

metrics as well as the extent to which 

the company has good labor and 

environmental practices. No one factor, 

including sustainability considerations, 

is more significant than other factors in 

the investment selection process. As a 

result, the fund may invest in 

companies that do not meet the 

adviser’s own criteria for labor or 

environmental practices, if the adviser 

determines to make the investment on 

the basis of other, non-sustainability 

considerations. The fund’s name would 

be materially deceptive and misleading 

because the use of the term 

‘‘sustainable’’ in its name connotes an 

emphasis on ‘‘sustainability’’ 

considerations that is not consistent 

with the fund’s investment strategy. 

While the 80% investment policy 

requirement is an effective way of 

generally addressing the consistency of 

a fund’s investment portfolio with the 

investment focus its name suggests, 

adopting an 80% investment policy 

would not address the specific concern 

that the use of ESG terms in an 

integration fund’s name overstates the 

emphasis of ESG considerations in 

selecting that fund’s portfolio 

investments. Adopting an 80% 

investment policy where the 80% 

investment basket investments were 

selected considering ESG factors as one 

factor among many would not address 

the overemphasis concern. In the 

‘‘sustainable’’ fund example above, if 

the fund’s investments may be selected 

without regard to their satisfaction of 

the adviser’s sustainability criteria—and 

may score poorly on such criteria 

because they are only one factor—this 

would be misleading under section 

35(d) regardless of whether the 

investments were consistent with any 

80% investment policy under the rule. 

Because funds’ names necessitate 

brevity, the inclusion of ESG 

terminology in their names would be 

materially deceptive and misleading 

unless a fund prioritizes those ESG 

considerations that their names suggest, 

as contrasted to funds that analyze ESG 

factors only as part of a broader 

investment selection process.123 While 

we understand that many integration 

fund managers thoughtfully consider 

ESG factors as one of multiple 

components of their investment 

processes, we believe it would be 

materially deceptive or misleading for 

the names of those funds to indicate to 

investors that consideration of ESG 

factors is a central part of their 

investment processes, particularly in 

light of information suggesting that the 

use of ESG terminology in fund names 

is effective in attracting inflows.124

We request comment on our proposed 

amendments to address integration 

funds with ESG terminology in their 

names: 

63. Should we, as proposed, define a 

fund name as materially deceptive and 

misleading when the fund is an 

integration fund that uses ESG terms in 

its name? Are there circumstances in 

which an integration fund’s use of an 

ESG term in its name would not be 

materially deceptive and misleading? 

64. Should a fund be able to use an 

ESG term in its name as long as the fund 

also identifies itself in its name as an 

integration fund (e.g., ‘‘XYZ ESG 

Integration Fund’’), and the fund meets 

the definition of ‘‘integration fund’’ that 

this release describes? 125 Is the term 

‘‘integration’’ sufficiently understood by 

investors such that its inclusion in a 

fund name would not make the name 

materially deceptive and misleading? 

Are there other, similar terms or 

phrasing that generally would be better 

understood than the term ‘‘integration?’’ 

Could there be a benefit to permitting a 

fund to use ‘‘ESG integration’’ or similar 

terms in its name? Would an integration 

fund that uses these terms in its name 

be able to satisfy the 80% investment 

policy requirement, and would adopting 

an 80% investment policy address the 

consistency of an integration fund’s 

investment portfolio with the 

investment focus its name suggests? If 

not, is there a way to adapt the 80% 

investment policy requirement for 

integration funds to address the investor 

protection concerns about the potential 

overstatement of the consideration of 

ESG factors that our proposed approach 

addresses? Alternatively, should an 

integration fund be exempt from the 

80% investment policy requirement? 


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126Proposed rule 35d–1(e). 

127The staff has observed that most funds choose 

the 60-day notice requirement alternative as 

opposed to adopting an 80% investment policy that 

is a fundamental policy. See 2020 Request for 

Comment, supra footnote 2 at n.8. 

128See e.g., Fidelity Comment Letter; Comment 

Letter of T. Rowe Price (May 21, 2020). 

129See Names Rule Adopting Release, supra 

footnote 2 at II.A.(1); see also supra section II.A.4 

(discussing shareholders of unlisted closed-end 

funds and BDCs having higher barriers to exit these 

types of funds). 

130See e.g., Invesco Comment Letter; Fidelity 

Comment Letter. 

131Proposed rule 35d–1(e)(1). 

132See rule 35d–1(c)(1) (‘‘the notice will be 

provided in plain English in a separate written 

document’’). 

133Proposed rule 35d–1(e)(2). 

134The current prominent statement requirement 

does not include a reference to the fund’s name. See 

rule 35d–1(c)(2). We are proposing a conforming 

Continued 

Would such an exemption raise investor 

protection issues? 

65. Should we further limit the extent 

to which funds may use specific ESGrelated terms in their names, for 

example permitting the use of certain 

terms only if a fund has a certain 

investment focus? For example, 

notwithstanding the principle that a 

fund may use any reasonable definition 

of the terms used in its name, should we 

require that a fund with the terms 

‘‘zero’’ carbon in its name to have an 

investment policy that requires 

investments in companies with no or 

low carbon emissions, or should we 

permit the fund’s investment policy to 

include investments in companies that 

are transitioning away from certain 

practices while they are still involved in 

that activity? If so, what terms should 

we mandate for what types of 

investment focus? 

E. Modernizing the Rule’s Notice 

Requirement 

The proposed amendments to the 

names rule, like the current rule, would 

require 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.126 The 

proposed 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. The 

Commission has historically acted to 

modernize the manner in which 

information is disclosed to the public 

and provided to investors in order to 

keep up with changes in the industry 

and technology. As an additional 

modification, the proposed amendments 

would require notices to describe not 

only a change in the fund’s 80% 

investment policy, but also a change to 

the fund’s name that accompanies the 

investment policy change. 

As discussed above, the names rule 

currently requires funds that are subject 

to the 80% investment policy 

requirement, other than tax-exempt 

funds, either to adopt and implement a 

fundamental investment policy, or to 

adopt an 80% investment policy that is 

not a fundamental policy if they also 

provide shareholders notice of a change 

to the policy at least 60 days before the 

change occurs.127 The notice alternative 

requires that the notice be separate from 

other fund-related communications and 

identified as involving a change in the 

fund’s investment policy. These 

requirements are designed to focus 

investors’ attention on the upcoming 

change so that they can determine 

whether to redeem or otherwise exit 

their investments before the change 

occurs. A number of commenters who 

addressed the notice alternative in 

response to the 2020 Request for 

Comment suggested allowing funds to 

post notification of a change to the 

policy on their websites.128 Delivery of 

the notices directly to shareholders, 

rather than permitting funds to post 

these notices to a website or a similar 

alternative in which shareholders do not 

directly receive notices, increases the 

likelihood that investors would see and 

read it, and this goal is particularly 

important given the strong link between 

a fund’s name and a shareholder’s 

expectations about the fund’s 

investment focus, its portfolio holdings, 

and its risks and returns. 

We are proposing to retain the notice 

alternative to provide eligible funds 

flexibility to respond efficiently to 

market events or new regulatory 

requirements, and we believe that this 

flexibility is appropriate where there are 

not significant barriers for shareholders 

to exit the fund if they decide to do so 

upon receiving the required notice.129

For example, if the Commission were to 

adopt final rule amendments defining 

the names of certain ESG integration 

funds as materially deceptive and 

misleading as discussed above, the 

proposed notice alternative would allow 

affected funds to respond to the 

requirement—by changing their name or 

investment policy—after sending 

appropriate notice to shareholders. Most 

commenters who addressed this aspect 

of the current rule in response to the 

2020 Request for Comment generally 

supported the fact that the names rule 

includes a notice alternative, but many 

commenters requested modernization of 

the notice requirement, given 

advancements in technology and 

changes in shareholder preferences 

since the names rule was adopted.130 In 

light of these comments and our 

experience administering the current 

rule, we are proposing amendments to 

the current notice requirement to 

provide greater clarity and facilitate 

compliance. 

Like the current rule, the proposed 

amendments would require that the 

notice be provided at least 60 days prior 

to the change the notice describes. We 

believe that 60 days is sufficient time for 

shareholders to decide whether to 

redeem their shares. The proposed 

amendments, like the current rule, also 

would require the notice to be provided 

in plain English and separately from any 

other documents.131 While the proposed 

requirement 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.132 This 

proposed 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). Further, 

the proposed amendments would 

specifically state that if the notice is 

delivered in paper form, it may be 

provided in the same envelope as other 

written documents. This proposed 

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. We understand that staff 

have often received questions about the 

meaning of the current requirement to 

provide the notice ‘‘in a separate written 

document.’’ We believe the clarification 

would help facilitate compliance with 

the notice requirement. 

Similar in part to the current notice 

requirement, the proposed amendments 

would require that 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].’’ 133 The prominent 

statement would alert shareholders that 

the notice contains information about 

the change in the fund’s investment 

policy. In a change from the current 

requirement, however, the required 

prominent statement would have to 

reference the fact of the name change, as 

applicable.134 This requirement is 


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change to the reference to the notice requirement 

in paragraph (a)(2)(ii) of the names rule, which as 

proposed would require 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’’ (emphasis added). 

135Rule 35d–1(c)(3). 

136See 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); 

Use of Electronic Media, Investment Company Act 

Release No. 24426 (Apr. 28, 2000) [65 FR 25843 

(May 4, 2000)] (providing updated interpretive 

guidance on the use of electronic media to deliver 

documents on matters such as telephonic and 

global consent, issuer liability for website content, 

and legal principles that should be considered in 

conducting online offerings). 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. 

137See e.g., ICI Comment Letter; T. Rowe Price 

Comment Letter. 

138Proposed rule 35d–1(e)(2)(i). 

139Proposed rule 35d–1(e)(2)(ii). The proposed 

amendments specifying that the statement must 

appear on the subject line of the email notice also 

would permit ‘‘an equivalent indication of the 

subject of the communication in other forms of 

electronic media.’’ This is designed to help the 

proposed requirement remain evergreen in the face 

of evolving technology and methods of 

communication. 

140Proposed rule 35d–1(e)(3). 

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. 

The proposed amendments 

incorporate changes to provide 

specificity with respect to notices that 

may be delivered electronically. 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.135 The 

Commission’s current guidance 

regarding electronic delivery does not 

prohibit names rule notices from being 

delivered electronically.136 Some 

commenters who addressed this aspect 

of the current rule in response to the 

2020 Request for Comment questioned 

the relevance of the requirement that the 

notice appear on the envelope in light 

of funds’ increasing use of electronic 

delivery methods for regulatory 

materials.137 Under the proposed 

amendments, for any notice that is 

provided in paper form, the required 

statement also would appear on the 

envelope in which the notice is 

delivered.138 This proposed expansion 

of the current requirement (which only 

requires the statement to appear on the 

envelope when the envelope includes 

other materials) is designed to help 

draw shareholders’ attention to an 

important document that provides them 

information about the change in the 

fund’s investment policy. This could 

help shareholders decide whether to 

redeem their shares or remain invested 

in the fund. 

If the notice is provided 

electronically, the proposed 

amendments would require the 

statement to appear on the subject line 

of the email communication that 

includes the notice.139 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 proposed amendment 

is designed 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. 

Finally, the proposed amendments 

would require additional specificity 

with respect to the content that the 

notices include. The proposed 

amendments would 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.140 These 

proposed requirements are designed to 

codify certain best practices of some 

funds, help facilitate funds’ compliance 

with the notice requirement, and 

increase consistency 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. 

We request comment on the proposed 

amendments to the names rule’s notice 

requirement, including the following 

items: 

66. Are the proposed amendments to 

the current notice requirement 

appropriate? Is it appropriate to require 

notices to describe not only a change in 

the fund’s 80% investment policy, but 

also a change to the fund’s name that 

accompanies the investment policy 

change? 

67. The proposed amendments, 

consistent with the current rule, would 

require that the notice be provided at 

least 60 days prior to the change the 

notice describes. Does 60 days remain a 

sufficient time period for shareholders 

who purchased shares in a fund to 

decide to redeem their shares? Should 

the rule allow for shorter or a longer 

period? 

68. Should we continue to require 

that the notice be provided separately 

from other documents? Are there 

instances in which shareholders would 

benefit from the notice being built into 

any other shareholder communications? 

For example, would there be a 

shareholder benefit—or conversely a 

detriment to shareholder 

understanding—if the notice were built 

into the fund’s prospectus? 

69. Should we continue to require the 

notice to include a prominent statement 

regarding the purpose of the notice? 

Should we allow funds some flexibility 

to determine a similar alternate 

statement that would inform 

shareholders of a change to a fund’s 

80% investment policy (and related 

change to the fund’s name), as 

proposed? Should there be additional 

content in the notice regarding instances 

when a fund substantially changes it 

strategy without a shareholder vote? 

Should the notice include any factors 

that the board considered, such as 

whether the change is likely to be 

consistent with reasonable investor 

expectations, whether it would result in 

cost savings that would benefit existing 

shareholders, whether it would have tax 

implications to the fund and 

shareholders, and/or whether the fund’s 

shares are freely redeemable or have 

limitations attached to redemptions? 

Would an explanation of material 

factors that the board considered in 

approving the 80% policy be useful to 

shareholders? What information would 

be helpful to investors to consider 

whether to hold or sell their shares in 

a fund when a fund substantially 

changes its investment strategy? 

70. Should we require this prominent 

statement also to appear on the 

envelope in which the notice is 

delivered? The proposed rule would 

expand the current requirement for the 

statement to appear on the envelope, 

which applies only where the notice is 

delivered in the same envelope as other 

communications to investors. Is this 

proposed expansion appropriate? Why 

or why not? 

71. For funds that deliver the notice 

electronically, the proposed rule would 

include a new requirement that the 


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141See proposed Item B.9 of Form N–PORT; see 

also proposed new instruction to Item B.9 of Form 

N–PORT clarifying that when responding to 

proposed Item B.9, the percentages that the fund 

reports in response to Item B.9.a and assesses for 

purposes of reporting in response to Item B.9.b 

must reflect the notional amounts of funds’ 

derivatives investments with certain adjustments 

(because the proposed amendments to the names 

rule would require that, for purposes of determining 

compliance with the 80% investment policy, funds 

must value each derivatives instrument using its 

notional amount, with certain adjustments). All 

registered management investment companies, 

other than registered money market funds and small 

business investment companies, 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, Investment Company Act Release 

No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 

2016)]. As BDCs are not subject to Form N–PORT 

reporting requirements, they would not be subject 

to the proposed amendments to Form N–PORT. 

142Tax-exempt funds would have to report the 

number of days that the value of the fund’s 

investments as described in proposed rule 35d– 

1(a)(3)(i)(A) fell below 80% of the value of the 

fund’s assets during the reporting period (or, if the 

fund has adopted a policy as described in proposed 

rule 35d–1(a)(3)(i)(B), the number of days that less 

than 80% of the income that the fund distributed 

was exempt, as applicable, from federal income tax 

or from both federal and state income tax). 

143See proposed Item B.9 of Form N–PORT. This 

timing reflects the form’s requirement to report 

information about funds’ portfolio holdings as of 

the last business day, or last calendar day, of each 

month. See General Instruction A to Form N–PORT. 

144To 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 would report a single percentage that 

reflects its multi-element investment focus. See 

supra paragraph following footnote 49. 

145See also proposed rule 35d–1(c) (a fund’s 

name may be materially deceptive or misleading 

notwithstanding the fund’s technical compliance 

with its 80% investment policy); supra section 

II.A.5. 

statement appear in the email subject 

line. Is this new requirement 

appropriate? The proposed rule would 

permit funds that deliver the notice 

electronically to include an equivalent 

indication of the subject of the 

communication in other forms of 

electronic media. Would this flexibility 

help the proposed requirement to 

remain evergreen in the face of evolving 

technology and methods of 

communication? Why or why not? Are 

there any further requirements that 

would be appropriate to facilitate the 

accessibility of electronic notices, such 

as stating that the required statement in 

the subject line must appear in all 

capital letters, or a required font size for 

electronic notices? 

72. The proposed rule would allow 

investors who have opted into 

electronic delivery to receive the notices 

electronically. Should we also allow 

funds to satisfy this requirement by 

making the notices accessible on a 

website? What potential benefits for 

shareholders could this website-based 

approach to notices entail? Conversely, 

would shareholders not receive 

adequate notice of investment policy 

changes if the Commission were to 

adopt such a website-based approach? 

73. Are the proposed requirements for 

additional specificity, with respect to 

the content that the notices include, 

appropriate? Would prescribing the 

minimum disclosure required in the 

notice help funds understand how to 

comply with the notice alternative? 

Should we require funds to include in 

the notice definitions of the terms used 

in the new name? Would prescribing the 

minimum disclosure required in the 

notice help investors receive the 

information that they need to make an 

informed decision about whether to 

remain invested in a fund whose 

investment policy is changing? Should 

we prescribe any additional or different 

content in the notices? If so, what 

content? 

F. N–PORT Reports 

1. Investment Company Act Names Rule 

Investment Policy 

We are proposing to amend Form N– 

PORT to include a new reporting item 

for registered investment companies, 

other than money market funds, 

regarding the 80% investment policy 

that a fund would adopt in compliance 

with the names rule.141 Such registered 

investment companies, other than 

money market funds, that are required 

to adopt an 80% investment policy 

would be required to report on Form N– 

PORT: (1) the value of the fund’s 80% 

basket, as a percentage of the value of 

the fund’s assets, and (2) if applicable, 

the number of days that the value of the 

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

value of the fund’s assets during the 

reporting period.142 Such a fund would 

be required to provide the names rule 

compliance information as of the end of 

the reporting period.143 We believe it is 

appropriate that this information be 

made available publicly. This 

information would be publicly available 

for the third month of each fund’s 

quarter. We believe that the proposed 

amendments to Form N–PORT would 

provide market-wide insight with 

respect to those registered investment 

companies, other than money market 

funds, that are subject to the 80% 

investment policy requirements for the 

Commission, its staff, and market 

participants. 

This proposed reporting requirement 

would provide information to the 

Commission, as well as to market 

participants, about the percentage of 

such a fund’s assets that are invested in 

the 80% basket.144 We believe that the 

proposed reporting requirement would 

increase the effectiveness of the 

Commission’s oversight of such funds’ 

compliance with the names rule. This 

information also may allow investors in 

such funds to make investment choices 

that are more consistent with their 

investment preferences. For example, 

multiple funds could have similar 

names indicating each fund focuses its 

investments in the same type of asset. 

One of these funds may invest 81% of 

the fund’s assets in investments 

consistent with the fund’s investment 

focus, whereas another fund may invest 

95%. Both of these funds would be in 

compliance with the 80% investment 

policy requirement.145 Some investors 

may prefer a fund that invests as high 

a percentage of the fund’s assets 

consistent with the fund’s investment 

focus as possible, whereas others may 

prefer that the fund’s manager exercise 

more discretion in investing assets 

beyond the 80% investment policy. This 

proposed reporting requirement would 

allow investors to compare and consider 

potential distinctions among such funds 

with similar names. 

The proposed amendments to Form 

N–PORT would also require that a fund 

indicate, if applicable, 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. As discussed above, a fund’s 

investments may fall below this 80% 

threshold for a number of reasons, and 

permitted temporary departures under 

the proposal may occur under a variety 

of circumstances, including because of 

market fluctuations or other reasons 

beyond the fund’s direct control. 

Information about these temporary 

departures is important to the 

Commission and its staff to assess 

overall compliance with the names rule. 

This proposed reporting requirement 

may also be helpful to investors. Some 

investors may prefer to invest in a fund 

that does not often invest below the 

80% threshold, and this information 

may ultimately affect their investment 

choices. The proposed requirement is 

designed to provide the Commission 

and its staff, as well as investors, with 

important insight into the frequency and 

extent to which such a fund’s 80% 

basket investments fall below 80% of 

the fund’s total assets. 

The Commission is not proposing a 

new reporting requirement for money 

market funds or BDCs, and we are 

requesting comment on this approach. 

BDCs are required to submit financial 


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146See rule 2a–7 under the Act (specifying the 

portfolio composition requirements for money 

market funds). 

147See section 55(a) of the Act; rule 2a–46 under 

the Act (17 CFR 270.2a–46); rule 55a–1 under the 

Act (17 CFR 270.55a–1). 148See proposed Item C.2 of Form N–PORT. 

statement information using Inline 

XBRL data language, and money market 

funds report portfolio information on 

Form N–MFP. These respective 

reporting requirements provide tools to 

analyze these funds’ portfolio holdings 

and could be used to assess their 

portfolios in light of any requirement for 

these funds to adopt 80% investment 

policies under the names rule. For 

example, the requirement in Form N– 

MFP Item C.6 to indicate the category of 

investment for each portfolio security 

that a money market fund holds would 

provide transparency that would permit 

analysis of the percentage of the money 

market fund’s holdings that are invested 

in accordance with the investment focus 

that the fund’s name suggests. In 

addition, our rules subject money 

market funds and BDCs to certain 

portfolio composition requirements.146

BDCs, for example, are required to 

invest 70% of their assets in ‘‘eligible 

portfolio companies,’’ as defined in 

Commission rules.147 These portfolio 

composition requirements provide an 

additional layer of Commission 

regulation over the portfolios of money 

market funds and BDCs. We do not 

currently believe additional reporting 

requirements, similar to the proposed 

Form N–PORT amendments, are 

necessary for money market funds and 

BDCs given the current reporting and 

portfolio composition requirements for 

these funds. 

We seek comment on the proposed 

amendments to Form N–PORT requiring 

registered investment companies, other 

than money market funds, to report 

certain information regarding their 

compliance with the names rule: 

74. Is the proposed requirement that 

funds report the value of the fund’s 80% 

basket, as a percentage of the value of 

the fund’s assets, appropriate? Should 

we modify the proposed reporting 

requirement in any way? If so, how? 

75. Is the proposed requirement that 

funds report the number of days that the 

value of the fund’s 80% basket have 

dropped below the 80% threshold 

during the reporting period reasonable? 

Should the look-back period for this 

reporting requirement be three months 

instead of the proposed one-month 

reporting period? Would this proposed 

requirement be appropriate for taxexempt funds, for example those that 

distribute income only quarterly or 

annually, and if not, how should we 

modify the proposed requirement? 

Should we modify the proposed 

reporting requirement in any other way? 

If so, how? 

76. Our proposal would make this 

new Form N–PORT item public. Is there 

any reason why this information should 

not be publicly available? 

77. In addition to or as a substitute for 

this proposed Form N–PORT reporting 

requirement, should we require funds to 

report confidentially to the Commission, 

for example on Form N–RN, if the value 

of the fund’s 80% basket falls below 

80% of the fund’s total assets? If so, why 

would that information be necessary to 

provide to the Commission? If not, why 

not? 

78. Would any of the proposed Form 

N–PORT reporting requirements be 

more appropriately structured as annual 

Form N–CEN reporting requirements? 

79. Should we require BDCs to report 

any or all of the information that we are 

proposing to require registered 

investment companies to report on 

Form N–PORT, for example in their 

annual reports or on Form 8–K? 

80. Should we require money market 

funds to report the information that we 

are proposing to require other registered 

investment companies to report on 

Form N–PORT, for example on Form N– 

MFP? 

2. Investments To Be Included in a 

Fund’s 80% Basket 

We are proposing a new Form N– 

PORT reporting item requiring a 

registered investment company, other 

than a money market fund, 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.148 A fund would be 

required to provide this information, 

along with the information it reports for 

each of its portfolio investments on 

Form N–PORT, as of the end of the 

reporting period. This information 

would be publicly available for the third 

month of each fund’s quarter. We 

believe that this information would 

enhance the Commission’s ability 

effectively to oversee and assess the 

activities of registered investment 

companies, other than money market 

funds, in order to better carry out its 

regulatory functions, and also to provide 

investors as well as the Commission and 

its staff insight into the types of 

investments the fund includes in the 

80% basket. 

The proposed requirement for a fund 

to report whether each investment is 

included in the 80% basket would help 

the Commission evaluate compliance 

with the proposed amendments. We 

believe that the proposed amendments 

to Form N–PORT would provide 

information that would increase 

investor understanding of a particular 

fund’s investment focus, which would 

assist investors in making investment 

choices that better match their 

investment preferences. We recognize 

that funds with similar names and 

investment focuses may reasonably 

make different determinations regarding 

whether an investment is appropriately 

within the 80% basket. To the extent 

that investors expect a fund to invest 

with a particular investment focus that 

is consistent with the fund’s name, the 

proposed Form N–PORT reporting 

requirement would provide investors 

with important information regarding 

how the fund implements that 

investment focus. For example, for some 

investors, there may be important 

investment distinctions among similarly 

named funds, or in how a given fund 

implements its investment focus over 

time. 

Some funds may have an investment 

focus where the selection of 80% basket 

investments involves some degree of 

subjectivity. The proposed reporting 

requirement provides transparency that 

would help investors and other market 

participants, as well as Commission 

staff, understand what qualities a fund’s 

advisory personnel may consider a 

specific portfolio investment to 

demonstrate consistent with the fund’s 

80% investment policy. Market 

participants would also better be able to 

view, across funds with similar 

investment focuses, whether these funds 

may be characterizing particular 

investments similarly. For example, 

investors interested in funds with an 

ESG investment focus would better be 

able to compare across funds with 

similar names to determine whether 

specific investments are characterized 

similarly or differently, and therefore 

better be able to invest according to 

their specific preferences. 

We seek comment on the proposed 

amendments to Form N–PORT requiring 

funds to report, for each portfolio 

investment, whether that investment is 

included in the fund’s 80% basket: 

81. Is this proposed requirement 

appropriate? Should we modify the 

proposed reporting requirement in any 

way? If so, how? 

82. Should we expand the proposed 

requirement to require a fund to 

indicate on Form N–PORT, for 

derivatives instruments that the fund 

includes in its 80% basket, whether 

these derivatives are included because 

they provide investment exposure to 

one or more of the market risk factors 


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149Proposed rule 35d–1(b)(3). 150See proposed rule 35d–1(b)(3). 151See rule 31a–1 under the Act (17 CFR 31a–1) 

(‘‘rule 31a–1’’). 

152Proposed rule 35d–1(e); see also proposed rule 

35d–1(g)(1) (defining ‘‘80% basket’’). The proposed 

new Form N–PORT reporting requirements would 

not satisfy the record-keeping requirements of 

proposed rule 35d–1(b)(3). Form N–PORT would 

reflects a snapshot of the fund’s investments at the 

end of the reporting period. The proposed 

recordkeeping requirement, however, reflects the 

fund’s ongoing names rule compliance activity. 

153See supra paragraph accompanying footnote 

66 discussing the time period in which the 80% 

policy must be assessed. 

154Records of the fund’s analysis that such a 

policy is not required under the names rule, as 

described in section II.G.2 infra, similarly would 

need to be created on an as-needed basis. 

155See rule 31a–1; see also e.g., rule 38a–1(d) and 

rule 22e–4 (both rules incorporating retention 

periods of five years). 

associated with the investments 

suggested by the fund’s name? 

83. Our proposal would make public 

the information that a fund would 

report in response to this new Form N– 

PORT item for the third month of each 

fund’s quarter. Is there any reason why 

this information should not be publicly 

available? 

G. Recordkeeping 

The proposed amendments would 

require funds to maintain certain 

records depending on whether the fund 

would be required to adopt an 80% 

investment policy.149 Funds subject to 

that requirement would be required to 

maintain certain records documenting 

their compliance with the rule. 

Conversely, funds that do not adopt an 

80% investment policy would be 

required to maintain a written record of 

their analysis that the 80% investment 

policy is not required under the rule. 

1. Funds Required To Adopt an 80% 

Investment Policy 

The proposed recordkeeping 

requirements for funds that are required 

to adopt an 80% investment policy are 

designed to provide our staff, and a 

fund’s compliance personnel, the ability 

to evaluate the fund’s compliance with 

the proposed amendments.150 These 

would be new requirements, as neither 

the current rule nor the general 

recordkeeping rule under the Act 

includes a recordkeeping provision 

specific to the names rule compliancerelated topics the proposed amendments 

would address.151

The proposed amendments would 

require a fund that is required to adopt 

an 80% investment policy to maintain 

written records documenting its 

compliance under the 80% investment 

policy provisions of the rule. 

Specifically, the written records 

documenting the fund’s compliance that 

these funds would be required to 

maintain would include: 

• The fund’s record of which 

investments are included in the fund’s 

80% basket (generally defined as 

investments that 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 investment in the 80% 

basket; 

• The value of the fund’s 80% basket, 

as a percentage of the value of the fund’s 

assets; 

• The reasons for any departures from 

the 80% investment policy; 

• The dates of any departures from 

the 80% investment policy; and 

• Any notice sent to the fund’s 

shareholders pursuant to the rule.152

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.153 We believe that the 

frequency with which these records 

would be made would vary based on the 

specific activities and compliance needs 

of the fund. We believe that many funds 

would make certain of these records 

daily in order to reflect ongoing 

investment activity. We anticipate that 

the vast majority of records would be 

automated. Some records, however, 

would not lend themselves to 

automation—for example, records 

documenting the reasons for any 

departures from the 80% investment 

policy—and would need to be created 

on an as-needed basis.154

These records would allow our staff to 

understand and evaluate a fund’s 

operation of its investment policy better 

and whether the fund is adhering to the 

proposed amendments. These records 

also would allow our staff to better 

identify and assess violations. We also 

believe that this recordkeeping 

requirement would increase the 

effectiveness of the Commission’s 

oversight of the fund industry, which 

will, in turn, benefit investors. 

The proposed amendment would 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 requirement. The fund 

should, however, generally maintain 

appropriate documentation that would 

be sufficient for a third party to verify 

the matter covered by each record. 

The proposed six-year retention 

period is designed to be generally 

consistent with other recordkeeping 

retention periods provided in rules 

under the Act.155 We believe general 

consistency with other retention periods 

would lessen the compliance burden of 

the proposed new requirement for funds 

required to maintain these records. 

However, we believe the compliance 

burden of the new recordkeeping 

requirements would be incremental for 

a fund that is currently required to 

adopt an 80% investment policy. Funds 

that are subject to the current names 

rule likely keep such records, even 

absent the proposed requirement to do 

so, in order to support their ongoing 

compliance with the rule’s 

requirements. 

We request comment on the proposed 

recordkeeping provision for funds that 

are required to adopt an 80% 

investment policy. 

84. Is the proposed recordkeeping 

requirement appropriate? Why or why 

not? Is the accompanying Commission 

guidance regarding the required written 

records appropriate and 

understandable? If not, what additional 

guidance should we give? 

85. Are there additional types of 

records that we should require for funds 

that are required to adopt an 80% 

investment policy? If so, which records 

and why? 

86. Should the proposed rule 

prescribe the particular form of 

documentation required to be 

maintained under this new 

requirement? Why or why not? 

87. Are the proposed retention 

periods sufficient to evidence 

compliance? Why or why not? Should 

we require a longer (e.g., eight years) or 

shorter (e.g., four years) retention 

period? 

88. Should the proposed 

recordkeeping requirement also include 

a requirement that the fund document 

an assessment(s) of any continued or 

ongoing departures from the 80% 

policy, beyond the proposed 

requirement (for example, if the 

departure were to persist beyond a 

particular time period, a requirement to 

document the continued need for the 

departure)? Would requiring such 

assessment(s) of a fund’s departure from 

the 80% policy help ensure that the 

fund comes back into compliance 

quickly, consistent with the proposed 

‘‘as soon as reasonably practicable’’ 

standard? 

89. For those funds that are currently 

subject to the names rule’s 80% 

investment policy requirement, what 

records do those funds generally keep 

regarding their compliance with the rule 


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156See generally, e.g., PIABA Comment Letter; 

CFA Comment Letter; Crowley Comment Letter. 

157Proposed rule 35d–1(b)(3). 

158See also supra footnotes 16 and 50 and 

accompanying text. 159Proposed rule 35d–1(f). 

160Names Rule Adopting Release, supra footnote 

2, at n.33 and accompanying text. 

161See, e.g., Good Faith Determinations of Fair 

Value, Investment Company Act Release No. 34128 

(Dec. 3, 2020) [86 FR 748 (Jan. 6, 2021)] at nn.170– 

180 and accompanying text. 

162As these UITs would not be subject to the 

requirement to adopt an 80% investment policy, 

they would not be subject to the rule’s other 

requirements that only apply when a fund is 

required to adopt an 80% investment policy, such 

as the proposed temporary departure and notice 

requirements. See, e.g., proposed rule 35d–1(b)(1) 

and (e). 

163See proposed rule 35d–1(f) (not excepting 

applicable UITs from paragraph (a)(1) of the rule). 

and the 80% investment policy they 

adopted under the rule? Who at the 

fund currently creates and/or maintains 

these records? How do these records 

differ from those being proposed? When 

creating and maintaining the records 

that would be required by the proposed 

amendments, what personnel do funds 

believe would be necessary? 

2. Funds That Do Not Adopt an 80% 

Investment Policy 

The proposed amendments would 

require a fund that does not adopt an 

80% investment policy to maintain a 

written record of the fund’s analysis that 

such a policy is not required under the 

names rule. Such funds must maintain 

this record, in an easily accessible place, 

for a period of not less than six years 

following the fund’s last use of its name. 

The investor protection that the rule’s 

investment policy requirement provides 

is critical to help ensure that funds’ 

investments correspond with the 

investment focus that their names 

suggest to investors.156 As we stated 

above, however, we recognize that 

certain names do not suggest an 

investment focus and therefore would 

not require the fund to adopt an 80% 

investment policy under the proposed 

amendments. At the same time, there 

can be incentives for asset managers to 

determine that certain funds are not 

subject to the names rule’s 80% 

investment policy requirement in order 

to preserve management flexibility, even 

where the fund’s name may suggest a 

particular investment focus. 

Accordingly, we are proposing to 

require funds that do not adopt an 80% 

investment policy under the rule to 

maintain a written record of the fund’s 

analysis that an 80% investment policy 

is not required.157 This proposed 

provision is designed to prevent 

materially misleading or deceptive 

names by assisting our staff and fund 

compliance personnel in their oversight 

of the application of the names rule by 

providing our staff, and a fund’s 

compliance personnel, the ability to 

evaluate the fund’s analysis. This 

provision also would assist in funds’ 

compliance practices, as fund boards 

generally should consider names rule 

compliance, including the requirement 

for certain funds to adopt an 80% 

investment policy, in approving their 

funds’ policies and procedures under 

rule 38a–1(a)(2).158

We request comment on the proposed 

recordkeeping requirement for funds 

that do not adopt an 80% investment 

policy. 

90. Is the proposed recordkeeping 

requirement for funds that do not adopt 

an 80% investment policy likely to 

provide meaningful protection to 

investors? Are there any other records 

we should require of these funds? 

91. What information do commenters 

anticipate would be included in the 

proposed written record? Is there any 

specific information that we should 

require in the written record, or is the 

proposed general written record 

requirement appropriate in light of the 

breadth of fund strategies and names? 

92. Is six years from the fund’s last 

use of its name the appropriate period 

to retain this record? Should we instead 

require that this record be kept for six 

years from the first use of the name, or 

for some other period? Should we 

require such records be kept in an easily 

accessible place indefinitely or for a 

limited time and, if the latter, for how 

long? 

93. Should we require that funds not 

required to adopt an 80% investment 

policy make a finding or determination 

to that effect prior to first use of the 

fund’s name and require a designated 

party, such as the fund’s board or chief 

compliance officer, to make this finding 

or determination? Should we require the 

fund’s board to approve that finding or 

determination if the board is not making 

it in the first instance? If we were to take 

this approach, should we require funds 

with names currently in use to engage 

in this activity as well? 

H. Unit Investment Trusts 

The proposed rule amendments 

would include certain exceptions for 

unit investment trusts (‘‘UITs’’) that 

have made their initial deposit of 

securities prior to the effective date of 

any final rule amendments the 

Commission adopts. Specifically, these 

UITs would be excepted from the 

requirements to adopt an 80% 

investment policy and the 

recordkeeping requirements, including 

recordkeeping for funds which do not 

adopt an 80% investment policy, unless 

the UIT has already adopted—or was 

required to adopt at the time of the 

initial deposit—an 80% investment 

policy under the current rule.159

The proposed approach is generally 

consistent with the treatment of UITs 

under the current rule. UITs are 

passively managed vehicles that operate 

pursuant to a trust indenture or a 

similar document and have fixed 

portfolios that would make it difficult to 

adjust their portfolios to comply with 

the rule’s portfolio composition 

requirements.160 Changes to an UIT’s 

operational documents can be expensive 

and time-consuming.161 The proposed 

amendment is designed to retain the 

existing exception from the 80% 

investment policy requirements for UITs 

that pre-date the original rule. Any such 

UIT would be included in the set of 

UITs that the proposed exception would 

include—those that have not adopted, 

and not been required to adopt, an 80% 

investment policy prior to the effective 

date of the proposed amendments. We 

believe the same reasoning also 

supports excepting UITs that pre-date 

the effective date of the proposed rule 

amendments, to the extent that they 

would be required to adopt an 80% 

investment policy for the first time or 

make a written record of their analysis 

that such a policy is not required under 

the rule as a result of the proposed 

amendments. Further, the lack of active 

management for UITs would make these 

proposed requirements operationally 

difficult.162

In addition, all UITs would be subject 

to the rule’s other requirements under 

the proposed amendments, as well as 

those of the federal securities laws 

generally, including section 35(d) of the 

Act. For example, we are not proposing 

to except UITs from the prohibition on 

names that suggest a guarantee by the 

U.S. government regardless of the date 

of initial deposit.163 Further, the ability 

to provide prospectus disclosure is not 

precluded by the fixed nature of a UIT’s 

portfolio. As a result, UITs would be 

subject to the proposed plain English 

requirements, and as discussed above 

we would also require all UITs to make 

the prospectus disclosures that would 

be mandated under the proposed rule 

and to tag newly-required information 

in the prospectus using Inline XBRL. 

We request comment on the proposed 

exception for certain UITs from the 

requirements to adopt an 80% 

investment policy and make certain 

records. 


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94. Is it necessary to except the UITs 

that the proposed rule amendments 

describe from these provisions? Would 

UITs that have made an initial deposit 

of securities prior to the adoption of any 

rule amendments be able to make the 

appropriate name or portfolio 

adjustments necessary to conform to the 

80% investment policy and related 

requirements? In general, what would 

be the impact on UITs currently in 

existence of the proposed changes to the 

scope of the 80% investment policy 

requirement? 

95. What would be the extent of the 

impact on UITs if we were not to 

include either of the sets of UITs in the 

proposed rule amendments’ exceptions 

for UITs—that is, either UITs that have 

made an initial deposit of securities 

prior to July 31, 2002, or UITs that have 

made an initial deposit of securities 

prior to the effective date of any final 

rules the Commission adopts? 

96. Should these or other UITs be 

excepted from any other provisions? 

How would we ensure that investors are 

protected in those cases? 

I. Transition Period and Compliance 

Date 

Staff in the Division of Investment 

Management is 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 any 

adoption of this proposal. Upon the 

adoption of any final rule amendments, 

some of these letters and other staff 

statements, or portions thereof, would 

be moot, superseded, or otherwise 

inconsistent with the final rule 

amendments and, therefore, would be 

withdrawn. If interested parties believe 

that additional staff letters or other staff 

statements should be withdrawn, they 

should identify the letter or other 

statement, state why it is relevant in 

light of the proposed rule amendments, 

how it or any specific portion thereof 

should be treated, and the reason 

therefor. The staff review would 

include, but would not necessarily be 

limited to, all of 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). 

Following a one-year transition period 

to provide time for funds to prepare to 

come into compliance with the 

proposed rule amendments, if adopted, 

funds would be required to comply with 

the requirements of the proposed names 

rule amendments, the proposed new 

prospectus disclosure requirements, and 

the proposed new Form N–PORT 

reporting requirements. At that time, as 

determined appropriate in connection 

with the staff’s review of no-action 

letters and staff statements described in 

this release, staff no-action letters and 

other staff statements, or portions 

thereof, may be withdrawn. 

We propose to provide a one-year 

compliance period for the proposed 

names rule amendments, if adopted, to 

provide time for funds to bring their 

fund names and disclosures into 

conformity with the amendments. We 

propose that the transition period 

discussed in this section would run 

from the date of the publication of any 

final rule amendments in the Federal 

Register. 

We request comment on the proposed 

transition period. 

97. Do commenters agree that a oneyear transition period provides time for 

funds to come into compliance with the 

proposed names rule? Should the period 

be shorter or longer? 

98. Should the transition period be 

the same for all funds that rely on the 

proposed names rule? 

99. Would our proposal to rescind the 

current staff statements discussed above 

provide sufficient time for funds to 

comply with the proposed names rule? 

100. Is it clear what statements would 

be withdrawn or rescinded? Are there 

additional letters or other statements, or 

portions thereof, that should be 

withdrawn or rescinded? If so, 

commenters should identify the letter or 

statements, state why it is relevant to 

the proposed rule, how it or any specific 

portion thereof should be treated, and 

the reason therefor. 

III. 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 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 proposed rule 

amendments, including the benefits and 

costs to investors and other market 

participants as well as the broader 

implications of the proposed 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 proposed 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, 

monitoring and search costs may 

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. The Commission seeks comment 

on all aspects of the economic analysis, 

especially any data or information that 

would enable a quantification of the 

proposal’s economic effects. 

B. Broad Economic Considerations 

As discussed in section I.B above, we 

believe that a fund’s name is an 

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 in light of their goals in 

communicating to investors. To the 

extent that holding investments 

inconsistent with the investment focus 

that a fund’s name suggests could lead 

to increased assets under management 

and increased fees, however, the adviser 

may have an incentive for the fund to 

hold investments different from those 

suggested by the fund’s name. For 

example, a fund may deviate from the 

investment focus suggested by its name 

in an attempt to outperform its peers 

and attract greater inflows. The 

potential for funds to hold investments 

that are not consistent with the 

investment focus that a fund’s name 

suggests exists to the extent that there 

are costs for investors to monitor fund 

investments, either directly by 

reviewing fund disclosures or indirectly 

through third parties. Because there are 

costs for investors to monitor fund 

investments, fund advisers may be able 

to engage in activities that benefit 

themselves, rather than investors, 

through increased assets under 

management and fees without those 

activities invariably being detected by 

investors. Holding investments not 

consistent with the investment focus 

that a fund’s name suggests could, in 


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164Academic research generally distinguishes 

between the asset classes identified in fund names 

(e.g., ‘‘equity’’ or ‘‘debt’’) versus ‘‘investment style’’ 

descriptions in fund names (e.g., value/growth, or 

small/mid/large-cap), and generally does not 

examine the relation between asset classes 

identified in fund names (e.g., ‘‘equity’’ or ‘‘debt’’) 

and portfolio holdings for funds currently subject 

to the 80% requirement. 

165For example, See Anne-Florence Allard, 

Jonathan Krakow, and Kristien Smedts, ‘‘When 

Mutual Fund Names Misinform,’’ 2020, working 

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

papers.cfm?abstract_id=3628293 (‘‘Allard et al’’). 

The authors examine 2,126 US equity funds, 1,339 

of which have ‘‘small,’’ ‘‘large,’’ ‘‘growth,’’ or 

‘‘value’’ in their names. The authors conclude that 

‘‘that a significant fraction of US equity mutual 

funds provides inaccurate naming information: 

33% of US equity mutual funds have, at least once 

in their life-cycle, an inaccurate name.’’ See also E. 

Ghoul, and A. Karoui, What’s in a (Green) Name? 

The Consequences Of Greening Fund Names On 

Fund Flows, Turnover, And Performance, 39 

Finance Research Letters 101620 (2021). The 

authors find a statistically insignificant change in 

fund exposure to socially responsible investment 

following a fund name change suggesting socially 

responsible investment. 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 themselves as socially responsible 

yet do not make tangible investment decisions 

consistent with that portrayal. 

166See 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 (2005, vol. 60, pp. 

2825–2858) (‘‘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 (2017, vol. 84, pp. 123–134) 

(‘‘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. 

167See Allard et al. 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. 

168See Cooper Paper. 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. See also Espenlaub 

Paper. The researchers do not find a relation 

between prior fund flows and prior performance, 

but they do find a negative relation between 

management fees and the likelihood of a misleading 

name change. The researchers argue that because 

management fees are tied to assets under 

management, fund managers feel greater pressure to 

increase fund size in order to maintain personal 

incentives. 

169See Cooper Paper. 

170 Id. 

171Estimates of the number of registered 

investment companies and their total net assets are 

based on a staff analysis of Form N–CEN filings as 

of July 31, 2021. 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 

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

172Estimates of the number of money market 

mutual funds and their total net assets are based on 

a staff analysis of Form N–MFP filings as of July 31, 

2021. 

173Estimates of the number of BDCs and their net 

assets are based on a staff analysis of Form 10–K 

and Form 10–Q filings as of June 30, 2021. Our 

estimate includes BDCs that may be delinquent or 

have filed extensions for their filings, and it 

excludes 4 wholly-owned subsidiaries of other 

BDCs. 

174See 2021 ICI Fact Book. 

175 Id. 

176 Id. 

turn, lead to investors holding 

investments that are inconsistent with 

their goals and risk tolerances. 

Research on fund names focuses on 

the relation between investment styles 

identified by fund names and the risks 

and returns generated by fund 

holdings.164 Academic research has 

found that funds may not follow an 

investment style that aligns with the 

investment style identified in a fund’s 

name.165 Researchers have also found 

that certain funds have changed names 

in such a way as to suggest changes in 

style, but the funds do not subsequently 

change styles.166

That same research suggests that 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 funds’ 

investment styles may be altered 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.167 Research 

findings also suggest that funds’ name 

changes that do not also involve a style 

change may be intentional, in order to 

attract fund flows.168 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 

(so-called ‘‘hot’’ fund styles).169 Also, 

the ‘‘hotter’’ the style implied by a name 

change, the more flows funds attract 

from investors.170

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. 

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 July 2021, there were 

10,223 mutual funds (excluding money 

market funds) with approximately 

$18,588 billion in total net assets, 2,320 

ETFs organized as an open-end fund or 

as a share-class of an open-end fund 

with approximately $6,447 billion in 

total net assets, 736 registered closedend funds with approximately $314 

billion in total net assets, and 49 UITs 

with approximately $598 billion in total 

net assets.171 There also were 432 

money market funds with 

approximately $5,534 billion in total net 

assets.172 Finally, as of July 2021, there 

were 99 BDCs with approximately $79 

billion in total net assets.173

The proposed rule amendments 

would also affect current and 

prospective individual investors who 

invest in funds. According to an 

association representing regulated 

funds, as of December 2020, 60.9 

million (47.4%) U.S. households and 

106.3 million individuals owned U.S. 

registered investment companies.174

Median mutual fund assets of mutual 

fund–owning households were $126,700 

with the median number of mutual 

funds held being four.175 Moreover, 

registered funds play an important role 

in individuals’ retirement savings. 64% 

of households had tax-advantaged 

retirement savings with $11.1 trillion 

invested in mutual funds either through 

defined contribution plans or IRAs.176

(a) 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. 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 


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177Certain 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’’ (2.1% of funds), 

‘‘high yield’’ (1.7% of funds), and ‘‘emerging 

markets’’ (3.4% of funds). We are not aware of any 

funds with the word pairs ‘‘ESG Integration’’ or 

‘‘ESG Integrated’’ in their names. 

178This 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 

December 31, 2020. Specifically, 497 and 485BPOS 

fund prospectuses filed in 2019 or 2020 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 six 

funds could not be identified in the 497 and 

485BPOS fund prospectuses filed in 2019 or 2020. 

Therefore, these six 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 III.C.3 

179 18% of funds that have investment policies 

specifying a minimum percentage of investments 

consistent with a certain fund focus specify a 

percentage less than 80%. We note that while 69% 

of funds have an investment policy requiring at 

least 80% of fund investments be consistent with 

a certain investment strategy, we estimate that 62% 

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. 

180For example, a fund may specify that it invests 

no more than a given percentage of fund assets in 

a given country or geographic region. 

181See supra section I.A. 

182See supra footnote 10. 

183See supra footnote 11 

184This estimate is based on a random stratified 

sample of 100 fund names. See supra footnote 178. 

185See discussion at supra footnote 35. Staff do 

not approve any fund or its disclosure. 

186See, e.g., 17 CFR 200.30–5(b). 187See supra footnote 5. 

investment strategy. For example, the 

words ‘‘equity’’ or ‘‘stock’’ appear in 

9.6% of fund names. The words 

‘‘growth’’ and ‘‘income’’ appear in 8.2% 

and 10.4% of fund names, 

respectively.177

Preliminary review of fund filings 

suggests that approximately 84% of 

funds have investment policies 

specifying a minimum percentage of 

investments consistent with a certain 

fund focus.178 Of those funds, 

approximately 82% have an investment 

policy requiring at least 80% of fund 

investments be consistent with a certain 

fund focus.179 Certain funds also specify 

investment maximums as a percentage 

of fund assets.180

(b) Current Regulatory Framework 

As discussed above, section 35(d) the 

Act authorizes the Commission to 

define such fund names or titles as are 

materially deceptive or misleading.181

The names 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. The names rule also provides that 

a fund’s 80% investment policy applies 

‘‘under normal circumstances’’—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.182 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.183 A 

preliminary review of fund names 

suggests that approximately 62% of 

funds have names that implicate the 

80% investment policy requirement.184

Staff generally reviews initial fund 

registration statements, certain posteffective amendments, and proxy 

statements. Staff may provide 

comments, and these comments may 

address the fund’s name in light of the 

names rule’s requirements.185

Registration statements for most new 

mutual funds and ETFs organized as 

corporations, as well as material 

changes to these funds, automatically go 

effective after a period of time, typically 

75 days for new funds and 60 days for 

funds with material changes. For new 

mutual funds and ETFs organized as 

trusts and many closed-end funds, 

filings typically become effective 

pursuant to Commission action that has 

been delegated to the staff.186

In addition, no less frequently than 

once every three years, staff reviews the 

annual report of all management 

investment companies, including their 

financial statements (‘‘SOX Reviews’’). 

As part of that review, staff may provide 

comments to funds to the extent staff 

observes fund holdings that are 

inconsistent with its disclosure. All 

registered management investment 

companies (other than money market 

funds and small business investment 

companies), as well as UITs operating as 

ETFs, 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 proposed amendments are 

designed to modernize and enhance the 

investor protections that the names rule 

currently provides. The proposed 

amendments would improve and clarify 

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. These amendments are 

designed to ensure that fund names that 

communicate to investors that the fund 

focuses its investments in a particular 

way are addressed by the rule, and to 

address investors’ reasonable 

expectations regarding the focus that the 

fund’s name communicates. The 

proposed amendments also would 

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.187 For example, the current 

scope of the rule has created 

interpretive issues, including about 

whether certain fund names are subject 

to the names rule, which in turn has 

raised questions about the rule’s 

application with respect to particular 

fund names that could mislead investors 

about the fund’s investment focus. 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. Additionally, the 

investor protections provided by the 

names rule are not designed to address 

funds’ increasing use of derivatives. 

The benefits associated with the 

proposed amendments may vary based 

on funds’ current practices. Our 

understanding is that certain 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. 

Depending on the extent to which those 

practices differ across funds or differ 

from the proposed rule’s requirements, 

the benefits realized by fund investors, 

as detailed below, may vary across fund 

investors. 


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188See supra footnote 54. 

189See proposed rule 35d–1(g)(2). 

190See discussion in section II.A.3. 

191We request comment above on funds’ current 

practices regarding including or excluding short 

positions in their 80% basket and whether any 

changes in this area would be appropriate. 

192Proposed rule 35d–1(c). 

193See supra footnote 101. 

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 fund 

investments, or they may choose to 

reduce or eliminate their investments in 

funds. Similarly, uncertainty about fund 

holdings 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 

proposed amendments would extend 

the provisions of the names rule to a 

broader set of fund names. We believe 

that investors would benefit to the 

extent that the scope expansion helps 

ensure that a fund’s investment activity 

supports the investment focus its name 

communicates and, thus, the investor 

expectations the name creates. 

Temporary Departures. The proposed 

amendments would 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 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; (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 pursuant to the rule.188

Unlike the more principles-based 

approach of the current rule, the 

proposed rule would specify the 

circumstances where a fund’s temporary 

departure from the 80% investment 

requirement would be permitted. We 

believe that funds and their 

shareholders would benefit from the 

degree of flexibility that the proposed 

approach would provide, as it would 

allow fund managers 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. 

Considerations Regarding Derivatives 

in Assessing Names Rule Compliance. 

The proposed amendments would 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 proposed 

amendments would 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, and reduce the value of its 

assets by excluding cash and cash 

equivalents up to the notional amount 

of the derivatives instrument(s).189 The 

proposed amendments also would 

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 

investments suggested by a fund’s name. 

As discussed above, a derivatives 

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

Act, may bear no relation to the 

investment exposure created by the 

derivatives instrument.190 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.191 Our proposed 

amendments would 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. 

Unlisted Closed-End Funds and BDCs. 

Under the proposed rule amendments, 

unlisted closed–end funds and BDCs 

would not be permitted to change their 

80% investment policies without 

shareholder approval. Unlisted closed– 

end funds and BDCs do not issue 

redeemable shares or list their shares on 

a national securities exchange. 

Shareholders in an unlisted 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 and the investment focus that the 

fund’s name indicates. The absence of 

recourse would tend to reduce investor 

protections with respect to fund 

investments. The proposed amendments 

would increase investor protections by 

requiring that a fund’s 80% investment 

policy be a fundamental investment 

policy, and this would, in turn, require 

unlisted closed–end funds and BDCs to 

secure investor approval before 

changing their 80% investment policies. 

Effect of Compliance with an 80% 

Investment Policy. We are proposing 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 policy and 

otherwise complies with the rule’s 

requirement to adopt and implement the 

policy.192 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.193 We believe that 

investors will benefit from the enhanced 

protections created by the codification 

of the view that a fund name may be 

materially deceptive or misleading even 

where the fund complies with its 80% 

investment policy. 

Materially Deceptive and Misleading 

Use of ESG Terminology in Certain 

Fund Names. The proposed 

amendments would define the names of 

‘‘integration funds’’ as materially 

deceptive and misleading if the name 

includes terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors. We believe that the 

proposed amendments would benefit 

those investors who prefer to invest in 

funds for which ESG factors are 

determinative in deciding whether to 

include or exclude any portfolio 

investment, because the proposed 

amendments would make it easier for 

these investors to select funds that meet 

these criteria and distinguish them from 

integration funds. For those investors, 

we anticipate that this benefit would 


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194See supra footnote 104. 195See section II.B, section II.C, section II.F and 

section II.G 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. 196See section II.B. 197See, e.g., Birt, J., Muthusamy, K. & P. Bir, 

XBRL and the Qualitative Characteristics of Useful 

Financial Information, 30 Account. Res. J. 107 

(2017) (finding ‘‘financial information presented 

with XBRL tagging is significantly more relevant, 

understandable and comparable to non-professional 

investors’’); Cahan, S.F., Chang, S., Siqueira, W.Z. 

& K. Tam, The roles of XBRL and processed XBRL 

in 10–K readability, J. Bus. Fin. Account. (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, 52 Abacus 259 (2016) (finding XBRL 

filings have larger relative informational value than 

HTML filings). 

198 Investors could benefit from their direct use of 

the Inline XBRL data, or through indirect use of the 

indirect data (i.e., through 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, XBRL.org (2018); Hoitash, R & U. 

Hoitash, Measuring accounting reporting 

complexity with XBRL. 93 Account. Rev. 259–287 

(2018). Also, in contrast to XBRL financial 

statements (including footnotes), which consist of 

tagged quantitative and narrative disclosures, the 

proposed 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 a specific upper limit of greenhouse gas 

emissions as a selection criterion, those values 

would 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. 

199As discussed above, the proposed 

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 proposed amendments to Form N– 

PORT. See supra footnote 141. 

result from the way that the proposed 

amendments address names that have 

the potential to overstate the importance 

of ESG factors in a fund’s selection of its 

portfolio investments, in that the 

proposed amendments effectively define 

this practice to be materially deceptive 

and misleading. 

Prospectus Disclosure. We are also 

proposing amendments to funds’ 

registration forms that would 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.194 We believe 

that these provision would help the 

investor understand whether the 

investment focus the name suggests is 

consistent with the investor’s 

investment goals and risk tolerance. The 

proposed amendments would 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.195

The proposed amendments would 

require funds to tag the new prospectus 

disclosure in Inline XBRL, a structured, 

machine-readable data language.196 This 

requirement is designed to make the 

proposed 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.197 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 proposed Inline XBRL 

requirements could provide fund 

investors with increased insight into 

term definitions and investment 

selection criteria at specific funds and 

across funds, asset managers, and time 

periods.198 Additionally, while Forms 

N–8B–2 and S–6 would be structured 

only for this proposed disclosure 

requirement, we do not expect this to 

negatively impact investors’ ability to 

understand the disclosures on these 

Forms. An Inline XBRL requirement 

would ensure that all disclosures on 

these forms—including both structured 

and unstructured disclosures—would be 

human-readable, because Inline XBRL 

enables a single document to include 

both human-readable and machinereadable disclosure. 

We are also proposing to 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. 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. 

New Form N–PORT Reporting 

Requirements. We are also proposing to 

amend Form N–PORT to include a new 

reporting requirement regarding a 

registered investment companies’ names 

rule compliance.199 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) 

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

a percentage of the value of the fund’s 

assets, and (2) if applicable, the number 

of days that the value of the fund’s 80% 

basket fell below 80% of the value of the 

fund’s assets during the reporting 

period. There would also be a proposed 

new Form N–PORT reporting item 

requiring a fund that is a Form N–PORT 

filer and that is 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. We 

believe that the new information that 

funds would be required to report on 

Form N–PORT filings would 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, 

we believe that investors and other 

potential users would 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 believe that entities 

providing services to investors, such as 

investment advisers, broker-dealers, and 

entities that provide information and 

analysis for fund investors, would also 

utilize and analyze the new information 

that will be required by the proposed 

amendments to Form N–PORT to 

monitor fund investments for 

consistency with investment focuses 

suggested by fund names. Accordingly, 

whether directly or through third 

parties, we believe that the proposed 

new disclosure on Form N–PORT will 

benefit all fund investors. 

Recordkeeping. The proposed 

amendments would require funds to 

maintain certain records depending on 

whether the fund would be required to 


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200See proposed rule 35d–1(b)(3). 

201Proposed rule 35d–1(f). 

202See supra footnote 160. 

203For example, by decreasing potential 

greenwashing concerns, the proposed amendments, 

in turn, may increase investor confidence in 

selecting funds with names implying an ESG 

strategy and increase capital formation among ESG 

issuers. 

204 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’’). 

205This argument assumes that fund reputation 

and investor protections provided by regulatory 

requirements are substitute mechanisms for 

providing assurances to investors. 

206See supra footnote 179. 

adopt an 80% investment policy.200

While the amendments would 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. These proposed requirements 

would provide our staff, and a fund’s 

compliance personnel, the ability to 

evaluate the fund’s compliance with the 

proposed amendments and thereby 

would benefit investors. 

Notice Requirement. The proposed 

amendments would also protect 

investors by modifying the current 

notice requirements when a fund 

chooses to change its investment policy. 

The proposed amendments are designed 

to draw investor attention to the 

upcoming change that the notice 

documents describe, clarify the 

requirements for the notice, and provide 

investors with more consistent 

information. The proposed amendments 

also incorporate changes to the notice 

requirement to provide specificity with 

respect to notices that may be delivered 

electronically. These changes would 

help ensure that investors who have 

opted into electronic delivery will 

receive the notices the names rule 

requires in the format that they prefer. 

Unit Investment Trusts. The proposed 

rule amendments would except UITs 

that have made their initial deposit of 

securities prior to the effective date of 

any final rule amendments the 

Commission adopts from the 

requirements to adopt an 80% 

investment policy and the 

recordkeeping requirements, including 

recordkeeping for funds which do not 

adopt an 80% investment policy, unless 

the UIT has already adopted—or was 

required to adopt at the time of the 

initial deposit—an 80% investment 

policy under the current rule.201 UITs 

are passively managed vehicles that 

operate pursuant to a trust indenture or 

a similar document and have fixed 

portfolios that would make it difficult to 

adjust their portfolios to comply with 

the rule’s portfolio composition 

requirements.202 The proposed 

exception would benefit investors in 

UITs that meet the requirements of the 

exception by allowing those UITs to 

avoid changes to an UIT’s operational 

documents that are potentially 

expensive and time-consuming, and 

could result in inconvenience to extant 

investors. 

Effects on Efficiency, Competition and 

Capital Formation. To the extent the 

proposed amendments would 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 proposed amendments 

and to the extent those more 

appropriately representative fund names 

would allow investors to more easily 

select funds that better matched their 

preferences, however, we would expect 

the efficiency of investment to increase. 

To the extent the proposed 

amendments increase efficiency of 

investment in the funds 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 it is too costly to 

search for funds that match their 

investment preferences, or if investors 

lack confidence that funds’ names 

accurately convey funds’ investment 

focuses, then to the extent the proposed 

amendments lower those costs and 

enhance investor protections, we would 

expect to observe more investors 

entering the funds market.203 To the 

extent that competition in a market is 

related to the size of the market, the 

effect of this potential increase in 

investor demand for funds could 

increase competition in the funds 

market. 

The proposed amendments could 

affect competition through an additional 

channel. Certain funds may have 

established reputations for making 

investments consistent with the fund’s 

investment focus. 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 fund’s investment 

focus.204 There may be investors who do 

not invest in funds lacking established 

reputations for making investments 

consistent with fund focuses (or invest 

less than they would have) because 

those investors are less confident that 

such funds will make investments 

consistent with funds’ investment 

focuses. We would expect the investor 

protections offered by the proposed 

amendments to lead to greater investor 

confidence that funds’ names accurately 

convey funds’ investment focuses which 

could, in turn, enhance the ability of 

funds without established reputations to 

compete with those funds with 

established reputations which could, in 

turn, lead to increased investment for 

funds without established 

reputations.205

If the proposed amendments increase 

the efficiency of investment in the funds 

market, then we may observe an 

increase in investment in funds. Greater 

investment in funds could lead to 

increased demand for securities held by 

funds. 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. 

2. Costs 

We believe that compliance costs 

associated with the proposed 

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. We also 

believe that certain funds’ current 

investment policies may already be in 

line with many of the proposed rule’s 

requirements or could be readily 

conformed without material change. For 

example, as discussed in section III.C.1 

above, preliminary review of fund 

filings suggests that more funds have 

minimum investment policies than are 

required to do so under the current 

names rule.206

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. Even 


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207See section II.A.1 and supra footnote 31. 

208See note 3 of Table 6. 

209See, 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. 

210See proposed rule 35d–1(g)(2). 

211See proposed rule 35d–1(b)(2). 

212For example, rule 18f–4 includes an exception 

from certain of the rule’s requirements that requires 

Continued 

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 

certain data used in selecting 

investments consistent with the fund’s 

investment focus. Costs associated with 

either creating or purchasing certain 

data used in selecting investments may 

not vary much across funds. For 

example, growth funds may rely on 

financial data when selecting fund 

portfolio investments. Generally 

Accepted Accounting Principles 

promote consistency and comparability 

in reported financial information. The 

consistency and comparability of 

reported financial information leads to 

similar costs across funds, regardless of 

investment focus. On the other hand, 

the cost of certain data may vary across 

funds based on investment focus. For 

example, funds with an ESG focus may 

face a lack of consistent and comparable 

ESG information. The lack of consistent 

and comparable information could 

increase the cost, relative to funds with 

other investment focuses, of 

determining whether an investment is 

consistent with a fund’s investment 

focus. 

Also, larger funds or funds that are 

part of a large fund complex may incur 

higher costs in absolute terms but find 

it less costly, per dollar managed, to 

meet the requirements of the proposed 

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 proposed 

amendment’s requirements for several 

funds. 

Names Suggesting an Investment 

Focus. The proposed amendments 

would 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.207 We estimate that 

approximately 8,250 (62%) funds are 

currently subject to this names rule 

requirement and that our proposed rule 

amendments would increase this 

estimate to approximately 10,000 (75%) 

funds.208 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).209 We believe 

funds with names that would be newly 

scoped into the names rule’s 80% 

investment policy requirement under 

the proposed amendments already have 

systems in place for monitoring 

compliance with existing principal 

investment strategy disclosure 

requirements. As a result, we believe 

funds with names that would be newly 

scoped in already have internal systems 

that could be used to assess compliance 

with the proposed rule. Funds would 

need to develop new, or revise existing, 

recordkeeping processes as discussed 

below. Funds with names that are newly 

scoped into the 80% investment policy 

requirement may also face an indirect 

cost in the need to calculate whether a 

specific asset would qualify as part of a 

fund’s 80% basket. 

Temporary Departures. The proposed 

amendments would retain a fund’s 

ability to depart temporarily from the 

80% investment requirement, but 

eliminate advisers’ ability to define the 

circumstances. The proposed 

amendments would also require that a 

fund departing from the 80% 

investment requirement must bring its 

investments back into compliance as 

soon as reasonably practicable, and that 

the maximum amount of time for the 

departure would be 30 consecutive 

days, other than in the case of a fund 

launch (which would be limited to 180 

consecutive days starting from the day 

the fund commences operations), a 

reorganization, or when notice of a 

change in a fund’s policy has been 

provided to fund shareholders under the 

rule. This change could create a cost for 

investors if there exist circumstances 

where departing from the 80% 

investment requirement would be 

beneficial to the fund and its 

shareholders, the proposed amendments 

would not allow a departure, and absent 

the proposed amendments, an adviser 

would have characterized the 

circumstance as allowing a departure. 

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 the price 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. Conversely, 

a departure for longer than 30 days to 

address a market disruption might 

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. To the 

extent that they do not already have 

systems in place for doing so, funds 

would have to set up systems to monitor 

departures from the 80% investment 

requirement, the reasons for departures, 

and the time limits for returning to the 

80% investment requirement. 

Considerations Regarding Derivatives 

in Assessing Names Rule Compliance. 

The proposed rule would address the 

valuation of derivatives instruments for 

purposes of determining the fund’s 

compliance with its 80% investment 

policy requirement. The proposed 

amendments would require that, in 

calculating its assets for purposes of 

names rule compliance, a fund must use 

the notional amount of each derivatives 

instrument, with certain adjustments as 

discussed above, and reduce the value 

of its assets by excluding cash and cash 

equivalents up to the notional amounts 

of the derivatives instrument(s).210 The 

proposed amendments also would 

specify 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.211 Our understanding is that 

funds that use derivatives typically 

calculate notional amounts for purposes 

other than names rule compliance.212


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the calculation of notional amounts. More 

generally, however, we believe that funds that use 

derivatives typically consider notional amounts 

when entering into derivatives contracts or when 

considering the economic effects of a derivatives 

contract within an existing portfolio. 

213See AllianzGI Comment Letter, Cantrell and 

Estevez Comment Letter, IRC Comment Letter, 

Federated Hermes Comment Letter, Hull Comment 

Letter, PRI Comment Letter, and Schanzenbach 

Comment Letter. 

214See, e.g., Nia Impact Capital Comment Letter 

(stating ‘‘. . . our core objective is to generate a 

competitive rate of return for our clients, while 

creating a positive impact for investors, for society 

and for our planet’’); Allianz Letter (stating ‘‘ESG 

strategies seek to meet a common non-investment 

objective without detracting from return relative to 

capweighted benchmarks’’). 

215As discussed in section II.A.3 above, costs 

such as transaction and custody costs can be lower 

for indirect investments via derivatives than they 

are for direct investments. See also, e.g., Daniel N. 

Deli and Raj Varma, ‘‘Contracting in the investment 

management industry: Evidence from mutual 

funds,’’ Journal of Financial Economics (2002, vol. 

63, pp. 79–98) (‘‘Deli and Varma Paper’’). The 

authors argue that derivatives can provide 

transaction-cost benefits relative to direct 

investment. Also as discussed in section II.A.3 

above, a derivatives instrument’s ‘‘value,’’ as 

defined in the Act, may bear no relation to the 

financial exposure created by the derivatives 

instrument. For example, a fund entering into a 

swap or other derivative referencing a market index 

with a notional amount of $1 million would achieve 

the same investment exposure as investing $1 

million in the underlying securities directly, but the 

swap’s market value therefore generally would be 

far smaller than $1 million and would not reflect 

the swap’s market exposure. The swap’s market 

value may be a small percentage of the fund’s net 

assets. Under the current rule, then, fund advisers 

may forgo the potential transaction-cost benefits 

associated with the use of derivatives, or use them 

to a lesser degree, because using derivatives may 

not allow a fund to meet the rule’s 80% 

requirements. Under the proposed amendments, 

however, using derivatives may allow a fund to 

both realize the transaction-costs benefits associated 

with derivatives and meet the 80% requirements of 

the names rule. 

216 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) (December 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 received 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 $118,000 as of the end of 2021. See 

Bureau of Labor Statistics CPI Inflation Calculator 

available at https://www.bls.gov/data/inflation_

calculator.htm. 

217Proposed rule 35d–1(c). 218See supra footnote 101. 219 Integration funds and their investors could 

also bear costs of revising various fund 

communications to reflect the name change, as well 

as costs for revising marketing materials to describe 

the integration approach, to the extent that those 

materials do not already do so. 220When adopting the current names rule, the 

Commission estimated the funds would bear a cost 

of $7,000 to change a fund’s name. We did not 

received any comments on that estimate. Adjusting 

for inflation, $7,000 at the beginning of 2009 would 

imply a cost of approximately $9,243 as of the end 

of 2021. See Bureau of Labor Statistics CPI Inflation 

Calculator available at https://www.bls.gov/data/ 

inflation_calculator.htm. 

As such, we do not believe there would 

be additional costs associated with 

calculating notional values. We 

understand, however, that meeting the 

requirements of the proposed 

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. 

Commenters suggest that certain 

investors care about more than the 

expected returns and exposures their 

investments create.213 For example, 

certain investors may care about the 

environmental or social impact of their 

investments (e.g., investors in ESG 

funds, or funds whose strategies involve 

the application of moral parameters).214

Those investors may value funds 

investing directly in the securities of 

certain issuers, rather than simply 

having an indirect exposer to those 

securities through fund derivatives 

positions—e.g., direct equity 

investments typically include voting 

rights and an ability, under certain 

conditions, to make shareholder 

proposals, whereas equity derivatives 

do not. To the extent investors value 

direct investment in issuer securities 

rather than simply having an indirect 

exposure to them through derivatives, 

investors may expend greater resources 

to monitor whether funds are making 

direct investments rather than using 

derivatives to meet the proposed 

amendments’ 80% investment 

requirement.215

Unlisted Closed-End Funds and BDCs. 

Under the proposed rule amendments, 

unlisted closed-end funds and BDCs 

would not be permitted to change their 

80% investment policies without 

shareholder approval. Rather than 

adopting a policy to notify investors 60 

days prior to any change in its 80% 

investment policy, unlisted closed-end 

funds and BDCs would be required to 

obtain shareholder approval. The costs 

of obtaining shareholder approval 

would include 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.216

Effect of Compliance with an 80% 

Investment Policy. The proposed 

amendments would state 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.217 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 

proposed amendments would codify 

this view to make it clear.218 Because 

the proposed provision would 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 believe the 

proposed provision creates new costs. 

Materially Deceptive and Misleading 

Use of ESG Terminology in Certain 

Fund Names. The proposed rule 

amendments would define the names of 

what this release refers to as 

‘‘integration funds’’ as materially 

deceptive or misleading if the name 

includes terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors. To the extent ESG 

integration fund sponsors use fund 

names to facilitate investors’ search for 

funds that use ESG factors as one of 

multiple components of their 

investment process, the loss of the 

ability to facilitate investors’ search 

would represent a cost for integration 

funds and their investors.219 We are 

unable to quantify this cost as we do not 

have data indicating the extent to which 

ESG integration funds use their names 

to facilitate investors’ search for funds 

that consider ESG factors as one of 

multiple components of their 

investment process, or the value ESG 

integration funds place on the ability to 

use their fund names in such a way. We 

are also unable to quantify this cost 

from an investor’s perspective. We do 

not observe the extent to which 

investors in integration funds rely on 

fund names in the management of their 

investment portfolio. Additionally, 

integration funds that change their 

names in order to comply with the rule 

may incur costs of revising various fund 

communications and documents (e.g., 

organizational documents, registration 

statements, shareholder reports, etc.).220

A fund may also face costs to determine 


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221See supra discussion in section II.D; see also 

supra section II.A.1 (discussing fund names 

suggesting an investment focus with multiple 

elements, where a fund would have to adopt an 

80% investment policy addressing each of the 

elements that the investment focus in its name 

suggests). 

222See proposed instruction to Item 4(a)(1) of 

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

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

Form N–8B–2. Based on the results of the PRA 

analysis provided in Tables 2, 3, and 4 infra it is 

estimated that the annual costs attributable to 

information collection requirements associated with 

this aspect of the proposed amendments would be 

$3,560 per fund. However, as we understand that 

including the prospectus disclosure that the 

proposed amendments would require is currently a 

common practice, the PRA estimates likely 

overestimate the costs associated with the proposed 

amendments for those funds whose disclosure is 

currently in line with the disclosure the 

amendments would require. See infra section IV.C. 

223See supra footnote 105. Based on the results 

of the PRA analysis provided in Table 7 infra it is 

estimated that the costs attributable to Inline XBRL 

tagging requirements would be $2,324 per fund for 

Form N–8B–2 filers, who are not subject to any 

current Inline XBRL requirements (or Inline XBRL 

requirements with compliance dates in the future) 

and would 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. 

224See supra footnote 116. 

225Based on the results of the PRA analysis 

provided in Table 5, it is estimated that the costs 

attributable to information collection requirements 

would be $3,204 per fund. 

226Based on the results of the PRA analysis 

provided in Table 5, it is estimated that the annual 

costs attributable to information collection 

requirements for investments to be included in a 

fund’s 80% basket would be $3,560 per fund. 

227See Allianz Letter. 

228Based on the results of the PRA analysis 

provided in Table 1, it is estimated that the annual 

costs attributable to recordkeeping requirements 

would be $17,800 per fund. 

229Proposed rule 35d–1(e). 

230Like the current rule, based on the results of 

the PRA analysis provided in Table 1, it is 

estimated that the costs attributable to notice 

requirements would be $8,500 per fund, for those 

funds providing notices. 

231See supra footnote 159. 

232We believe that the low end of this range is 

reflective of a fund that already has practices in 

place that could be readily adapted to meet the 

proposed rule’s requirements. Such a fund would 

nevertheless incur costs associated with analyzing 

its current practices relative to the final rule’s 

requirements. 

whether it qualifies as an integration 

fund under the proposed rule, 

particularly whether ESG factors are 

generally no more significant than other 

factors in the fund’s investment 

selection process, and thus whether 

including ESG terminology in the fund’s 

name would be materially deceptive 

and misleading under the proposal.221

Prospectus Disclosure. The proposed 

amendments to funds’ registration 

forms—specifically, Form N–1A, Form 

N–2, Form N–8B–2, and Form S–6— 

would also 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.222 The proposed 

amendments would require funds to tag 

this disclosure in Inline XBRL.223

For funds that are required to adopt 

an 80% investment policy, the proposed 

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.224

New Form N–PORT Reporting 

Requirements. The proposed 

amendments include a new Form N– 

PORT reporting item regarding the 80% 

investment policy that a fund would 

adopt in compliance with the names 

rule.225 There would also be a proposed 

new Form N–PORT reporting item 

requiring a fund that is a Form N–PORT 

filer and that is 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.226

Although the proposed amendments 

would not increase the frequency of 

public disclosure, it would increase the 

amount of information available about 

certain funds’ portfolio investments. 

The increased information could lead, 

indirectly, to increased costs for 

investors. For example, one commenter 

argued that funds might have innovative 

ways in which they apply factors, such 

as those indicating growth or value, to 

categorizing issuers or securities and 

that disclosing which securities are 

included in a fund’s calculation of 

assets that are included in the fund’s 

80% basket could reduce the value of 

the fund’s proprietary security selection 

process.227 We note, however, that Form 

N–PORT data is only made public 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. 

Recordkeeping. The proposed 

amendments would require funds to 

maintain certain records depending on 

whether the fund would be required to 

adopt an 80% investment policy. The 

proposed amendments would 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 would be 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.228

Notice Requirement. The proposed 

amendments would require 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.229 The proposed 

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 proposed 

alterations would increase the cost to 

prepare the notice.230

Unit Investment Trusts. The proposed 

rule amendments except UITs that have 

made their initial deposit of securities 

prior to the effective date of any final 

rule amendments the Commission 

adopts from the requirements to adopt 

an 80% investment policy and the 

recordkeeping requirements, including 

recordkeeping for funds which do not 

adopt an 80% investment policy, unless 

the UIT has already adopted—or was 

required to adopt at the time of the 

initial deposit—an 80% investment 

policy under the current rule.231 The 

proposed amendment largely retains the 

existing exception from the 80% 

investment policy requirements for UITs 

that pre-date the original rule. 

Overall Costs. We estimate that the 

costs to establish and implement 

practices designed to meet the 

requirements of the proposed 

amendments as described above will 

range from $50,000 to $500,000 per 

fund, depending on the particular facts 

and circumstances of the fund.232 These 

estimated costs are broadly attributable 

to the following activities: (1) reviewing 

the proposed rule’s requirements; (2) 

developing new (or modifying existing) 

practices, reporting, and recordkeeping 

requirements to align with the 

requirements of the proposed rule; (3) 

integrating and implementing those 

practices, reporting, and recordkeeping 

requirements to the rest of the funds’ 

activities; and (4) preparing new 

training materials and administering 

training sessions for staff in affected 

areas. We believe the costs would be 

closer to the lower end of the range for 


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233We believe the costs would be closer to the 

lower end of the range for funds that belong to fund 

families because certain aspects of the costs are 

fixed costs that could be spread across multiple 

funds. 

234 44 U.S.C. 3501–3520. 

235For items (2) and (3), the costs will include the 

cost of adding new data tags for the new disclosures 

on Form N–1A, Form N–2, and Form N–PORT, but 

will not include any initial implementation costs 

associated with structuring data, because those 

forms are already subject to structuring 

requirements. By contrast, 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 for UITs and their sponsors, 

because UITs are not currently subject to Inline 

XBRL requirements. See infra footnote 241. 

236See Fidelity Comment Letter. 

237See Fidelity Comment Letter. 

238See section IV.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 60 (December 2021), at 5–1; see 17 CFR 

232.301 (incorporating EDGAR Filer Manual into 

Regulation S–T). To the extent unit investment 

trusts 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 unit 

investment trusts would incur under the proposal. 

funds whose current practices are more 

similar to the requirements of the 

proposed amendments.233 In addition, 

under certain specified circumstances 

funds, and thus shareholders, may incur 

costs related to the proposed 

amendment’s limits on temporary 

departures from the 80% requirement. 

Further, integration funds could incur 

costs associated with changing fund 

names. 

The proposed rule amendments 

would result in new ‘‘collection of 

information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).234 There will be 

costs associated with the new collection 

of information requirements related to: 

(1) the notice provision and the new 

recordkeeping requirements under the 

proposed amendments to the names 

rule, (2) prospectus disclosure, and (3) 

Form N–PORT disclosure.235 Those 

costs are discussed in section IV below. 

E. Reasonable Alternatives Considered 

1. Returns-Based Requirement 

The proposed rule amendments, like 

the current rule, rely on a percentage-ofassets-based test to determine if fund 

names are misleading. Alternatively, we 

could require that funds’ historical 

returns exhibit minimum exposures to 

certain risk factors. For example, we 

could require funds that use the term 

‘‘small cap’’ in their name to have to 

have a certain minimum exposure to a 

historical firm-size risk factor. Such a 

returns-based standard would eliminate 

the need to specify how funds must 

value their derivatives holdings. 

Further, a returns-based standard could 

result in more risk information being 

available for investors concerned with 

risk-adjusted fund performance. For 

example, a returns-based standard 

would allow investors to evaluate 

exposure to certain risk factors over the 

entire measurement period rather than 

as of the end of the reporting period. 

One commenter suggested several 

disadvantages associated with a returnsbased standard.236 First, a returns-based 

standard would require the specification 

of some arbitrary time over which fund 

returns are compared to a risk factor. 

Second, a returns-based standard would 

be inherently backward looking, 

detracting from a manager’s ability and 

purpose to focus on future performance. 

Finally, a returns-based standard would 

require the identification of appropriate 

benchmarks against which to evaluate 

funds’ exposures. The same commenter 

also argued that an asset-based standard 

offers certain advantages. For example, 

assessing compliance with an assetbased standard is facilitated by the 

calculation of funds’ daily net asset 

values. Also, compliance with an assetbased standard is easily measured, 

easily understood, and easily corrected 

should a fund drop below its assetbased threshold.237 Taking these 

considerations into account, we are 

proposing to continue requiring 

compliance with an asset-based 

standard, rather than a returns-based 

standard. We believe an asset-based 

standard is more easily understood and 

can be assessed contemporaneously 

with investment decisions. A returnsbased standard can be assessed only 

after the fact and over time and is not 

necessarily more consistent or easily 

measured. 

2. Permit 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 (or a subset of 

derivatives, such as derivatives that 

provide synthetic exposure to the 

investment focus that the fund’s name 

suggests) using notional values for 

purposes of assessing names rule 

compliance. As discussed in section 

II.A.3 above, allowing a fund to use 

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 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. 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, we are proposing to 

require, rather than permit, the use of 

notional values. 

3. Modify Requirements for Tagging 

Prospectus Disclosure 

Under the proposed amendments, the 

new prospectus disclosure of term 

definitions and investment selection 

criteria submitted on Form N–1A, Form 

N–2, Form N–8B–2, and Form S–6 

would be tagged in Inline XBRL. 

Alternatively, we could have changed 

the scope of the proposed tagging 

requirement for the proposed new 

prospectus disclosures, such as by 

limiting this requirement to a subset of 

funds. 

For example, the tagging requirements 

could have excluded UITs, which are 

not currently required to tag any filings 

in Inline XBRL. Under such an 

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 in-house 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 

proposed tagging requirement.238

However, narrowing the scope of 

tagging requirements, whether based on 

fund structure, fund size, or other 

criteria, would diminish the extent of 

informational benefits that would 

accrue as a result of the proposed 

disclosure requirements by making the 

excluded funds’ disclosures 

comparatively costlier to process and 

analyze. As such, we are not proposing 

to exclude any funds or otherwise 

narrow the scope of Inline XBRL tagging 

requirements. 

4. Board Approval or Notification of 

Temporary Departures 

The proposed amendments would 

permit a fund to depart temporarily 

from the 80% investment requirement 

only under certain specified 

circumstances and, in most such 

circumstances, for a limited 30-day time 


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239See 17 CFR 270.23c–3(a)(3), (b)(5), and (c). 

period. 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. 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. Had 

we proposed either such alternative, 

these alternatives could have 

accompanied the retention of the 

current rule’s ‘‘under normal 

circumstances’’ standard with either of 

these additional alternative 

requirements as a supplementary 

element designed to prevent a fund from 

investing inconsistently with its 80% 

investment policy for an extended 

period of time. 

Collectively, these alternatives may 

provide more flexibility for funds to 

address the conditions that necessitate 

temporary departures than the proposed 

amendments in that they would not 

limit the types of circumstances in 

which a fund could engage in a 

temporary departure, and allow longer 

departures, provided that the board 

either approves or is notified of the 

departure. This approach could also 

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 

proposed amendments at addressing the 

concerns highlighted above regarding 

portfolio ‘‘drift’’ and could be more 

likely to frustrate investors’ expectations 

for the fund’s portfolio investments in 

light of the investment focus the fund’s 

name suggests to the extent that 

investors might expect a fund manager 

to be fully invested in designated 

investments rather than expect the 

manager to use its judgment to mitigate 

losses. For example, a fund board could 

determine to engage in a departure for 

longer than 30 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 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. We also 

believe that this alternative would 

increase burdens on fund boards, 

particularly if we were to require the 

approval or notification be immediate. 

Alternatively, if we were to require the 

approval or notification be made at the 

next regularly scheduled board meeting, 

the conditions that gave rise to the need 

for the departure may have resolved 

without the input of the board, given 

that most fund boards meet on a 

quarterly basis. Lastly, this approach 

would not be suitable for UITs, which 

have neither active management nor 

boards. 

5. Require a Higher Percentage of Assets 

Invested in Accordance with the 

Investment Focus 

The 80% investment policy 

requirement under the proposed 

amendments would not change the 

percentage of assets in which a policy 

adopted under the names rule would 

require funds to invest in accordance 

with the investment focus that the 

fund’s name suggests, in relation to the 

current rule’s requirements. However, 

we considered whether to proposed 

requiring a higher percentage than 80% 

for certain fund names—for example, 

index funds and funds whose names 

suggest an investment focus involving 

consideration of ESG factors—to the 

extent that reasonable investor 

expectations could make a higher 

percentage appropriate. For example, 

investors in an index fund may expect 

the fund to be invested at or near 100% 

in the named index given that these 

investors would likely be purchasing 

the fund to obtain exposure to that 

index. 

We ultimately determined not to 

propose this alternative, given the ways 

in which the other aspects of the 

proposed amendments address 

reasonable investor expectations and 

materially deceptive and misleading 

fund names. These include, for 

example, the provision that a fund’s 

name may be materially deceptive or 

misleading even if the fund adopts an 

80% investment policy and otherwise 

complies with the rule’s requirement to 

adopt and implement the policy, the 

proposed new prospectus disclosure 

requirements, and the proposed Form 

N–PORT reporting requirements. As 

discussed above, the Commission has 

previously stated that index funds 

generally would be expected to invest 

more than 80% of their assets in 

investments connoted by the applicable 

index. To the extent that investors 

expect and prefer index funds that 

invest a significantly higher percentage 

of their assets in their 80% baskets, 

information would be available to help 

them make investment decisions that 

reflect this preference. Additionally, we 

believe that proposing to raise the 

threshold in the required investment 

policy is less necessary to address 

investors’ expectations, in light of the 

proposal to narrow the circumstances 

and limit the time period during which 

a fund may engage in temporary 

departures from the 80% investment 

requirement, which similarly addresses 

investors’ expectations that a fund’s 

investments reflect the investment focus 

that the fund’s name suggests. 

6. Unlisted Closed-End Funds and BDCs 

We are proposing to require that a 

fund’s 80% investment policy must 

always be a fundamental investment 

policy if the fund is an unlisted closedend fund or a BDC. As an alternative, 

we considered requiring instead that 

such funds either adopt the 80% 

investment policy as a fundamental 

policy or both provide shareholders 60 

days’ prior notice of a change and 

conduct an issuer tender offer or a 

repurchase offer to provide shareholders 

the opportunity to redeem their shares. 

This alternative would provide affected 

funds the opportunity to avoid the costs 

of a shareholder vote while also 

providing investors with some recourse 

if the fund were to change its 

investment policy and the investment 

focus that the fund’s name indicates. 

However, this alternative approach 

raised concerns regarding the 

percentage of fund shares we should 

require these funds to offer to 

repurchase, and therefore the proposal 

incorporates a shareholder vote 

requirement for unlisted closed-end 

funds and BDCs that seek to change 

their 80% investment policy, instead of 

this alternative. As noted above, while 

unlisted 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.239 This 

amount could be too low to address the 

investor protection concerns that the 

proposed approach for unlisted closedend funds and BDCs is designed to 

address. As a result, we considered 

some larger percentage. However, a 

large tender offer for all or substantially 

all of the outstanding shares could 

prove even more costly to these funds 


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36632 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

240 44 U.S.C. 3501 et seq. 

241 44 U.S.C. 3507(d); 5 CFR 1320.11. 

than a shareholder vote and could result 

in the fund’s liquidation. 

F. General Request for Comment 

The Commission requests comment 

on all aspects of this initial economic 

analysis, including whether the analysis 

has: (1) identified all benefits and costs, 

including all effects on efficiency, 

competition, and capital formation; (2) 

given due consideration to each benefit 

and cost, including each effect on 

efficiency, competition, and capital 

formation; and (3) identified and 

considered reasonable alternatives to 

the proposed regulations. We request 

and encourage any interested person to 

submit comments regarding the 

proposed regulations, our analysis of the 

potential effects of the proposed 

regulations, and other matters that may 

have an effect on the proposed 

regulations. We request that 

commenters identify sources of data and 

information as well as provide data and 

information to assist us in analyzing the 

economic consequences of the proposed 

regulations. We also are interested in 

comments on the qualitative benefits 

and costs we have identified and any 

benefits and costs we may not have 

discussed. 

In addition to our general request for 

comment on the economic analysis 

associated with the proposed 

amendments, we request specific 

comment on certain aspects of the 

proposal: 

1. Have we correctly identified the 

benefits and costs of the proposed rule 

amendments? Are there additional 

benefits and costs that we should 

include in our analysis? 

2. We encourage commenters to 

identify, discuss, analyze, and supply 

relevant data, information, or statistics 

related to the benefits and costs 

associated the proposed rule 

amendments. 

3. Are there costs to, or effect on, 

parties other than those we have 

identified? What are the costs and/or 

effects? 

4. The proposed amendments would 

permit some 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. Are there circumstances 

where the proposed amendments would 

not allow a fund to temporarily depart 

from the 80% requirement, that would 

be allowed under the current rule? 

Please provide specific examples, if 

possible. 

5. How costly would the proposed 

provision regarding the use of ESG 

terminology in their names be for ESG 

integration funds? 

6. Do investors in certain types of 

funds (e.g., ESG funds, or funds whose 

strategies involve the application of 

moral parameters) care if a fund’s 80% 

investment policy includes derivatives 

that provide synthetic exposure to the 

investment focus that the name 

suggests, rather than cash market 

holdings in that investment focus? 

Would the use of notional values cause 

investors to be less likely to invest in 

those types of funds, or if they continue 

to invest in those funds, cause investors 

to expend greater resources to monitor 

how a fund complies with the 80% 

investment requirement? 

IV. Paperwork Reduction Act Analysis 

A. Introduction 

Certain provisions of the proposed 

rules and form amendments contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).240 We are submitting the 

proposed collections of information to 

the Office of Management and Budget 

(‘‘OMB’’) for review in accordance with 

the PRA.241 The title for the collection 

of information is: (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 Unite 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. 

We discuss below the collection of 

information burdens associated with 

proposed amendments to rule 35d–1, 

Form N–1A, Form N–2, Form N–8B–2, 

Form S–6, Form N–PORT; and the 

proposed interactive data requirements. 

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. Under our 

proposal, the scope of funds covered by 

the 80% investment policy requirement 

of rule 35d–1 would be expanded. In 

addition to those fund names currently 

subject to the rule, the proposal would 

specify that any fund with a name 

suggesting that the fund focuses its 

investments in investments that have, or 

whose issuers have, characteristics 

suggested by the fund’s name would 

have to adopt an 80% investment 

policy. 

We are further proposing to update 

the names rule’s notice requirement 

expressly to address funds that use 

electronic delivery methods to provide 

information to their shareholders. The 

proposed amendments also would 

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 proposed amendments would 

also include certain new recordkeeping 

requirements. The amendments would 

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 

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, as well as the 

operation of its 80% investment policy. 

Funds that do not adopt an 80% policy 

must would be required to maintain a 

written record of the fund’s analysis that 

an 80% policy is not required under the 

names rule. A fund also would be 

required to keep records of any notice 

sent to the fund’s shareholders pursuant 

to the rule. 

Rule 35d–1, including the proposed 

amendments, contains collection of 

information requirements. These 

collection of information requirements 

include, as detailed in the chart below, 

the proposed notice requirement and 

recordkeeping requirements (those for 

funds that are required to adopt an 80% 

investment policy, and those for funds 

that do not adopt an 80% investment 

policy). Compliance with these 

requirements of the proposed rule 

would be mandatory. Responses to these 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36633 

requirements would not be kept 

confidential. 

BILLING CODE 8011–01–P 


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TABLE 1: PRA ESTIMATES FOR PROPOSED RULE 35d-J AMENDMENTS 

Notice Requirement 

Number of Funds 

Notice Requirement 

Number of Funds 

Recordkeeping for Funds 

with an 80% Policy7 

Number of Funds 

Recordkeeping For Funds 

Not Required to Adopt 

80% Policy 

Notes: 

Initial hours 

0 

0 hours 

9 hours8 

0 hours 

Annual hours1 Wage rate2 

CURRENTLY AP ROVED BURDENS 

20 hours3 

X 38 funds 4 

20 hours5 

X34 funds 6 

50 hours 

X 10,394 

funds 

1 hour 

X3,465 

funds10 

$425 

(estimate of wage rate in 

most recently approved 

supporting statement) 

$425 

(blended rate for 

attorneys) 

$356 

(1:1 blend for compliance 

attorney and senior 

programmer) 

$425 

(blended rate for 

attorneys) 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$8,500 

X 38 funds 

$8,500 

X 34 funds 

$17,800 

X 10,394 funds 

$425 

X 3,465 funds 

Annual external 

cost burden 

$4969 

$496 

$496 

2. The estimated wage figure is 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 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. 

3. The Commission estimates that these notices are typically short, one-page documents that are sent to shareholders with other written 

materials. The Commission anticipates each respondent would only incur these burden hours once. 

4. The currently-approved burden takes into account previous Commission 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 x 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. 

5. Funds are currently required to provide notice to fund shareholders when a fund makes any change to its 80% investment policy. The 

proposed amendments would make some changes to the current notice requirement, but we do not believe that these proposed 

alterations would increase the burden hours needed to prepare the notice. 

6. The 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 will have names subject to the 80% investment policy. The prior PRA burden was based on an 

estimate using a different analytical approach than we are now employing, based on our most up to date economic analysis. Based on 

our current analysis, we estimate that 62% of funds are currently subject to rule 35d-1 and that our proposed rule amendments would 
36634 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

C. Prospectus Disclosure 

We are proposing amendments to 

funds’ registration forms’—specifically, 

Form N–1A, Form N–2, Form N–8B–2, 

and Form S–6—that would 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 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. While the 

proposed new disclosure is not 

currently required in a fund’s 

prospectus, we understand that 

including similar disclosure is currently 

common practice and that this proposal 

would codify this practice. Based on our 

understanding of current disclosure 

practices, we believe that any changes to 

current practices that the proposed 

amendments would create would 

generally be minor. Therefore, the PRA 

estimates associated with the proposed 

amendments likely overestimate the 

costs associated with the proposed 

amendments for those funds whose 

disclosure is currently in line with the 

disclosure the amendments would 

require. 

The proposed 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. 


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increase this estimate to 75% of funds. The Commission estimates, across approximately 14,532 open-end and closed-end funds 

registered with the Commission, that there are 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 nonUIT ETFs + 432 money market funds= 12,975 open end funds+ 736 registered closed-end funds+ 99 BDCs + 49 UITs = 13,859 funds 

x 75% = 10,394 funds). The estimate of 49 UITs covered by the rule amendments may be an overestimation, as UITs that have made 

their initial deposit of securities prior to the effective date of any final rule amendments the Commission adopts would be excepted from 

the requirements to adopt an 80% investment policy and to provide notices consistent with the rule, unless the UIT has already 

adopted-or was required to adopt at the time of the initial deposit-an 80% investment policy under the current rule. The Commission 

estimates 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 estimates that, on average approximately 34 

funds per year would provide a notice to shareholders under the proposed rule amendments. 

7. For funds that adopt an 80% investment policy under the proposed rule, the record keeping requirements under proposed rule 35d1(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; 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). We estimate that these records would generally need to be 

made daily, but that the vast majority of records would be automated. We understand, 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. Our PRA estimates take these considerations into account. 

8. The initial burden for the proposed record keeping requirement accounts for the time we estimate that fund will need to establish 

recordkeeping procedures for the records that must be kept. Once these processes are established, we believe that much of the 

required recordkeeping, as discussed above, would be largely automated. 

9. This estimated burden is 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, takes into account staff experience, a variety of sources 

including general information websites, and adjustments for inflation. 

10. The Commission estimates across approximately 14,532 open-end and closed-end funds registered with the Commission, that there 

are 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 (10,223 mutual funds (other than money market funds)+ 2,320 non-UIT ETFs + 432 money market funds= 

12,975 open end funds+ 736 registered closed-end funds+ 99 BDCs + 49 UITs = 13,859 funds x 25% = 3,465 funds). 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36635 

1. Form N–1A 


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TABLE 2: ESTIMATES FOR PROPOSED AMENDMENTS TO FORM N-JA 

Preparing and Filing 

Reports on Form N-1A 

Generally 

Number of Responses 

Proposed New Names 

Rule Disclosure 

Number of funds 

Notes: 

Initial hours Annual hours1 Wage rate2 

CURRENTLY APROVED BURDENS 

$284 (estimate of wage 

278 X rate in most recently 

approved supporting 

statement) 

6,0023 

PROPOSED BURDENS 

$356 

7 hours 10 hours x (1:1 blend of attorney and 

senior programmer) 

x 9,731 funds 4 

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$78,952 

6,002 

$3,560 

x 9,731 funds 

Annual external 

cost burden 

$21,849 

6,002 

$9925 

x 9,731 funds 

2. The estimated wage figure is 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 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. 

3. The currently-approved burden was based on the Commission's estimate that included all open-end funds, including ETFs, then 

registered on Form N-1A. 

4. The 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. Based on our current analysis, we estimate 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 estimates, 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 be 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 x 75% = 9,731 open-end funds). 

5. The estimated burden is based on the estimated wage rate of $496/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. 
36636 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

2. Form N–2 


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TABLE 3: ESTIMATES FOR PROPOSED AMENDMENTS TO FORM N-2 

Preparing and Filing 

Reports on Form N-2 

Generally 

Number of Responses 

Proposed New Names 

Rule Disclosure 

Number of Funds 

Notes: 

Initial hours 

7 hours 

Annual hours1 Wage rate2 

CURRENTLY A PROVED BURDENS 

2,426 X 

298 

10 hours X 

x 626 funds 3 

$400 (estimate of wage 

rate in most recently 

approved supporting 

statement) 

$356 (1:1 blend of 

attorney and senior 

programmer) 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$970,533 

298 

$3,560 

x 626 funds 

Annual external 

cost burden 

$160,523 

298 

$9924 

x626 

2. The estimated wage figure is 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 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. 

3. The 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. Based on our current analysis, we estimate 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 

estimates, across approximately 835 closed-end funds registered with the Commission, that there are approximately 626 closed-end 

funds that have 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 x 75% = 626 Form N-2 registrants). 

4. The estimated burden is based on the estimated wage rate of $496/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. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36637 

3. Form N–8B–2 


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TABLE 4: ESTIMATES FOR PROPOSED AMENDMENTS TO FORM N-8B-2 

Preparing and Filing 

Reports on Form N-SB-2 

Generally 

Number of Responses 

Proposed New Names 

Rule Disclosure 

Number of Responses 

Notes: 

UITs 

UIT ETFs 

7 

Annual hours1 Wage rate2 

CURRENTLY A PROVED BURDENS 

$351 (estimate of wage 

10 hours X rate in most recently 

approved supporting 

statement) 

$351 (estimate of wage 

18 hours X 

rate in most recently 

approved supporting 

statement) 

i3 

$356 (1:1 blend of 

10 hours x compliance attorney and 

senior programmer) 

x1 UIT4 

1. Includes initial burden estimates annualized over a 3-year period. 

Cost of Internal 

Burden per 

Portfolio 

$3,510 

$6,318 

1 

$3,560 

x 1 UIT 

Annual Cost 

Burden per 

Portfolio 

$10,000 

$0 

1 

$992 

X1 UIT5 

2. The estimated wage figure is 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 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. 

3. Based 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. 

4. For purposes of this PRA we continue to assume 1 filing annually. 

5. The estimated burden is based on the estimated wage rate of $496/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. 
36638 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

4. Form S–6 

D. N–PORT Reporting Requirements 

We are proposing to amend Form N– 

PORT to include a new reporting item 

regarding the 80% investment policy 

that a fund would adopt in compliance 

with the names rule. There would also 

be a proposed new Form N–PORT 

reporting item requiring a fund subject 

to the 80% investment policy 

requirement 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. 

Form N–PORT, including the 

proposed 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. 


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TABLE 5: ESTIMATES FOR PROPOSED AMENDMENTS TO FORM S-6 

Draft and Update 

Disclosures on Form S-63 

Number of Responses 

Proposed New Names 

Rule Disclosure 

Number of Responses 

Notes: 

Initial Hours Annual hours1 Wage rate2 

CURRENTLY A PROVED BURDENS 

$356 (1:1 blend of 

24 hours 18 hours x compliance attorney and 

senior programmer) 

2,498 

$356 (1:1 blend of 

7 hours 10 hours x compliance attorney and 

senior programmer) 

x 785 filings4 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal Costs 

$6,408 

2,498 

$3,560 

x 785 filings 

Annual External 

Costs 

$27,265 

2,498 

$992 

785 filings 5 

2. The estimated wage figure is 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 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. 

3. Form S-6 incorporates the disclosure requirements of Form N-88-2 for UITs on an ongoing basis. We are not proposing amendments to 

Form S-6. However, 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. 

4. The 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, 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. Based 

on our current analysis, we estimate 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 estimates 49 non-separate account and non-ETF UITs registered with the 

Commission. However, we believe using the number of filings instead of registrants would form a more accurate estimate of annual 

disclosure burdens. We estimate 1,047 filings based on the average number of filings made on Form S-6 from 2018 to 2020. We 

therefore estimate that there are 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 x 75% = 785 filings). 

5. The estimated burden is based on the estimated wage rate of $496/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. 
Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36639 


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TABLE 6: PRA ESTIMATES FOR PROPOSED AMENDMENTS TO FORM N-PORT 

Preparing and Filing 

Reports on Form N-PORT 

Generally 

Number of Responses 

New Reporting About 80% 

Investment Policy 

Number of Funds 

Investments to be 

Included in a Fund's 80% 

Basket 

Number of Funds 

Notes: 

Initial hours 

4 hours 

4 hours 

Annual hours1 Wage rate2 

CURRENTLY APROVED BURDENS 

44,500 

2,696 

X 

$344.19 (estimate of 

wage rate in most recently 

approved supporting 

statement) 

PROPOSED BURDENS 

9 hours $356 

X (blend of compliance 

X 9,996 attorney and senior 

funds 3 programmer) 

10 hours $356 

(rate for compliance 

attorney and senior 

X 9,996 funds 4 programmer) 

1. Includes initial burden estimates annualized over a 3-year period. 

Internal time 

costs 

$15,316,455 

2,696 

$3,204 

x 9,996 funds 

$3,560 

X 9,996 

funds 

Annual external 

cost burden 

$4,684,296 

2,696 

$9924 

x 9,996 funds 

$9926 

x 9,996 funds 

2. The estimated wage figure is 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 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. 

3. The 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. Based on our current analysis, we estimate 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 estimates, across approximately 14,001 open-end and closed-end funds registered with the Commission, not including 

money market funds, that there are 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 nonUIT ETFs = 12,543 open end funds+ 736 registered closed-end funds+ 49 UITs = 13,328 funds x 75% = 9,996 funds). 

4.Seeid. 

5. The estimated burden is based on the estimated wage rate of $496/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.6. /d. 
36640 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

242The Investment Company Interactive Data 

collection of information do not impose any 

separate burden aside from that described in our 

discussion of the burden estimates for this 

collection of information. The amendments we are 

proposing to rule 485 and 497 are conforming 

amendments that have no associated PRA burden. 

While the new names-related information that 

open-end funds would be required to disclose 

under our proposed amendments to Form N–1A 

also would be required to be tagged using Inline 

XBRL, the proposed amendments to Form N–1A 

would create no additional PRA burden. Our 

proposal would amend 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. 

243See supra section II.B; see also proposed 

instruction to Item 4(a)(1) of Form N–1A; proposed 

instruction to Item 8(2) of Form N–2; proposed and 

proposed instruction to Item 11 of Form N–8B–2. 

244On November 9, 2020, the Office of 

Management and Budget approved without change 

a revision of the currently approved information 

collection estimate for Registered Investment 

Company Interactive Data. 

E. Investment Company Interactive Data 

We are proposing to amend 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.242 Specifically, the proposed 

amendments would include new 

structured data requirements that would 

require funds to tag the information that 

the proposal would require funds to 

include in their registration statements 

about their fund name using Inline 

XBRL.243 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 30, 

2020, we estimate that 626 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 would experience additional 

burdens related to one-time costs 

associated with becoming familiarized 

with Inline XBRL reporting. These costs 

would 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 

785 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 

252,602 hours, and a total aggregate 

annual external cost burden of 

$15,350,750.244 Compliance with the 

interactive data requirements is 

mandatory, and the responses will not 

be kept confidential. 

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. 


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Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 36641 

BILLING CODE 8011–01–C 

F. Request for Comments 

We request comment on whether 

these estimates are reasonable. Pursuant 

to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (1) evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (3) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (4) determine whether 

there are ways to minimize the burden 

of the collection of information on those 

who are to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. 

Persons wishing to submit comments 

on the collection of information 

requirements of the proposed 

amendments should direct them to the 

OMB Desk Officer for the Securities and 

Exchange Commission, 

MBX.OMB.OIRA.SEC_desk_officer@

omb.eop.gov, and should send a copy to 

Vanessa A. Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090, with reference to File No. 

S7–16–22. OMB is required to make a 

decision concerning the collections of 

information between 30 and 60 days 

after publication of this release; 

therefore a comment to OMB is best 

assured of having its full effect if OMB 

receives it within 30 days after 

publication of this release. Requests for 

materials submitted to OMB by the 

Commission with regard to these 

collections of information should be in 

writing, refer to File No. S7–16–22, and 


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TABLE 7: INVESTMENT COMPANY INTERACTIVE DATA 

Internal 

initial 

burden Internal annual 

hours burden hours1 Wage rate2 

$356 

Names rule information 

1 hour 1 hour4 (blended rate for 

for current XBRL filers3 compliance attorney and 

senior programmer) 

Number of funds x 626 funds 6 

$356 

Names rule information 

4 hours8 (blended rate for 

for new XBRL filers7 9 hours compliance attorney and 

senior programmer) 

Number of filings x 785 filings10 

Total new aggregate 3,766 hours11 

annual burden 

TOTAL ESTIMATED BURDENS INCLUDING AMENDMENTS 

Current aggregate annual 

burden estimates 

Revised aggregate annual 

burden estimates 

Notes: 

+ 252,602 

hours 

256,368 hours 

1. Includes initial burden estimates annualized over a 3-year period. 

2. See supra table 1 regarding estimated wage rates. 

Internal time Annual external 

costs cost burden 

$356 $505 

x 626 funds x 626 funds 

$1,424 $9009 

x 785 filings x 785 filings 

$1,340,69612 $737,800 13 

+ $15,350,750 

$16,088,550 

3. This estimate represents the average burden for a filer on Form N-2 that is currently subject to interactive data requirements. 

4. Includes initial burden estimates annualized over a three-year period, plus 0.67 hour of ongoing annual burden hours. The estimate of 

1 hour is based on the following calculation: ((1 initial hour /3) + 0.67 hour of additional ongoing burden hours)= 1 hour. 

5. We estimate an incremental external cost for filers on Form N-2, as they already submit certain information using lnline XBRL. 

6. Based on filing data as of December 30, 2020, we estimate 626 funds, including BDCs, filing on Form N-2. 

7. This 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. 

9. We estimate 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 lnline XBRL requirements, we estimate that these funds would experience 

additional burdens related to one time-costs associated with becoming familiar with lnline XBRL reporting. These costs would include, for 

example, the acquisition of new software or the services of consultants, or the training of staff. 

10. The Commission estimates 49 non-separate account and non-ETF UITs registered with the Commission. However, we believe using the 

number of filings instead of registrants would form a more accurate estimate of annual burdens. We estimate 1,047 filings based on the 

average number of filings made on Form S-6 from 2018 to 2020. We therefore estimate that there are 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 x 75% = 785 filings). 

11. 3,766 hours = (626 funds x 1 hour= $626) + (785 filings x 4 hours = $3,140). 

12. $1,340,696 internal time cost= (626 funds x $356 = $222,856) + (785 filings x $1,424 = $1,117,840). 

13. $737,800 annual external cost= (626 funds x $50 = $31,300) + (785 filings x $900 = $706,500). 
36642 Federal Register / Vol. 87, No. 117 / Friday, June 17, 2022 / Proposed Rules 

245 5 U.S.C. 603(a). 

246See rule 0–10(a) under the Act [17 CFR 270.0– 

10(a)]. 

247This 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 2021. 

248While the proposed rule amendments would 

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 7. 

be submitted to the Securities and 

Exchange Commission, Office of FOIA 

Services, 100 F Street NE, Washington, 

DC 20549–2736. 

V. Initial Regulatory Flexibility 

Analysis 

The Commission has prepared the 

following Initial Regulatory Flexibility 

Analysis (‘‘IRFA’’) in accordance with 

section 3(a) of the Regulatory Flexibility 

Act (‘‘RFA’’).245 It relates to proposed 

amendments to rule 35d–1 and Forms 

N–1A, N–2, N–8B–2, S–6, and N–PORT, 

as well as proposed conforming 

amendments to rules 11 and 405 of 

Regulation S–T and rules 485 and 497 

under the Securities Act (collectively, 

‘‘proposed amendments’’). 

A. Reasons for and Objectives of the 

Proposed Actions 

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 proposing 

amendments designed to increase 

investor protection by improving and 

clarifying 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 proposing enhanced 

prospectus disclosure requirements for 

terminology used in fund names and 

additional requirements for funds to 

report information regarding their 

compliance with rule 35d-1 on Form N– 

PORT. 

B. Legal Basis 

The Commission is proposing 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 proposing 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 of 1940 [15 U.S.C. 80a–8, 80a–18, 

80a–34, and 80a–37], sections 5, 6, 7(a), 

8, 10, and 19(a) of the Securities Act of 

1933 [15 U.S.C. 77e, 77f, 77g(a), 77h, 

77j, 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 proposing 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 proposing 

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]. 

C. Small Entities Subject to Proposed 

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 (a ‘‘small 

fund’’).246 Commission staff estimates 

that, as of June 2021, approximately 27 

registered open-end mutual funds 

(including one money market fund), 6 

registered ETFs, 23 registered closedend funds, 5 UITs, and 9 BDCs 

(collectively, 70 funds) are small 

entities.247

D. Projected Reporting, Recordkeeping, 

and Other Compliance Requirements 

The proposed amendments contain 

compliance requirements regarding 

reporting, recordkeeping, and other 

compliance requirements. First, the 

proposed amendments would 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 would 

need to adopt an 80% investment 

policy.248 The proposed amendments 

would also include other changes to the 

current names rule, such as only 

permitting a fund to engage in 

temporary departures from an 80% 

investment requirement under 

particular circumstances, which would 

also necessitate an update to funds’ 

existing practices regarding names rule 

compliance. The proposed amendments 

would further 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 proposed 

amendments would further require a 

fund that is required to adopt an 80% 

investment policy to maintain certain 

records documenting its compliance 

with the rule, including, among other 

things, 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 taxexempt treatment its name suggests). 

Conversely, funds that do not adopt an 

80% investment policy would be 

required to maintain a record 

documenting their analysis that the 80% 

investment policy is not required under 

the rule. 

The proposed amendments would 

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 would be 

included using Inline XBRL. Under the 

proposal, funds (other than money 

market funds and BDCs) that would be 

required to adopt an 80% investment 

policy also would newly have to report 

certain information on Form N–PORT 

regarding names rule matters. The 

proposed amendments would define the 

names of ‘‘integration funds’’ as 

materially deceptive and misleading if 

the name includes terms indicating that 

the fund’s investment decisions 

incorporate one or more ESG factors, 

which would necessitate that such 

funds either change their names or 

adjust their investment strategies, and 

thus potentially their portfolio 

investments, to ensure compliance. 

Lastly, the proposed amendments 

would include exceptions for certain 

UITs. 

1. 80% Investment Policy 

Requirements—Proposed Scope 

Expansion and Other Proposed 

Amendments 

Funds, including small funds, which 

have names that include terms 

suggesting that the fund focuses its 

investments in investments that have, or 

whose issuers have, particular 

characteristics would be required to 

adopt an 80% investment policy under 

the proposed amendments. Further, in 

order to comply with this element of the 

proposed 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 would need to 


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change their practices to comply with 

the names rule to address other aspects 

of the proposal: (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 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. 

These requirements are designed to 

help ensure that a fund’s investment 

activity supports 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. 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 proposed amendments would 

require. 

While we would 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 

would expect a smaller fund to find it 

more costly, per dollar managed, to 

comply with the proposed requirements 

because it would not be able to benefit 

from a larger fund complex’s economies 

of scale. In particular, a larger fund 

complex may be able to develop a 

process with 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. 

Notwithstanding the economies of scale 

experienced by larger versus smaller 

funds, we would not expect the costs of 

compliance associated with the new 

requirements to be meaningfully 

different for smaller versus larger funds. 

The costs of compliance would 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, would 

be as a consequence of that fund having 

a name that suggests an investment 

focus under the proposed amendments, 

not based upon the size of the fund. 

2. Effect of Compliance With an 80% 

Investment Policy 

We are proposing 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 

policy and otherwise complies with the 

rule’s requirement to adopt and 

implement the policy. The proposed 

provision would make 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 makes a substantial 

investment that is the antithesis of the 

fund’s investment focus. This proposed 

new provision is consistent with prior 

Commission statements noting that the 

80% investment requirement under the 

names rule is not intended to create a 

safe harbor for investment company 

names. 

This provision would apply to funds, 

including those that are small entities. 

However, because this provision restates 

section 35(d), we believe that it would 

not result in any additional costs 

beyond those already attendant on 

compliance with the Act itself. 

3. Recordkeeping Requirements 

The proposed recordkeeping 

requirements are designed to help 

ensure compliance with the rule’s 

requirements and aid in oversight. A 

fund that would be required to adopt an 

80% investment policy under the 

proposed amendments would 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 would be required to 

maintain would include: (1) the fund’s 

record of which assets are invested in 

accordance with the fund’s investment 

focus (or, as applicable, consistent with 

the tax treatment suggested by a taxexempt fund’s name) and any basis for 

determining that each such asset is 

invested in accordance with the 

investment focus that the name suggests 

(or the tax treatment the name suggests); 

(2) 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 tax-exempt fund’s name); 

(3) the reasons for any departures from 

the 80% investment policy; (4) the dates 

of any departures from the 80% 

investment policy; and (5) any notice 

sent to the fund’s shareholders pursuant 

to the rule. If a fund does not adopt an 

80% investment policy, it must 

maintain a written record of the fund’s 

analysis that such a policy is not 

required under the names rule. Funds 

must maintain records relating to the 

fund’s compliance with its 80% 

investment policy for at least six years 

following the creation of each record 

(or, in the case of notices, following the 

date the notice was sent), the first two 

years in an easily accessible place. A 

fund that does not adopt a policy under 

the rule must maintain written records 

of its analysis for a period of not less 

than six years following the fund’s last 

use of its name in an easily accessible 

place. 

These proposed requirements would 

impose burdens on all funds, including 

those that are small entities. 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 

this aspect of the proposal would 

require. We would expect that smaller 

funds—and more specifically, smaller 

funds that are not part of a fund 

complex—may not have recordkeeping 

systems that would meet all the 

elements that would be required under 

the proposed amendments. Also, while 

we would 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 would 

expect a smaller fund to find it more 

costly, per dollar managed, to comply 

with the proposed requirements because 

it would not be able to benefit from a 

larger fund complex’s economies of 

scale. 

4. Disclosure and Reporting 

Requirements 

The proposed 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 proposed amendments 


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would require funds to tag this 

disclosure in Inline XBRL. 

The proposed amendments would 

also require funds (other than money 

market funds and BDCs) that would 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 tax-exempt 

fund’s name); (2) if applicable, the 

number of days that the value of the 

fund’s investments that are invested in 

accordance with its investment focus 

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

assets during the reporting period; and 

(3) with respect to each portfolio 

investment, whether the investment is 

included in the fund’s calculation of 

assets in the fund’s 80% basket. 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 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. The specifics of 

these burdens are discussed in the 

Economic Analysis and Paperwork 

Reduction Act sections above. These 

sections also discuss the professional 

skills that we believe compliance with 

this aspect of the proposal would 

require. While we would 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 would expect a smaller 

fund to find it more costly, per dollar 

managed, to comply with the proposed 

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 would 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 would vary only based on 

fund characteristics tied to their name. 

For example, a fund that frequently 

departs from the 80% investment 

requirement would need to provide 

more information than those that do not, 

regardless of size. Furthermore, based 

on our experience implementing tagging 

requirements that use the XBRL, we 

recognize that some funds that would be 

affected by the proposed requirement, 

particularly filers with no Inline XBRL 

tagging experience, likely would 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 proposed 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 

proposed requirements. If reporting the 

disclosures in a structured format 

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. Materially Deceptive and Misleading 

Use of ESG Terminology in Certain 

Fund Names 

We are proposing to define the names 

of what this release refers to as 

‘‘integration funds’’ as materially 

deceptive and misleading if the name 

includes terms indicating that the fund’s 

investment decisions incorporate one or 

more ESG factors. This provision 

addresses funds that consider one or 

more ESG factors alongside other, nonESG factors in the fund’s investment 

decisions, but 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. This proposed approach to 

integration funds targets misleading 

fund names, and relatedly it is designed 

to promote ‘‘truth in advertising’’ in 

fund names by making clear that we 

believe it would be 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, as 

this has the potential to overstate the 

importance of the ESG factors in the 

fund’s selection of its portfolio 

investments. This proposed new 

provision could result in an integration 

fund needing to change its name or 

change its investment strategies, 

policies, or investments themselves in 

order to comply with it. 

This requirement would impose 

burdens on all funds, including those 

that are small entities. The specifics of 

these burdens are discussed in the 

Economic Analysis section above. There 

are different factors that would affect 

whether and to what extent a smaller 

fund incurs costs related to this 

requirement. For example while we 

would expect larger funds or funds that 

are part of a large fund complex to incur 

higher costs related to this requirement 

in absolute terms relative to a smaller 

fund or a fund that is part of a smaller 

fund complex, we would expect a 

smaller fund to find it more costly, per 

dollar managed, to comply with the 

proposed requirement because it would 

not be able to benefit from a larger fund 

complex’s economies of scale to absorb 

these costs. In particular, a large fund 

complex that includes an integration 

fund could more easily bear the costs— 

if necessary under the proposed 

provision addressing integration 

funds—of changing that fund’s name, its 

investment strategies and portfolio, or 

even a liquidation of that fund more 

readily than a small fund where the 

integration fund may be a larger portion 

of the assets under management. We 

also believe that small funds may need 

to use professional skills, particularly 

retaining counsel to assist in 

understanding and assisting in 

compliance with this requirement, 

should we adopt this provision. 

6. Exceptions for Certain UITs 

The proposed rule amendments 

would include certain exceptions for 

UITs that have made their initial deposit 

of securities prior to the effective date 

of any final rule amendments the 

Commission adopts. Specifically, these 

UITs would be excepted from the 

requirements to adopt an 80% 

investment policy and the 

recordkeeping requirements, including 

that for funds which do not adopt an 

80% investment policy, unless the UIT 

has already adopted—or was required to 

adopt at the time of the initial deposit— 

an 80% investment policy under the 

current rule. These exceptions are 

generally consistent with the treatment 

of UITs under the current rule, and are 

designed to address the issues that a 

UIT’s fixed portfolio and lack of active 

management cause in making portfolio 

changes to address the proposed 

amendments. However, UITs, regardless 

of the date of their initial deposit, would 

be subject to the rule’s other 

requirements under the proposed 

amendments, such as the amended 

notice and recordkeeping requirements 

discussed above, as well as those of the 

federal securities laws generally. This 

exception would be available to UITs of 

all sizes that meet the criteria that the 

proposed amendments specify, 

including the five smaller UITs as 

applicable. 


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249See 17 CFR 270.2a–7(b)(2). 

250See supra footnotes 178 and 179 and 

accompanying text. 

E. Duplicative, Overlapping, or 

Conflicting Federal Rules 

We do not believe that the proposed 

amendments would duplicate, overlap, 

or conflict with other existing federal 

rules. Additionally, we do not believe 

that the proposed recordkeeping 

requirements are duplicative with the 

proposed requirement to make reports 

on Form N–PORT. The purpose of the 

recordkeeping requirements is to 

provide our staff, and a fund’s 

compliance personnel, the ability to 

evaluate the fund’s compliance with the 

proposed amendments, whereas the 

Form N–PORT reporting requirement 

would provide information to investors 

and other market participants. Further, 

while rule 2a–7 contains a provision 

applying to money market fund names, 

it only addresses the use of the term 

‘‘money market’’ and related terms, not 

the names and terminology that the 

proposed amendments would.249 For 

example, a fund with the name 

‘‘Treasury money market fund’’ would 

suggest a money market fund that has an 

investment focus in Treasury securities 

or a fund with the name ‘‘Tax-free 

money market fund’’ would suggest a 

money market fund that is also a taxexempt fund. In both of these cases, 

such fund names can be misleading if 

they do not invest consistent with the 

investment focus or tax-exempt status 

suggested by the name even if they 

follow the requirements of rule 2a–7. 

F. Significant Alternatives 

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 

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 

proposed amendments would 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, would be required to comply 

with much of the proposal. Further, 

consistent with the current rule, the 

80% investment requirement of the 

proposed amendments would allow a 

fund to maintain up to 20% of its assets 

in other investments. A fund seeking 

maximum flexibility with respect to its 

investments would continue be free to 

use a name that does not require the 

fund to adopt an 80% investment 

policy. While such funds would still be 

subject to a requirement to make a 

particular record, we believe that such 

a record creates a minimal burden on 

funds and helps ensure that investors 

are receiving the benefits of the names 

rule where appropriate. 

We estimate that 84% of funds have 

investment policies specifying a 

minimum percentage of investments 

consistent with a certain investment 

focus and, of these, approximately 82% 

have an investment policy requiring at 

least 80% of fund investments be 

consistent with a certain investment 

focus.250 This estimate indicates that 

some funds, including some small 

funds, would not bear the costs of 

adopting a new 80% investment policy, 

though such funds would likely need to 

update existing policies to account for 

elements of the proposed amendments. 

However, for small funds that would be 

more significantly affected by the 

proposed amendments, providing an 

exemption for them could subject 

investors in small funds to a higher 

degree of risk than investors to large 

funds that would be required to comply 

with the proposed elements of the rule. 

We also do not believe that it would 

be appropriate to subject small funds to 

different reporting, recordkeeping, and 

other compliance requirements or 

frequency. Similar to the concerns 

discussed above, if the proposal 

included different requirements for 

small funds, it 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, the Commission and other 

market participants would have less 

transparency and insight with respect to 

those smaller funds’ 80% investment 

policies and related investments. 

We do not believe that clarifying, 

consolidating, or simplifying the 

compliance requirements under the 

proposal for small funds, beyond that 

already proposed 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 proposed 

amendments would only apply most of 

the rule’s requirements—and 

corresponding compliance burdens—to 

certain fund names which are required 

to adopt an 80% investment policy. 

The costs associated with the 

proposed amendments would vary 

depending on the fund’s particular 

circumstances, and thus the 

amendments could result in different 

burdens on funds’ resources. In 

particular, we expect that a fund that 

has a name that would be required to 

adopt an 80% investment policy under 

the proposed amendments would have 

higher costs than those that do not even 

though those funds that do not adopt an 

80% investment policy would be 

required to keep records of their 

analysis. Thus, to the extent a fund that 

is a small entity has a name that would 

not require the fund to adopt an 80% 

investment policy under the proposed 

amendments, we believe it would incur 

relatively low costs to comply with it. 

Further, some funds with names that 

would 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 would 

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 proposed 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 proposed amendments 

are designed to further our investor 

protection objectives. 

Finally, with respect to the use of 

performance rather than design 

standards, the proposed 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 proposal with respect 

to designing 80% investment policies is 


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appropriate because of the fact-specific 

nature of the investment focus of funds. 

G. Request for Comment 

The Commission requests comments 

regarding this analysis. We request 

comment on the number of small 

entities that would be subject to our 

proposal and whether our proposal 

would have any effects that have not 

been discussed. We request that 

commenters describe the nature of any 

effects on small entities subject to our 

proposal and provide empirical data to 

support the nature and extent of such 

effects. We also request comment on the 

estimated compliance burdens of our 

proposal and how they would affect 

small entities. 

VI. Consideration of Impact on the 

Economy 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’), the Commission 

must advise OMB whether a proposed 

regulation constitutes a ‘‘major’’ rule. 

Under SBREFA, a rule is considered 

‘‘major’’ where, if adopted, it results in 

or is likely to result in: 

• An annual effect on the economy of 

$100 million or more; 

• A major increase in costs or prices 

for consumers or individual industries; 

or 

• Significant adverse effects on 

competition, investment, or innovation. 

We request comment on whether our 

proposal would be a ‘‘major rule’’ for 

purposes of SBREFA. We solicit 

comment and empirical data on: 

• The potential effect on the U.S. 

economy on an annual basis; 

• Any potential increase in costs or 

prices for consumers or individual 

industries; and 

• Any potential effect on competition, 

investment, or innovation. 

Commenters are requested to provide 

empirical data and other factual support 

for their views to the extent possible. 

VII. Statutory Authority 

The Commission is proposing 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 proposing 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 of 1940 [15 U.S.C. 80a–8, 

80a–18, 80a–34, and 80a–37], sections 5, 

6, 7(a), 8, 10, and 19(a) 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 proposing 

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 

proposing 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 Proposed Rules and Rule and 

Form Amendments 

For the reasons set out in the 

preamble, title 17, chapter II of the Code 

of Federal Regulations is proposed to be 

amended as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The general authority citation for 

part 230 continues to read 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 Form on which the 

registrant is filing the post-effective 

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 Form. Any such 

suspension, so long as it is in effect, 

shall apply to any post-effective 

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 Form. 

* * * * * 

■ 3. Amend § 230.497 by revising 

paragraphs (c) and (e) to read as follows: 

§ 230.497 Filing of investment company 

prospectuses—number of copies. 

* * * * * 

(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. 

Investment companies filing on Forms 

N–1A, N–3, N–4, or N–6 must submit an 

Interactive Data File (as defined in 

§ 232.11 of this chapter) if required by 

the Form on which the registrant files 

its registration statement. 

* * * * * 

(e) 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), 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 


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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. Investment companies 

filing on Forms N–1A, N–3, N–4, or N– 

6 must submit an Interactive Data File 

(as defined in § 232.11 of this chapter) 

if required by the Form on which the 

registrant 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, 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 

(§§ 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 revising: 

■ a. The introductory text, paragraphs 

(a)(2), (a)(3) introductory text, (a)(3)(i) 

introductory text, (a)(3)(ii), and (a)(4); 

■ b. Paragraphs (b)(1) introductory text, 

(b)(2), and (b)(3)(iii); and 

■ c. Note 1 to § 232.405. 

The revisions 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), 

paragraph (101) of Part II—Information 

Not Required to be Delivered to Offerees 

or Purchasers of Form F–10 (§ 239.40 of 

this chapter), paragraph 101 of the 

Instructions as to Exhibits of Form 20– 

F (§ 249.220f of this chapter), paragraph 

B.(15) of the General Instructions to 

Form 40–F (§ 249.240f of this chapter), 

paragraph C.(6) of the General 

Instructions to Form 6–K (§ 249.306 of 

this chapter), 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) 

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 

(§ 232.11). 

(a) * * * 

(2) Be submitted only by an electronic 

filer either required or permitted to 

submit an Interactive Data File as 

specified by § 229.601(b)(101) of this 

chapter (Item 601(b)(101) of Regulation 

S–K), paragraph (101) of Part II— 

Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), 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), or General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter), 

as applicable; 

(3) Be submitted using Inline XBRL: 

(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)), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4), 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)), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4) 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, either Item 601(b)(101) of 

Regulation S–K (§ 229.601(b)(101) of 

this chapter), paragraph (101) of Part 

II—Information Not Required to be 

Delivered to Offerees or Purchasers of 

Form F–10 (§ 239.40 of this chapter), 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F (§ 249.220f of this 

chapter), paragraph B.(15) of the General 

Instructions to Form 40–F (§ 249.240f of 

this chapter), paragraph C.(6) of the 

General Instructions to Form 6–K 

(§ 249.306 of this chapter), General 

Instruction C.3.(g) of Form N–1A 


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(§§ 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); 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); or General 

Instruction C.4 of Form N–CSR 

(§§ 249.331 and 274.128 of this chapter). 

(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)), or a unit 

investment trust as defined in Section 

4(2) of the Investment Company Act of 

1940 (15 U.S.C. 80a–4), 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.), or a unit investment 

trust as defined in Section 4(2) of the 

Investment Company Act of 1940 (15 

U.S.C. 80a–4), 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: 

(i) Items 2, 3, 4, and 10(a)(4) of 

§§ 239.15A and 274.11A of this chapter 

(Form N–1A); 

(ii) Items 2, 4, 5, 11, 18 and 19 of 

§§ 239.17a and 274.11b of this chapter 

(Form N–3); 

(iii) Items 2, 4, 5, 10, and 17 of 

§§ 239.17b and 274.11c of this chapter 

(Form N–4); or 

(iv) Items 2, 4, 5, 10, 11, and 18 of 

§§ 239.17c and 274.11d of this chapter 

(Form N–6); or 

(v) Item 11 of § 274.12 of this chapter 

(Form N–8B–2), including to the extent 

required by § 239.16 of this chapter 

(Form S–6); as applicable. 

(3) * * * 

(iii) As applicable, all of the 

information provided in response to 

Items 3.1, 4.3, 8.2.b, 8.2.d, 8.3.a, 8.3.b, 

8.5.b, 8.5.c, 8.5.e, 10.1.a–d, 10.2.a–c, 

10.2.e, 10.3, and 10.5 of Form N–2 in 

any registration statement or posteffective amendment thereto filed on 

Form N–2; or any form of prospectus 

filed pursuant to § 230.424 of this 

chapter (Rule 424 under the Securities 

Act); or, if a Registrant is filing a 

registration statement pursuant to 

General Instruction A.2 of Form N–2, 

any filing on Form N–CSR, Form 10–K, 

Form 10–Q, or Form 8–K to the extent 

such information appears therein. 

* * * * * 

Note 1 to § 232.405: Section 

229.601(b)(101) of this chapter (Item 

601(b)(101) of Regulation S–K) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 239.11 of this 

chapter (Form S–1), § 239.13 of this chapter 

(Form S–3), § 239.25 of this chapter (Form S– 

4), § 239.18 of this chapter (Form S–11), 

§ 239.31 of this chapter (Form F–1), § 239.33 

of this chapter (Form F–3), § 239.34 of this 

chapter (Form F–4), § 249.310 of this chapter 

(Form 10–K), § 249.308a of this chapter 

(Form 10–Q), and § 249.308 of this chapter 

(Form 8–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) specifies the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to Form F–10. 

Paragraph 101 of the Instructions as to 

Exhibits of § 249.220f of this chapter (Form 

20–F) specifies the circumstances under 

which an Interactive Data File must be 

submitted and the circumstances under 

which it is permitted to be submitted, with 

respect to Form 20–F. Paragraph B.(15) of the 

General Instructions to § 249.240f of this 

chapter (Form 40–F) and Paragraph C.(6) of 

the General Instructions to § 249.306 of this 

chapter (Form 6–K) specify the 

circumstances under which an Interactive 

Data File must be submitted and the 

circumstances under which it is permitted to 

be submitted, with respect to § 249.240f of 

this chapter (Form 40–F) and § 249.306 of 

this chapter (Form 6–K). Section 

229.601(b)(101) (Item 601(b)(101) of 

Regulation S–K), paragraph (101) of Part II— 

Information not Required to be Delivered to 

Offerees or Purchasers of Form F–10, 

paragraph 101 of the Instructions as to 

Exhibits of Form 20–F, paragraph B.(15) of 

the General Instructions to Form 40–F, and 

paragraph C.(6) of the General Instructions to 

Form 6–K all prohibit submission of an 

Interactive Data File by an issuer that 

prepares its financial statements in 

accordance with 17 CFR 210.6–01 through 

210.6–10 (Article 6 of Regulation S–X). 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, 

and 80a–37; and sec. 107, Pub. L. 112–106, 

126 Stat. 312, unless otherwise noted. 

* * * * * 

■ 8. Amend Form S–6 (referenced in 

§§ 239.16) by adding General Instruction 

5 as follows: 

Note: The text of Form S–6 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

Form S–6 

* * * * * 

Instruction 5. Interactive Data 

(a) 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 

or post-effective amendment thereto on 

Form S–6 that includes or amends 

information provided in response to 

Item 11 of Form N–8B–2 (as provided 

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 


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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 rule 485 under the 

Securities Act [17 CFR 230.485(b)], 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) All interactive 

data must be submitted in accordance 

with the specifications in the EDGAR 

Filer Manual. 

* * * * * 

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 ESG 

factors), unless: 

(i) The fund has adopted a policy to 

invest, except under the circumstances 

provided in paragraph (b)(1) of this 

section, 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. 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, the fund’s policy is 

a fundamental policy; 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, except under the 

circumstances provided in paragraph 

(b)(1) of this section, at least 80% of the 

value of its assets in investments the 

income from which is exempt, as 

applicable, from federal income tax or 

from both federal and state income tax; 

or 

(B) To invest, except under the 

circumstances provided in paragraph 

(b)(1) of this section, 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) 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 in the 

circumstances described in paragraphs 

(b)(1)(i) through (iv) of this section, 

provided the fund brings its investments 

into compliance with paragraph (a)(2)(i) 

or (a)(3)(i) as soon as reasonably 

practicable: 

(i) 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, for no more than 30 

consecutive days; 

(ii) To address unusually large cash 

inflows or unusually large redemptions, 

for no more than 30 consecutive days; 

(iii) To take a position in cash and 

cash equivalents, or government 

securities as defined in section 2(a)(16) 

of the Act, to avoid losses in response 

to adverse market, economic, political, 

or other conditions, for no more than 30 

consecutive days; or 

(iv) 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 

investments suggested by the fund’s 

name. 

(3) A fund must maintain written 

records documenting either its 

compliance under paragraphs (a) and (b) 

of this section or, if the fund does not 

adopt a policy under paragraphs (a)(2)(i) 

and (a)(3)(i) of this section, a written 

record of the fund’s analysis that such 

a policy is not required under these 

paragraphs. Written records 

documenting the fund’s compliance 

under paragraphs (a) and (b) of this 

section include: the fund’s record of 

which investments are included in the 

fund’s 80% basket and the basis for 

including each such investment in the 

fund’s 80% basket; the value of the 

fund’s 80% basket, as a percentage of 

the value of the fund’s assets; the 

reasons, pursuant to paragraphs (b)(1) 


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and (2) of this section, for any 

departures from the policies described 

in paragraphs (a)(2)(i) and (a)(3)(i); the 

dates of any departures from the 

policies described in paragraphs (a)(2)(i) 

and (a)(3)(i); and any notice sent to the 

fund’s shareholders pursuant to 

paragraph (e) of this section. Written 

records documenting the fund’s 

compliance under paragraphs (a) and (b) 

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. The 

written record made by a fund that does 

not adopt a policy under paragraphs 

(a)(2)(i) and (a)(3)(i) must be maintained 

in an easily accessible place for a period 

of not less than six years following the 

fund’s last use of its name. 

(c) Effect of compliance with policy 

adopted under paragraph (a)(2)(i) or 

(a)(3)(i) of this section. 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 (3) of 

this section, as applicable. 

(d) Use of ESG terms in fund names. 

If a fund considers one or more ESG 

factors alongside other, non-ESG factors 

in its 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, 

the use of terms in the fund’s name 

indicating that the fund’s investment 

decisions incorporate one or more ESG 

factors is materially deceptive and 

misleading. 

(e) 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), 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. 

(f) Unit Investment Trusts. The 

requirements of paragraphs (a)(2)(i), 

(a)(3)(i), and (b)(3) of this section shall 

not apply to any unit investment trust 

(as defined in section 4(2) of the Act (15 

U.S.C. 80a–4(2)) that has made an initial 

deposit of securities prior to 

[EFFECTIVE DATE OF FINAL RULE] 

unless the unit investment trust has 

already adopted a policy under 

paragraph (a)(2) or (3) of this section or 

was required to adopt such a policy at 

the time of the initial deposit. 

(g) Definitions. For purposes of this 

section: 

(1) 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). 

(2) 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 reduce the value of its assets by 

excluding any cash and cash 

equivalents up to the notional amount 

of the derivatives instrument(s). 

(3) Derivatives instrument means any 

swap, security-based swap, futures 

contract, forward contract, option, any 

combination of the foregoing, or any 

similar instrument. 

(4) ESG means environmental, social, 

and/or governance. 

(5) Fund means a registered 

investment company or a business 

development company, including any 

separate series thereof. 

(6) 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. 

(7) Launch means a period, not to 

exceed 180 consecutive days, starting 

from the date the fund commences 

operations. 

PART 274—FORMS PRESCRIBED 

UNDER THE INVESTMENT COMPANY 

ACT OF 1940 

■ 11. The general 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 

Item 4 to read as follows: 

Note: The text of Form N–1A does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

* * * * * 

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 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. 

* * * * * 

■ 13. Amend Form N–2 (referenced in 

§§ 239.14 and 274.11a–1) by revising 

Item 8 to read as follows: 

Note: The text of Form N–2 does not, and 

these amendments will not, appear in the 

Code of Federal Regulations. 

Form N–2 

* * * * * 


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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. 

* * * * * 

■ 14. Amend Form N–8B–2 (referenced 

in § 274.12) by adding new General 

Instruction 2.(l) and by revising Item 11 

to read as follows: 

Note: The text of Form N–8B–2 does not, 

and these amendments will not, appear in 

the Code of Federal Regulations. 

Form N–8B–2 

* * * * * 

GENERAL INSTRUCTIONS FOR 

FORM N–8B–2 

* * * * * 

2. Preparation and Filing of 

Registration Statement 

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. 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 

11. Describe briefly the kind or type 

of securities comprising the unit of 

specified securities in which security 

holders have an interest. (If the unit 

consists of a single security issued by an 

investment company, name such 

investment company and furnish a 

description of the type of securities 

comprising the portfolio of such 

investment company.) (Note: Do not 

furnish a list of portfolio securities in 

answer to this item. Describe portfolio 

securities as ‘‘bonds of railroad 

companies,’’ ‘‘preferred stock of public 

utility holding companies,’’ ‘‘common 

stock of industrial companies,’’ etc., 

indicating the approximate proportion 

of each group in terms of value as of a 

recent date.) If the trust owns or will 

own any securities of its regular brokers 

or dealers as defined in rule 10b–l under 

the Act [17 CFR 270. 10b–1], or their 

parents, identify those brokers or 

dealers and state the value of the 

registrant’s aggregate holdings of the 

securities of each subject issuer as of the 

close of the registrant’s most recent 

fiscal year. 

Instruction: 

(1). The registrant need only disclose 

information 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. 

* * * * * 

■ 15. Amend Form N–PORT (referenced 

in § 274.150) by revising parts B and C 

to read as follows: 

Note: The text of Form N–PORT does not, 

and these amendments will not, appear in 

the Code of Federal Regulations. 

* * * * * 

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)–(3)], 

provide the following: 

a. 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; and 

b. If applicable, the number of days 

that the value of the Fund’s 80% basket, 

as defined in rule 35d–1(g)(1), fell below 

80% of the value of the Fund’s assets 

during the reporting period (or, if the 

Fund has adopted a policy as described 

in rule 35d–1(a)(3)(i)(B), the number of 

days that less than 80% of the income 

that the Fund distributed was exempt, 

as applicable, from federal income tax 

or from both federal and state income 

tax). 

Instruction: Because in accordance 

with rule 35d–1(b)(3) the Fund must use 

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) for purposes of 

determining the fund’s compliance with 

an investment policy adopted under 

rule 35d–1(a)(2)(i), the percentages that 

the Fund reports in response to Item 

B.9.a and assesses for purposes of 

reporting in response to Item B.9.b 

similarly must reflect the use of notional 

amounts with certain adjustments as set 

forth above. 

* * * * * 

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), 

(3)(i)], is the investment included in the 

Fund’s 80% basket, as defined in rule 

35d–1(g), as applicable? [Y/N] 

* * * * * 

By the Commission. 

Dated: May 25, 2022. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2022–11742 Filed 6–16–22; 8:45 am] 

BILLING CODE 8011–01–P 


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